Sorting Out Sony’s Gamescom Announcements
Aug 18th, 2009 by worldblee

Kudos to Sony. It took them long enough, but they finally dropped price to $299 and came out with a smaller, more power-efficient console, the long-rumored PS3 Slim. Because Sony is focused on profitability at a time when the corporation is losing money, they first got their manufacturing costs down before making the move publishers, analysts, and customers alike were waiting for.

The $299 Sony PS3 Slim: Late to the party, but not unwelcome

The $299 Sony PS3 Slim: Late to the party, but not unwelcome

Sony made other good moves at Gamescom, coming up short on only one major item: failing to provide PS2 backward compatibility via software in its latest firmware update. The family that’s still using its PS2 doesn’t want to throw out its huge library of games, but nor do they want to have two consoles to try to plug into their TV or receiver. Sure, they could shift the PS2 to the kids’ room, but in today’s economy people want to see maximum value for their purchase. Sony can argue (and rationally so) that the Blu-ray capability of the PS3 makes the system a great value. And it’s true. But when trying to convince late adopters to pick up a PS3, letting them know they can play all their PS2 games (which every person tempted to buy a PS3 will have) on their new system is a good argument.

Back to the other Sony moves. The PSPgo app store with iPhone-like pricing and size is a good move, although a copycat one. But better copying someone else’s strategy than sticking with the UMD forever. I like it for small developers because for what should be a manageable port (fingers crossed on that one) they can expand the size of their potential market while putting their games on a device that’s actually made for gaming (with real buttons and a D-Pad). Of course, I imagine the crossover between iPhone owners and PSP owners is fairly substantial but the market will be increased nonetheless. For anyone to be able to stay in business making quality games the median price will have to rise above $2, but that’s another discussion.

With Sony’s film offerings for Europe, PSN cards that kids can buy at shops without a credit card, and a €299 (£249 in the UK) console price, Sony has put the pieces in place to strengthen their hand in Europe, where the PS2 brand is strong. I can see Sony being the #2 console in Europe this console cycle.

What I can’t see is the company overtaking the PlayStation 360 in the US. Microsoft has a big lead, their audience skews younger than Sony’s, and they have a strong games lineup and good online services for their paying customers. If MS offered everyone Gold services for free, it would be game over. They could still make money with upcharges for things like Netflix, although the revenue would be far less than they’re making from Gold. But as long as they continue to hold steady on sales I don’t see them changing…

The Battle for Number Two

Unless Nintendo stumbles horribly they’ll remain #1 worldwide. Microsoft will be a strong #2 in the US and Sony may become #2 in Europe. Sony has the PSP market to flank Microsoft with, but MS may eventually get a viable HH platform themselves. Zune HD? I don’t know; we’ll see.

Sony should see a sales lift from their price cuts but it won’t catapult them into the lead unless they have exclusive games that are so absolutely killer that anyone who loves games can’t live without them. If their video offerings become so compelling that you can service all your entertainment needs with a single device, then they could also take the lead in new consoles sold (not total consoles sold; new consoles sold from here on out).

But with the lack of purchasing power of US households it’s a hard time to be hawking $300 machines. The great recession is not going anywhere; over $13 trillion of household wealth has vanished in the US the past couple years and it’s not returning soon. The so-called ‘green shoots’ lauded in the mainstream press are a figment of Fed policy that has pumped a tremendous amount of money back into the financial sector. Having no place to go, it got pushed into stocks. But it didn’t go into consumer pockets and a consumer-driven economy needs low unemployment and higher wages to thrive. Unfortunately, neither of those will arrive in the near future.

However, for a company willing to invest, a down economy offers the opportunity to grow a brand. The New Yorker had an interesting article in April about the success Kellogg had in outspending Post to take a huge chunk of their market share during the Great Depression. When other business cut ad spending, Kellogg increased theirs and boosted profit by 30%, and they kept their increased market share after the depression was over.

Does a similar possibility await Sony or another console maker this cycle? I would argue that Nintendo has already done just that. They came out with the cheapest console, made it fun, and advertised the heck of out it. The battle from here on out is about maximizing the remaining sales in the market And for this, the $299 price helps, but it’s not yet low enough to move millions of consoles in a down economy. Not when you still have to pay $60 for a AAA game.

But a PS3 for $299 with God of War and some other extras? That would be a step in the right direction.

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