Given its footprint, Sony should have had an easy time convincing its customer base to upgrade, but as the latest generation of consoles has launched, Sony has lost its control over the market, after trying to force users to buy a Blu-Ray drive, along with the console. The inclusion of the drive has resulted in high prices, product delays, and limited supply during the launch. Even after Sony has agreed to sell the console at a loss, it still has not been able to get the device down to an acceptable price level for consumers.
As the latest generation of consoles has been hitting the market, Sony’s PS3 sales reflect some pretty troubling numbers. It may have recently celebrated its 1 millionth sale in Japan, but overall it has actually performed pretty miserably. According to the latest data from the NPD group, Sony sold a pitiful 98,500 PS3 consoles for the month of June.
Sony is quick to point out that these figures represent a 21% increase over its May sales, but even with the gain, if it continues at this pace, it will take it 83 years to hit 100 million console sales. If Sony was hoping to sell 100 million consoles over the next 5 and a half years, it would need to increase its sales from 98,000 units a month to 1.625 million.
Now to be fair, Sony’s latest price cut on the PS3 has improved sales. The company reports that it has seen a jump of 135% since lowering the price by $100. The problem is, though, that the price cut is really only temporary and perhaps even worse, it may have prompted Microsoft (MSFT) to consider slashing $50 off of the price of its own consoles.
With the Wii taking half of the market and Sony and Microsoft fighting for the rest, Nintendo (NTDOY.PK) has put itself in an enviable position in the console wars. It has not only been able to draw in non-core gamers without sacrificing profits, but it has also been able to convince consumers that the Wii can compliment an existing console system. With its innovative game play and its low price margins, it has been able to turn single platform households into dual console living rooms.
The addition of the Wii as a 2nd option creates big problems for Microsoft and Sony, because it eats into the profit centers of the video game industry. Because so much of the money on gaming is made on the software, having another competitor in the living room can have a significant impact on the profit margins for that customer. Nintendo’s ability to not only capture market share, but to also siphon off video game sales from the incumbents, will change the dynamics of the third stage in this battle.
Given Sony’s prices, it’s a lot harder for it to convince a Wii family to compliment its console by adding on a PS3 system. While the graphics are much nicer than what the Wii offers, the extra entertainment benefit isn’t worth the additional cost attached to its super computer.
When Sony could control the video game market, it was able to negotiate gaming exclusives, but now it’s Nintendo that has the pipeline of exclusive titles. There will be those who argue that less price sensitive customers would buy a PS3 over a Wii in a heartbeat, but if you look at the most recent Nielsen’s survey, high end households are actually more likely to choose Nintendo over the PS3.
If Sony is failing to sell its Blu-Ray infested video game console to the least price sensitive customers, it doesn’t make me very optimistic that price cuts will be a very good long term solution for competing against the Wii and the Xbox. While there is still plenty of time for Sony to retake its lead in this latest incarnation of the console wars, I believe that its missteps at the starting blocks have all but assured that it’ll never be able to outsell its PS2 console.