Commentary > Game Over
How close is the PlayStation 3?
As price drops loom, gaming industry eyes the next generation.
March 18, 2003: 12:32 PM EST

NEW YORK (CNN/Money) - The buzz last week was short-lived, but nearly deafening.

Reports spread out of Taiwan that Sony was planning to stun the world and release the PlayStation 3 this year. At least one major wire service took the bait and ran the story, forcing Sony to issue a quick and firm denial.

Even the most optimistic sources don't expect to see the next "next generation" consoles until late 2004 and that's almost certainly a fantasy. More and more, it appears that the PlayStation 3, Xbox 2 (or, as some are calling it, the "Ybox") and next Nintendo game machine won't see the light of day until 2006.

The consensus among game publishers is we're still a long way from seeing new consoles. Six months ago, the guess was 2005, but lately that estimate has been slipping forward.

The success of the PlayStation 2 could delay its follow-up.

"You hear a lot of noise about when the next generation of consoles will be coming," Fred Gysi, CFO of THQ (THQI: Research, Estimates) told analysts at the Lehman Bros. Global Software and IT Services Conference last week. "It's our view right now that we believe that the next generation of consoles will probably be in 2006. ... We just don't see a compelling reason why Sony will be rushing into the market with the PlayStation3."

There's a lot of sense in that. The current generation of gaming machines is experiencing an unprecedented level of success. Need proof? Look no further than the price tag.

When the original PlayStation was released, it sold like gangbusters. Nineteen months after it hit shelves, though, Sony (SNE: Research, Estimates) had lowered the price to $149. We're now 29 months into the launch of PlayStation 2 and it's holding firm at $199. A price cut is widely expected in May, but publishers and analysts are starting to reign in expectations for that as well.

$179 is being batted around as a potential new price point, rather than the $149 everyone was so certain about last year. Gysi said THQ expects the average selling price of the PS2 to drop just 15 percent this year. And Activision (ATVI: Research, Estimates) CEO Bobby Kotick on March 4 even suggested that Sony might not lower PS2 prices at all. For all the cushioning, though, $149 is still a relatively safe bet. Sony's sales would definitely suffer if it opted for smaller cuts than Microsoft (MSFT: Research, Estimates) and Nintendo, which are both desperately fighting for market share.

Xbox 2  
Will the "Ybox" do more than play games?

Meanwhile, console manufacturers are still learning what consumers want from components such as online gaming. Feedback to current methods, as well as Microsoft's success in retaining subscribers, will influence the next generation.

"I think [the next generation] happens later rather than sooner meaning 2005 or 2006," said Jeff Brown, vice president of corporate communications for Electronic Arts (ERTS: Research, Estimates). "I think there are a lot of incentives to play this cycle out. Sony's winning, but the others aren't losing so bad that they need to do something radical. Everybody's making money and they're learning a lot."

A pushed back launch date from Sony wouldn't necessarily mean delays from Microsoft and Nintendo, but it makes them more likely. Like it or not, Sony is the big dog in the gaming industry and to put a new machine in front of the next PlayStation is a maneuver fraught with risk. Just as Sega, which saw its widely praised Dreamcast get steam-rolled as soon as the PlayStation 2 was announced, and subsequently exited the gaming hardware business.

While Microsoft has publicly stated several times it would like to beat the PS3 to retail, that might be little more than bluster.

The GameCube's poor sales aren't keeping Nintendo from making a next generation machine.

"There's always a question I get: 'Will Microsoft try to beat Sony to the punch?'," said Gysi. "Quite frankly, we hear conflicting things. Microsoft told us a few months ago that they would probably not try and beat Sony and [would] launch, more or less, at the same time as the PlayStation 3."

Given what Sony has said publicly about the PS3, a little wariness might be prudent. Research efforts for the next generation are focusing on "cell microprocessor" technology fancy terminology for a machine that will have dozens of processors working in tandem on a single chip. If it lives up to the hype, the PS3 will be 1,000 times more powerful than the PS2, offer cinematic-quality games and will offer video recording similar to a TiVo device. (It's worth noting, though, that Sony has a history of overhyping its machines. The PS2, among other things, was supposed to let gamers import their faces onto character models in games, according to early talk.)

Microsoft will certainly try to match this technology, though Nintendo will likely focus strictly on games, as it did with the GameCube.

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Technological leaps like these take time to implement, though. So does programming games that take advantage of those leaps. The longer we go without any formal announcement of technical specifications from Sony, Microsoft or Nintendo, the better the chances that the next "next generation" will be pushed back to 2006.

If nothing's said at E3, the industry's annual trade show in May, 2006 becomes a much safer, if not certain, bet, say analysts.  Top of page

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

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