As the console wars rage on, armchair quarterbacks and company executives alike continue their foolhardy attempts to predict the outcome. But what about the real prognosticators? Michael Pachter, Colin Sebastian, and Jesse Divnich are industry analysts with a proven track record, and though we’re not sure if they’ll appreciate how closely we positioned their names, we think you’ll find their opinions worthwhile — especially that of Mr. Sebastian, whom we interviewed earlier today.
After April’s lackluster hardware sales were revealed in this month’s NPD report, the gaming public was left wondering why the massive launch of Grand Theft Auto IV had seemingly failed to move any hardware — each console sold approximately 70,000 fewer units than the month before. One notion was that with only five days of sales counted, GTA IV hadn’t had time to make an impact on the April numbers. But another, obviously popular view was that the consoles were still too expensive. The question is, are price cuts in order?
Yesterday, Michael Pachter of Wedbush Morgan Securities prognosticated a slow sales demise if console prices didn’t start dropping, and so he expects both the PS3 and Xbox 360 will cut prices $50 this holiday season. Kotaku reports:
Speaking at the Electronic Gaming Summit this afternoon, Pachter said that he expects an overall slowdown in video game sales over the next three years.
Pachter expects the industry to see 19 percent growth in the U.S. and 20 percent in Europe this year, with his predicted price drop this holiday. Next year, Pachter expects growth to dip to 16 and 18 percent, unless the consoles drop another $100, which would add another five percent to growth. In 2010 growth will slow to 10 percent and seven percent, unless consoles drop in price by $150, Pachter said.
By the year 2011 Pachter predicts that the industry will flatline unless a new console is introduced.
EEDAR’s Jesse Divnich disagrees. Over at Gamasutra, he explains that looking at growth year over year, console sales have grown significantly; and at this point it would be detrimental to lower the price of either:
if the PS3 or the Xbox 360 drop in price, they would no longer make a profit on each system sold and would solely rest on the increase in royalty revenue from extra software sold.
And then there’s Lazard Capital Markets’ Colin Sebastian. While he ostensibly agreed with Pachter on May 1st, expecting “to seriously consider lowering hardware prices,” he changed his mind about Sony the day before the NPD results arrived:
“During its earnings call, Sony management indicated the company is now more focused on achieving profitability in the PlayStation segment and rolling out online services (e.g., PlayStation Home) rather than chasing unit market share vs. Microsoft and Nintendo,” Sebastian wrote in an investor note.
“Importantly, management comments also suggest that a price cut is less likely on the PS3 this year, at least in the near term.”
But now that April hardware sales have slumped, will Sony reconsider? Today, GameCyte asked Sebastian for an updated opinion on the state of Sony’s flagship, and received a big-picture answer that was more complex, but ultimately also more rewarding than a simple yes or no.
Though the Lazard analyst was just as surprised as his rivals that April’s 2+ million copies of Grand Theft Auto weren’t accompanied by more consoles as they made the trip back to consumer homes, he pointed out that we don’t know what hardware sales would have been like without GTA, and that April is cyclically “a pretty weak month” to begin with. Sebastian explained that March, with the Easter holiday and Spring Break opportunities, has more students out of school, and generates more foot traffic than April — so the drops were to be expected in part. Though he believes that “hardware trends in May will be more interesting,” he discounted the NPD’s five-day theory, saying that if GTA was to have boosted hardware sales, he would have expected to see consumers buying PS3 and Xbox 360 hardware at around the same time as the game.
As far as price cuts are concerned, Sebastian didn’t have a definite answer for us. On the one hand, he stood by his opinion of May 14th, reminding us that Sony has publicly announced that they’re no longer as concerned with market share, and mirroring Divnich above in explaining that the profitability of the PS3 depends on the cost of hardware. “Ultimately,” said Sebastian, “I think Sony is showing discipline in terms of pricing and hardware costs.” But on the other, he doesn’t rule out price cuts altogether: “There are always price cuts,” he said, “and there’s no reason this cycle will be much different.”
Later in our conversation, I brought up how Pachter’s comments (above) indicate that the PS3 won’t complete its planned 10-year cycle without a hardware refresh of some sort. Sebastian disagreed — in his opinion, the PS3 lacks nothing in terms of technology:
It’s pricing, gameplay, lack of a compelling online strategy; all of which they can do with their existing hardware.
But after discussing how Sony has begun to improve returns on the PS3 by lowering the price of components, Sebastian floated the idea that we might see the same hardware in a smaller package. Sebastian says that Sony was able to save money on the PS2 when they shrunk the system — and so in accordance with their new corporate strategy, instead of price cuts, it’s perhaps more likely we’ll see the PS3 slim down sometime in the near future.
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