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Sony’s Next Move

The PlayStation 3 is in trouble.

According to the January NPD sales numbers, sales of the PS3 fell nearly 25% compared to last year’s January numbers.  The system’s only game to crack the top 30 in software sales was Call of Duty: World at War, moving a tepid 108,000 copies.  To add insult to injury for Sony, the profitable PlayStation 2 and PlayStation Portable were also both down compared to last January.  In comparison, both Microsoft and Nintendo managed to not only completely dominate the software sales chart, but also saw large year over year increases in hardware numbers.

In summary, the expensive-to-manufacture $399 PS3 (which is $200 more than the cheapest competitor yet still most certainly losing money) is languishing in both hardware and software sales during a global depression while the only hardware SKUs actually making a profit for Sony are also suffering.

It isn’t looking good for Sony right now.  The kneejerk reaction to this situation would be to slash the price of the PS3 immediately and hope to regain worldwide marketshare.  This is the popular opinion amongst the armchair executives in enthusiast gaming circles.  It’s also a bad idea.In order for a price drop to make any sort of sales impact, it would have to be at least $100.  At $299, it would be competing directly with Microsoft’s Xbox 360’s midrange SKU and would be only $50 more than Nintendo’s Wii.  This would most likely cause sales to rise.  However, the PS3 is currently either selling at a loss or breaking even at the $399 price point.  Assuming the console is currently breaking even, a $100 price drop along with a modest sales increase of 50,000 units would result in Sony losing five million dollars in one month while likely still failing to outsell the competition.  If the price cut is more effective, they’ll lose even more money in a time where Sony cannot afford to.  At the same time, with each passing month the PS3 is becoming less and less relevant  to consumers and less attractive to developers.

Instead of being so aggressive with the PS3’s price, Sony would be better off including more value at the current price point while leveraging their successful (and profitable) previous-gen console.  Here are some of my suggestions for Sony:

  • Drop the PS2’s price immediately: The PS2 has been $129 for years, and likely has massive profit margins.  With the catostrophic drop in sales year over year, it seems everyone who wants the console at that price already has one.  Drop the price to $79 for the base system and offer a Grand Theft Auto trilogy bundle for $99.
  • Add value to the $399 PS3:  Stop being stingy with your luxury console.  There’s no excuse for the PS3 not to include some sort of high definition cable in the box.  Throw in two free full PS3-exclusive games and a voucher for a PSN download.  Maybe add a remote, extra controller, or headset.  Do anything to make your console not look both expensive and barebones.  Market the PS3 as a complete gaming experience straight out of the box, with no other purchases needed, to play great games in HD.
  • Stop wasting time and energy with money grabs:  Things like Qore and Home seem like little more than an attempt to wring some more cash out of your dedicated fanbase.  Trying to get people to pay you money for advertisements or virtual futons may provide some revenues in the short term, in the long term it generates negative feelings for the PlayStation brand.  It also turns off the enthusiasts who are more likely to generate word of mouth buzz for your product.  Invest those efforts into providing something of value to consumers.
  • Go to one PS3 SKU:  The average consumer doesn’t care about the larger hard drive in the premium $499 bundle, and the consumers that do care can upgrade the hard drive themselves for significantly less money than the $100 premium.  Go to one SKU and stop confusing consumers.
  • Encourage a return to the $49.99 game price point:  Start releasing all first party titles at $50 instead of $60 while pressuring third party publishers to do the same.   In addition to being a good marketing angle, cheaper games would also help the abysmal software sales that plague the system.   In a similar note, be more aggressive with the long term pricing.  Why is Heavenly Sword and Lair still retailing for $60?
  • Don’t blow your wad too early:  Once it becomes financially responsible to do so, a price cut should be at the top of the agenda for Sony.  However, it’s important to be patient and time the cut to maximize effectiveness.  Two $50 cuts throughout the year  probably won’t make a big splash, but one $100 dollar cut in October or November with a big exclusive behind it (say, God of War 3) could achieve huge sales while preventing the competition from reacting before the height of the holiday shopping season.

Sony needs to make some tough decisions right now.  But no matter what, Sony has “lost” this generation.  Both the Wii and the 360 have a huge lead over the PS3, and the global economic crisis is certainly not helping things either.  Sony needs to start looking towards the future and start making money off the PS3 as soon as possible and not concern itself with regaining any significant amount of marketshare in the short term.

We’ll see what happens.

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