— After weeks of rampant speculation, wild rumors and unconfirmed sightings, as well as the leaking of grainy photos and shaky video footage, Sony has finally revealed the truth: Bigfoot does, in fact, exist.
Sorry. What I meant to say is that Sony today revealed that the PlayStation 3 Slim exists. And consumers will be able to buy the new game console — a PS3 that comes with a thinner, lighter shape and a 120-gigabyte hard drive — for $299, which is a whopping $100 less than the PS3 has been previously priced at.
During a press conference in advance of the GamesCom video-game convention in Cologne, Germany, Sony executives announced that the PlayStation 3 Slim will be available starting Sept. 1 and that the company will also drop the price of the current 80 gigabyte PlayStation 3 to $299 — effective immediately. Meanwhile, its 160-gigabyte model will drop from $499 to $399. (Both the 160- and 80-gigabyte models will be discontinued once they sell out.)
The price drop comes as good news to video-game enthusiasts who have criticized the high price tag hanging on Sony’s powerful game machine ever since its launch in 2006. But is Sony’s move too little too late? The new machine and price cut come as Sony finds the PS3 in third place behind its competitors — Microsoft’s Xbox 360 and Nintendo’s Wii — and also as game sales overall plummet.
Games analyst Michael Pachter of Wedbush Morgan Securities said that, in one sense, it is too little too late, in that Sony has lost and will likely never get back the millions of gamers who bought Microsoft’s less-expensive-but-still-powerful Xbox 360.
But he says it’s hardly too late in the big picture. Instead, Sony’s price cut means the three-way console competition is back on — and is about to get very interesting.
“Sony is making it a horse race again,” he said.
How is it that Sony — creator of the phenomenally successful PlayStation 2 — found itself running in last place in the first place?
“I think they relied on their market leadership from last cycle and thought they could ride that in this cycle,” Pachter said. “I think they thought everybody who had a PS2 — which was 70 percent of the install base last cycle — was going to buy a PS3 this cycle regardless of price. And I think they’ve been kind of rudely surprised.”
By way of example, as sales of gaming systems tumbled 37 percent in July, the Wii sold 252,500 units, the Xbox 360 sold 202,900 units and the PS3 sold only 121,800 units, according to Market researcher NPD Group.
Gamers have been critical of the PS3’s high price and have been calling for a significant price drop since the machine launched in November 2006 for $499 and $599, depending on the model. And consumers weren’t the only ones complaining. In June, Bobby Kotick, CEO of publishing giant Activision, called on Sony to drop the price of the PS3 or risk losing them.
“If we are being realistic, we might have to stop supporting Sony,” he told the London Times.
Pachter pointed out that, yes, the PS3 is a muscular gaming machine that comes with a Blu-ray player and Wi-Fi connectivity built-in.
But the problem is, “We console owners have never paid more than $300 for a console before this cycle, and 90 percent of us never paid more than $200 for a console before this cycle,” he said. “So, we’ve been conditioned that $199 is what you pay for a box. And all of a sudden you had Sony asking you to pay three times that. And 2 1/2 years and counting after launch and they were still at double the price point most people have in their heads as the right price.”
So why the price drop and why now?
“We track purchase intent very closely and we know that consumers have been interested in buying a PS3 for some time,” Peter Dille, Sony senior VP of marketing, said after the Cologne press event. “A lot of people have been waiting for the price to come down. We understand that. That’s why this new unit has been configured and conceived.”
Good for gamers, good for the biz
But this isn’t just a price move, he said, it’s the introduction of a new hardware unit that has been reduced significantly in size. PS3 Slim is 32 percent lighter, 36 percent smaller and consumes about 34 percent less power. And it’s this new form factor that allows Sony to manufacture the PS3 at a lower cost and then pass the savings on to consumers.
“We’ve been talking about the value of the PS3 at $399 but now at $299 we feel like that value takes on an entirely different dimension,” Dille said. “I think this is a game changing moment for the industry.”
And Pachter agreed. He said the PlayStation 3 Slim means Sony doesn’t have to spend as much money making the PS3 and is thus probably no longer losing money on the hardware.
“That allows them to subsidize better content, get more exclusives and expand their online offering, which has to be losing them money right now, as well as expand the variety of content they offer online,” he said. “And I think it positions them to actually penetrate a lot more deeply because they are priced within $50 of the Wii and they’re priced at the same price as the Xbox 360.”
And when you compare the PS3 hardware to the Xbox 360 and Wii — especially with the close pricing — the PS3 with its Blu-ray player and Wi-Fi looks very appealing.
“On a pure hardware basis, Sony would win,” Pachter said.
Sony's competition is certainly expected to respond. Rumors and leaked photos have led many to expect that Microsoft will announce tomorrow at GamesCom that it is discontinuing the Xbox 360 Pro with a 60-gigabyte hard drive and will be dropping the price of its Xbox 360 Elite with a 120-gigabyte hard drive from $399 to $299.
And Microsoft might cut even further to $249, Pachter believes.
“Microsoft will wait until September and October and see how things are going and more than likely they’ll probably wait through Christmas. But at the earliest they’ll cut in November and only if Sony starts outselling them 2-to-1 or something like that,” he said.
As for Nintendo, Pachter said he expects them to change their bundling — perhaps sell the Wii with the new “Wii Sports Resort” and the Wii MotionPlus — and even drop the price of the $249 Wii to $199 perhaps by the end of the year but certainly by February.
“I think Nintendo has got to do something and that makes it really interesting,” he said.
No matter which console comes out on top in the coming months, it’s the consumers who are going to be the big winners.
“You’ll get more choices at lower prices,” Pachter said. “They’re turning it into a competition again and I think that’s great. It’s healthy for consumers. It’s health for the industry.”