Editorial: In Search Of Price Drops, The Console Oasis

July 25, 2007

Another E3 has come and gone, and gamers everywhere have another super-sized helping of news and impressions to digest. But with all the Wii Fit surprises and Halo 3 impressions, there was a little something missing this year. And I’m not talking about the booth babes. There wasn’t a true price drop announced. This isn’t just a crushing blow to cheapskates. Price drops are a natural part of a console’s life cycle, and something that helps convince those on the fence, tempted by the latest big names, to finally take the plunge.

Typically, price drops usually start once the newest entrant in the latest generation has been out a year. E3 2002 brought a cascade of cuts for all three systems. But this year, for whatever reason, the big three decided to sit things out. This could very well be the longest a generation has lasted without any consoles pulling the trigger. What gives? What are the executives thinking? While it’s easy to come up with all kinds of knee-jerk reactions to the non-news, there’s quite a bit of logic behind the decision. The effectiveness of their logic is another question entirely. Let’s take it system by system.


Technically, Sony did announce a price drop – the 60GB model went from $600 to $500. At first, this seemed like a step in the right direction. The high price singlehandedly transformed the PlayStation brand from a raging 900-lb. gorilla to a slightly grumpy chimp. And while $500 is still on the steep side, it was a step in the right direction. Monthly sales of the console have dropped off so much that the move could only help.

Then, Sony announced a new model that removes the backwards compatibility chip, ups the hard drive to 80GB and throws in a copy of Motorstorm. Oh, and bumps the price up to $600. If gamers weren’t too impressed with the $600 model as it was, would the inclusion of an old game and a 33 percent increase in memory really get people excited? This seemed like a strange move, but at least one model got cheaper.

At least, for a day or so. Shortly after the new arrangements were announced, Kaz Hirai, president and CEO of Sony’s gaming segment, said the 60 GB model is no longer being produced. Once current supplies are gone, that’s all she wrote for that model. The $600 model will be the only choice.

What the?! Why the hell would Sony embrace $600? Since that price point has become market poison, shouldn’t the company run away from it as fast as humanly possible?

Strange as it sounds, the plan probably sounded like sweet music to harried Sony execs. According to research house iSupply, launch PS3 consoles sold for a loss of well over $200, much higher than any other launch console. That caused the company as a whole to lose over $500 million in their last quarter – more than erasing profits from its other divisions. So, since hardware costs drop over time, hard drive memory is dirt-cheap and the removal of hardware-based backwards compatibility saves some dough, the 80GB model almost assuredly loses much less money. Plus the new, more expensive Elite 360 model sold pretty well for Microsoft. Good plan, right?

Aside from the tiny detail that customers hate the $600 price. And the Elite added much more value (HDMI and a 500 percent hard drive increase) than the 80GB PS3 does. And since two different PS3 models (including the near-mythical 20GB model) have sold for $500 already, the inevitable drop of the 80GB model to that level will generate almost zero excitement.

Sure, Sony will get some sales from its E3 moves, but likely not nearly enough to regain ground lost to the 360 and Wii. It may even annoy and confuse customers who are used to one game system model with steady price drops on the market at one time. What a king whopper of a bad move.


If Sony’s issue is one of amount, Microsoft’s is one of time. Simply put, we’re closing in on two years without a price drop for the 360. And that’s a record. Everyone blinked at E3 2002. Pretty much every console ever released shaved at least a few bucks off the price tag by the 1.5 year mark, but not the elder statesman of this generation.

So why is the system being so stubborn? See above. The PS3’s pricing, at least for the “permanent” model, puts it $120-$300 above the 360. Sure, the 60GB’s fire sale shaves $100 off that, but that’s only temporary.

That’s only part of the picture. There’s also the legacy of the original Xbox. Think back to when it first came out – Microsoft decided to make a name for its system by giving it the most advanced tech possible for the time, with a reasonable price to boot. It worked, and the system came in a respectable second for its generation. But it came at a price. The company lost literally billions of dollars getting it off the ground. True, Microsoft made tons of money with that little thing called Windows, but officials always said the Xbox’s successor would use the ground laid by the original to make a profit.

The 360’s original pricing was a bit aggressive. Games, accessories, and even the system went for higher than gamers had ever seen before. And, with no effective competition, the 360 can sell, sell, sell and rake in the bucks, especially now that manufacturing costs have dropped.

Or can it? Sales of the 360 haven’t been bad, but they haven’t exactly been stellar, either. So far, it’s only matched what the Xbox did during the same time period, and the original system was still the unproven newbie. Microsoft now has a good reputation, with great games down the pipe. With the PS3 hobbled, the 360 should be cleaning up with the wide-open market. Unfortunately, $400 is a bit too high for a massive segment of the market too, and the cheaper core system is widely seen as crippled. To really grow, Microsoft’s going to have to reach out to more casual players who want to play Halo 3 online but don’t want to shell out $300 to do it.

Will Microsoft make that move? The year’s still young, but things could go either way. Microsoft could well hope to coast through on the strength of its very strong holiday lineup. Or the company could decide to take the financial hit and push Sony even further behind, locking in future profits.


Well, this one’s easy. The Wii isn’t just selling well, it’s still completely sold out nearly everywhere, eight months after release. No other console has come close to pulling that off, and even Nintendo seemed surprised by its runaway success. A few months ago, the company apologized for the limited supplies and agreed to increase Wii production. Still, the more that get pumped out, the more that get snapped up.

If this keeps up, there’s absolutely no reason for the company to cut the price. Sales could slow, but with the system’s continued popularity and big guns like Super Mario Galaxy and Super Smash Bros. Brawl coming later this year, that’s not likely to happen.

The last two years of gaming have surprised nearly everyone, so the crystal ball is especially hazy. Predictions on price drops are a complete crapshoot at this point. Still, there’s a very real possibility that picking up a console will stay an expensive move for quite some time.