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ShareSAN FRANCISCO — Pressure is growing on makers of video-game consoles to reduce their prices before the upcoming holiday season, with sales still struggling across the industry.
Analysts are widely expecting some movement on that front this week, as the industry converges for a large conference in Europe. Sony Corp. (SNE) is holding a press conference on Tuesday, when many analysts expect the Japanese electronics giant to cut the price of its PlayStation 3, which remains the most expensive of the next-generation gaming consoles with a base price of $400.
Microsoft Corp. (MSFT) has scheduled a press briefing for the following day, though it is unclear if the software giant is contemplating a price reduction for its Xbox 360, which already sits below $200 for its basic unit.
Nintendo (NTDOY) has not scheduled an event at the conference, according to a company spokeswoman. Nintendo has maintained the price of its popular Wii console at $250 since its market launch in late 2006, but sales of the once-popular device have slowed considerably this year, leading many to predict that the company will need to reduce the price to meet its year-end sales targets.
Video-game analyst Heath Terry of FBR Capital Markets said this week “marks the first of a series of catalysts that should drive a return to growth” for the industry.
“With Sony set to announce a $100 price cut on the PS3 on Tuesday at Gamescom in Germany according to our retail checks, we believe the other hardware manufacturers will respond with a combination of price reductions and bundling strategies that should drive significant acceleration in hardware sales,” Terry wrote to clients Friday.
After racking up a record performance in 2008, sales in the video-game industry have been on a downward trend for most of this year.
In July, total industry sales for hardware and software in the United States were down 29 percent from the same month the previous year, according to data from the NPD Group. Year-to-date sales totaled $8.16 billion by the end of July compared with $9.49 billion for the same period last year.
The slowdown in sales is blamed in part on the economic recession, and also on the fact that the industry faces tough comparisons with last spring and summer, when several of the year’s top titles were released.
Analysts largely have trimmed their growth targets, and are now expecting this year to be relatively flat compared with last. But given the weakness over the summer, the industry will have to make it up with a strong holiday performance to get to that level.
“The industry is in need of more aggressive hardware pricing, better software titles and an improving consumer, all of which we think is possible over next 12 months,” Bank of America analyst Justin Post wrote in a report last week.
Still, he said that “July sales results will continue to raise concerns on strength of the industry into the holidays.”
The sales slump has hurt the performance of third-party publishers such as Electronic Arts Inc. (ERTS), Activision Blizzard Inc. (ATVI), THQ Inc. (THQI), Take-Two Interactive Software Inc. (TTWO) and Ubisoft Entertainment (UBI).
It also has delivered a blow to game retailer GameStop Corp. (GME), which reports its next quarterly results on Thursday. For its part, online-retail giant Amazon.com Inc. (AMZN) disclosed in its most recent quarterly report that its performance was negatively affected by a slowdown in video-game sales.
Strong lineup
That said, many expect this year’s holiday lineup to be strong. Activision’s “Call of Duty: Modern Warfare 2” is expected to be the year’s best-seller, while the company also has titles like “Tony Hawk: Ride” and “DJ Hero” that have gotten strong buzz.
EA has the much anticipated “Beatles: Rock Band” coming out next month, as well as its strong stable of sports titles. Ubisoft has the much-anticipated sequel to “Assassins’ Creed.”
Sony is being closely watch this year, with exclusive titles like “Uncharted 2” and the massive multiplayer title “MAG” coming out this year, exclusive to the PS3.
But analysts say the console prices have to get lower to spur mass adoption by consumers. FBR’s Terry said that console prices have risen about 80 percent on average over previous console cycles.
“Last cycle, the size of the install base more than doubled once hardware prices dropped below $200,” he wrote. “With the Wii at $250, the basic PS3 at $400 and most popular version of the Xbox still at $300, there is substantial pricing leverage for hardware manufacturers.”
