News[In this opinion piece, DFC Intelligence analyst David Cole argues it's the PlayStation 3's time to lead, now that the console finally has its long-awaited price cut and its software lineup puts it in the pole position.] On September 1, 2009, we finally got it: a new PlayStation 3 priced at $299 (€299, £249, ¥29980). Of course, the impact was immediate with PlayStation 3 September sales for the first time beating both the Wii and Xbox 360 in the U.S. However, the big question is now that the price has come down to earth, can the PlayStation 3 live up to its true potential in both the holiday 2009 season and going into 2010? Since its launch in 2006, the PlayStation 3 had been a big, intimidating piece of equipment with a price tag to match. At a launch price of $600, the PlayStation 3 was simply out of the price range of all but the most dedicated video game player. Now at a slimmed down $300, the PlayStation 3 is priced to appeal to the masses. This could be the time for the system to shine. When Sony announced at the May 2006 E3 that the PlayStation 3 would launch at a price of $599, DFC intelligence was extremely negative on the prospects for the system. In a June 2006 DFC brief entitled "Could Sony Go From First to Worst," we stated the following: "Of course, the big problem with the PlayStation 3 is price, and in theory that can be easily solved by simply lowering the price. There is always that core group of consumers that will rush out to buy a new PlayStation system no matter what the price. So it would make sense for Sony to gain as much revenue as possible from those consumers before lowering the price. The vast majority of consumers will not be in the market for a new system until holiday 2007 or later. Our concern is that 1) Sony’s hands may be tied in regard to price cuts and 2) Sony drastically underestimated the competition. The price of the PlayStation 3 does not exist in a vacuum and consumers will clearly look at the competitive alternatives. Right now both the Xbox 360 and Nintendo Wii are looking like much better alternatives than they did a year ago. Core PlayStation franchises like Grand Theft Auto, Final Fantasy, Dragon Quest and others are starting to appear on other systems. In short, we have seen absolutely nothing that would justify a $200 price difference." Clearly our analysis held true. While Sony’s strategy was to crush Microsoft, and ignore what it considered to be an out-of-the-race Nintendo, consumers had other ideas. The lowest-priced system, the Nintendo Wii, far outsold the others. In North America, the PlayStation 3 was soundly outsold by the Xbox 360. Even in Europe, a market normally dominated by Sony, the Xbox 360 slightly outsold the PlayStation 3. The past few years, Sony’s very existence in the game business seemed to be in peril. However, DFC has also argued that the video game console market is a marathon, not a sprint. Keeping a game platform around for the long term is an ongoing and difficult task. The main danger Sony faced was that the Xbox 360 would become embedded as the system of choice. Instead consumers flocked to the Nintendo Wii. The Xbox 360 had solid sales, but they have not been enough to give Microsoft anywhere near a breakout market position. In many respects, Sony was saved by the success of the Wii. In May 2008, DFC forecasted the PlayStation 3 would become the number one system for software revenue in 2012. Our assumption was based on a price drop for the system to $300 in the fall of 2009 (at the time we also forecasted the Wii price drop to $200 in late 2009). However, the primary reason for our forecast was that sales of the Xbox 360 had not been strong enough. Throughout 2007, Microsoft had trumpeted the second half 2007 software releases as "The Greatest Holiday Lineup in Video Game History." Indeed, the Xbox 360 had an extremely impressive software library, plus a major price advantage over the PlayStation 3. With these advantages, the Xbox 360 had the chance to take a commanding lead over the PlayStation 3. In a July 2007, industry brief entitled "Second Half of 2007: Time for the Xbox 360 to Shine" DFC Intelligence wrote: "The pressure is on Microsoft to really drive sales of the Xbox 360 this holiday season. If Halo 3 and other products fail to drive Xbox 360 sales, the system will soon flirt with numerous unsavory scenarios, the worst of which is the danger of becoming a distant third in the video game market share battle." Unfortunately for Microsoft, the needed sales lift didn’t happen. Sales were solid, but not commanding. Now the playing field has been more than leveled. The Xbox 360 is the most expensive system and it looks like it is the PlayStation 3’s turn for the spotlight. In our May 2008 brief we concluded: "The sales performance of the PlayStation 3 has been less than stellar, but Sony has survived. The Xbox 360 was unable to take advantage of Sony’s struggles to build the type of large lead needed to maintain a long-term advantage. The PS3 survived the onslaught of AAA Xbox 360 titles that hit the market from late 2006 through 2007. Halo 3 had great sales, but it did very little to enhance the Xbox 360’s overall position in the marketplace. The Xbox 360 is the system of choice for fans of high-action first-person shooter (FPS) games. However, for the 80%-plus of game consumers that DO NOT play FPS games, the Xbox 360 is not the system of choice." With a clear price/value proposition, now is finally the time to truly introduce the PlayStation 3 to the masses. The initial PlayStation 3 audience tended to be part of the techno elite and was heavily skewed toward high income males in their late 20s. The new slimmed down PlayStation 3 at a price of $300 is now a true family friendly device and SCEA is making a concerted effort to target right into this more diverse audience. At $300, the PlayStation 3 really stands out favorably as both a game machine and a Blu-ray movie player. This holiday season Blu-ray movies are finally getting a major focus at retail and SCEA intends to clearly highlight the Blu-ray functionality of the PlayStation 3. DFC Intelligence has always argued that systems will sell primarily on games and the price/value proposition a system provides relative to the competition. With a strong lineup of software and a $300 price point, Blu-ray clearly now becomes a strong selling point for the PlayStation 3. Furthermore, there is also a deal with Netflix that highlights an important value difference between the PS3 and the Xbox 360. The Xbox 360 requires a premium annual fee to access the Gold membership (which has all the good stuff including Netflix). Online play on the PlayStation 3 is free. Obviously, the PlayStation 3 is still primarily all about games. The other big ace up Sony’s sleeve is that the price drop coincides with what is finally a strong first party lineup of PlayStation 3 software. Of course, major third-party releases are an important driver of consumer purchases. However, most major third-party releases coming out for the PlayStation 3 are also being launched for the Xbox 360 and in many cases the Wii. This means that first-party software is largely what helps distinguish one system from another. Over the past three years, Sony’s first party lineup has trailed behind Microsoft’s and Nintendo’s. Products like Halo 3 and Gears of War were a major driver of Xbox 360 sales. Meanwhile, Wii sales were almost entirely driven by Nintendo’s lineup of first-party exclusives. For holiday 2009, both Microsoft and Nintendo have first-party titles that primarily target the converted. These are extensions to established franchises like Halo, Wii Fit and Super Mario. There is really nothing new for these systems that would attract users that have not already purchased the system. In contrast, Sony has some relatively new franchises that are either 1) not very familiar to non-PlayStation 3 owners or 2) upgrades to existing PlayStation 2 franchises. In the former category is LittleBigPlanet and Uncharted 2. These two products are stellar new franchises that have not gained their full acceptance due to the limited installed base of the PlayStation 3. With new releases in these series for fall 2009, they should get a fresh look from consumers. In terms of established Sony franchises for the PlayStation 2, there is a new Ratchet & Clank title and the first PlayStation 3 appearance of God of War. These were extremely popular franchises for PlayStation 2 owners and their appearance on the PlayStation 3 should drive a significant portion of the audience to upgrade now that the price is in a reasonable range. Like several other major first-party titles, God of War III will not release until early 2010. In the first quarter of 2010, Heavy Rain and MAG combine to provide Sony with a strong lineup by early next year. The question is will consumers this holiday season pay attention to upcoming products? Our bet would be that God of War fans will clearly be aware of the new version but many could wait until March to buy a PlayStation 3. It is a shame that Sony couldn’t get these major products out for the holiday, but better late than never. DFC’s analysis of the position of the PlayStation 3 going into holiday 2009 and 2010 is similar to what we felt about the Xbox 360 going into holiday 2007. The cards are in Sony’s favor and now is the time to make the most of them. The next year will be extremely important for PlayStation 3 sales and Sony’s overall position in the marketplace. Now is the time for Sony to shine... or else. This article was reprinted with the permission of DFC Intelligence.
Analysis: Is It Time For The PlayStation 3 To Shine?
In this opinion piece, DFC Intelligence analyst David Cole argues it's the PlayStation 3's time to lead, with the long-awaited price cut in place and its software lineup putting it in the pole position.