Are Wii Experiencing A PS3 360?

by MaxPower

There once was a time when you knew what the console gaming universe was supposed to look like � Sony with its PS2 was the champion, Microsoft’s Xbox was an upstart that when you get down to it started too late and never caught up and the Nintendo GameCube was an also-ran. For the past 5 years that has been the way of the world.

Excite Truck (Wii)

In a shocking display about how fickle the gaming industry can be, the tides have seemingly shifted in favour of both Microsoft and Nintendo. The Xbox 360 is out over a year before competing next generation systems from Nintendo and Sony, which was likely the cause of Sony’s dominance with its PS2 system. And Nintendo’s innovative Wii looks to be the darkhorse with its crazy motion detecting “non controller” controller and discount price point. Sony on the other hand is creating a goliath of a machine which has all the latest technology (a “cell” microprocessor – http://en.wikipedia.org/wiki/Cell_microprocessor, and Blu-Ray next-gen DVD capabilities to name a couple) and has experienced the delays inherent when trying to roll out a new system loaded with all the bells and whistles.

Grand Turismo HD (PS3)

Whether the new Wii will be successful or whether the Xbox 360 with its reliance on online gaming will dethrone the PS3 and Sony for the title belt in the console gaming universe will likely come down to one thing � price point. In this epic battle which could cost both Sony and Microsoft hundreds of millions of dollars, picking a price point is a crucial exercise. Does one pick a high price point and hope to make up in margin what you sacrifice in volume and then get the cache with being the most expensive toy on the block or do you slap a discount price on a product and hope to roll out as many units as possible, increasing turnover as a method to increase your return on equity?

Dead Rising (Xbox 360)

Beyond the specs of the machines (impressive), the stories about the next generation features (also impressive) or the fact that the video game industry is finally coming into its own with legions of now grown-up gamers (starting to get old), the price point of the new machines is sometimes forgotten in the sea of hype. The bottom line with the console gaming business model is that the manufacturers want to get as many units out onto the market as possible to create both a network effect (essentially what happens when one console is dominant � it creates pressure to adopt) and enhances returns by establishing a high margin revenue stream through the sale of gaming titles. This strategy has been used by razor blade and printer manufacturers to success. For example, I recently bought the next-gen Fusion 5-blade razor for about 15 bucks. You get the razor and 2 blades, however once you go back to buy a 4 pack of razor blades it is going to cost you almost 15 bucks again. The razor blades are a high margin product so the company can take a loss on the sale of the actual razor to “hook you” into buying the high margin blades. When the Xbox 360 came out, BusinessWeek among others had stories about how the Xbox 360 console was being sold below cost in order to speed adoption of the system. Sony will likely also follow this model which has proven effective for consoles in the past, however this time Microsoft will have a considerable head start on Sony’s PS3, with estimates in the range of 7 � 10 million units being shipped before the PS3 even debuts (as of now – November 17, 2006 in North America). Will Sony be able to make up that head-start in console sales? Well a lot of it depends on the PS3’s price point. Sony has been pretty conceited (and defensive) around the expected PS3 price (US$599, C$659, A$999, �425) with a “if we build it, they will buy it” mentality. Check out this quote from Ken Kutaragi (President/CEO of Sony Computer Entertainment):

“Is it not nonsense to compare the charge for dinner at the company cafeteria with dinner at a fine restaurant? It’s a question of what you can do with that game machine. If you can have an amazing experience, we believe price is not a problem.”

Resistance: Fall of Man (PS3)

Now luxury items have a place in the market. If they didn’t there wouldn’t be Ferraris or Prada or Gucci. However, it is very hard to establish the type of brand value to be seen as a luxury good. Is that what Sony wants to do � sell only a few units at a very high margin? I doubt it, because as I noted above the most successful method of selling consoles has been the “razor blade model”. Now granted, gamers are adults now with more disposable income and are going to be more willing to pony up big bucks for a system (I paid over C$600 for my Xbox 360 system plus one game) and undoubtedly the PS3 will have other features � Blu-Ray for example. Sony has defended its price point on the PS3 by saying the intro price of a Blu-Ray DVD player will be over $1000 bucks. Well that’s great but I’m not buying a gaming platform so I can watch Blu-Ray DVDs, so honestly the value I put onto that feature is minimal and I’m sure a lot of buyers would side with me on that one. Additionally � Sony has upped the ante by also saying that games will cost between US$59 and US$99 and that “it is a stretch” (but obviously not impossible) to see them over US$100 – I mentioned this in R4NT’s blog. Sony’s seeming ambivalence around its price point is either a huge mistake or a stroke of genius in that gamers will pay up for both the PS3 system and its follow-on games. I have racked by brain trying to come up with an analogy to this situation (a company expressly ignoring price as a consideration in rolling out a new product) and I am honestly having a tough time. Sony’s conceit is amazing and it will be interesting to see how it plays out.

Remote Functions (Wii)

Now as a closer � where does Nintendo’s Wii fit into this clash of the titans? Well the little ol’ Wii has taken a lot of flack for its name, its unconventional nature and its aim at the “lower” end of the next gen gaming market. Well the Wii was likely the winner of the E3 extravaganza earlier in 2006 what with its quirky style, family oriented gaming lineup and bargain (comparatively) pricing. The Wii looks like it will (just) beat the PS3 to the shelves, likely appearing in early November. But more importantly is Nintendo’s price point. Nintendo has yet to announce an actual price but Yoshihiro Miro has stated the Wii will sell for no more than US$250 (less than half the price of the PS3!) and Satoru Iwata said “I cannot imagine any first party title could be priced for more than US$50.” Nintendo’s mantra has been that there is no reason to expect this next generation of console games will be able to sell at a new price point and I think he is right. When I think back to buying a Super Nintendo game they were more or less in the same (inflation adjusted) price point as games are currently. Sony looks to break that trend, Nintendo aims to capture it. The fundamental question is if you could purchase any next generation gaming system would you purchase an Xbox 360, a Nintendo Wii or a Sony PS3? However, with the pricing structures as I have described you will be able to basically buy an Xbox 360 AND a Nintendo Wii for the same price as a PS3. Xbox 360 + Wii for the win.

MaxPower