Commentary > Game Over
Coming soon: Video game price cuts
How soon? How much? And what about the next generation?
December 15, 2002: 8:25 AM EST

NEW YORK (CNN/Money) - Still wavering over whether to buy that new PlayStation? If you're reaching the limits of your holiday budget (or, like me, have long since blown past it), it might be worth your while to wait.

Yeah, those rumored December price cuts for the Xbox, PlayStation 2 and GameCube proved false. (Big surprise.) But that doesn't mean prices aren't coming down. The question is: When and how much?

Microsoft (MSFT: Research, Estimates), Sony (SNE: Research, Estimates) and Nintendo, naturally, aren't saying. CEOs of major game publishing companies dropped a few hints, though, at UBS Warburg's 30th Annual Media Week Conference.

The consensus seems to be that we can expect another round of cuts before mid-year, most likely right around the same time as the Electronic Entertainment Expo, the gaming industry's annual trade show. Most execs are predicting another $50 reduction, taking the Xbox and PS2 to $149 and the GameCube to $99. While unlikely, they acknowledge it's not inconceivable that PS2 and Xbox prices could fall to $99 (and, by default, the GameCube would slip to $50).

Either way, the cuts are going to have a ripple effect on the gaming world.

Most significantly, another price reduction will spur fence-sitters to rush out and buy a console. Larry Probst, chairman and CEO of Electronic Arts (ERTS: Research, Estimates), said he expects total sales of the PS2, Xbox and GameCube to total 15 million or so this year. In 2003, he predicts another 16-18 million machines will be sold.

That vastly expanded customer base will need games to play, which should spur sales of existing titles. The mass of casual gamers the lower price point will attract, though, are typically hesitant to shell out $50 for a game. That means retail price cuts for software.

"If hardware prices come down, as we suspect, in May, that may put some pressure on coming down from [the current] $49 price point," said Brian Farrell, president and CEO of THQ (THQI: Research, Estimates).

That's not surprising. Prices have held at $49.95 longer than usual in this generation of video game machines. While next year's top selling games, such as the next "Grand Theft Auto", might still run you $49, you'll probably be paying $10 less for games that appeal to mass audiences, such as sports titles. Older but still relatively popular games could even fall as low as $19.99, speculates Nancy Smith, executive vice president and general manager at EA. Items priced that low tend to be purchased on impulse and expose audiences to different genres.

One of the looming questions in the gaming world is when the next "next generation" of gaming machines will make their bow. Some camps believe it will be 2005. Others think new machines won't hit the street until 2006. While optimistic gamers (though no analysts or CEOs) think it could be as early as next year.

Gaming companies say they're already preparing for the machines, though, and say they're very excited about what they've seen.

"We're [currently] at the point where when you look at the screen, you see what would have been pre-rendered five years ago," said Bobby Kotick, chairman and CEO of Activision (ATVI: Research, Estimates). "With the next generation of hardware, you will get to see animations and characters on screen that rival today's pre-rendered graphics."

THQ's Farrell said the company is already preparing for the next console cycle.

"Obviously, we do not have development systems or target platform yet, but we do have some pretty concrete ideas on what that next generation will look like," he said. "And [we're] developing tools and technologies to be out in front of that next cycle."

Another part of the question is which companies will be participating in the next round of console wars. Rumblings from Nintendo's headquarters earlier this year indicated that the company might not put out another traditional gaming console due to disappointing sales of the GameCube. The company has remained fairly quiet about this since then.

"I suspect there are probably some discussions going on in Japan about what their hardware strategy is going forward," said EA's Probst. "They may decide to continue in the category and they may decide to restrict their activities to the handheld market. Don't know. Hard to predict."

You could be seeing a new GameBoy Advance sooner, rather than later, though.

Click Lara for past columns

Activision's Kotick said Nintendo was accelerating its thinking about the handheld's next generation as a result of Nokia's recent announcement of the N-Gage, a cellular phone that doubles as a handheld gaming machine. THQ's Farrell added Nintendo might release a backlit GameBoy Advance, which users have been clamoring for since the machine's release.

Financially, this might sound like a pretty rosy future, but analysts aren't so optimistic. UBS Warburg downgraded several video game stocks on Dec. 9, Morgan Keegan followed suit a day later and Goldman Sachs downgraded even more publishers on Dec. 13, citing concerns about slowing industry growth.

From a consumer standpoint, though, you've still got a tough decision to make. Is the money you'll pocket by waiting worth the disappointed face you'll see on Christmas morning?  Top of page

Morris is Director of Content Development for CNN/Money. Click here to send him an email.

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