Commentary > Game Over
Nintendo goes to war?
With sales flagging, GameCube maker may lead the industry in price cuts -- sooner than expected.
August 5, 2003: 2:49 PM EDT

NEW YORK (CNN/Money) - Nintendo has never been known as a particularly aggressive company when it comes to pricing. Sure, it follows suit when its competitors lower prices, but traditionally it hasn't been one to start a fight.

The times could be a changin'.

Disastrous GameCube sales in the company's first fiscal quarter, combined with the threat of losing retail shelf space, could prompt the company to knock $50 off the $149 console earlier than anyone expects.

"Nintendo historically hasn't cut prices until there was enough volume to break even on the price cut," said P.J. McNealy, an analyst with American Technology Research. "They may have to change that philosophical position to stay competitive."

A decision could come as early as Thursday, when Nintendo president Satoru Iwata will discuss the company's business strategy at a news conference. A sudden shift in pricing would be surprising, but would certainly turn heads in Nintendo's direction -- something the company could definitely use.

Even if no cut is announced this week, you can bet on one coming very soon, say analysts.

While Nintendo sold 3.24 million Game Boy Advance units, GameCube sales were abysmal.  
While Nintendo sold 3.24 million Game Boy Advance units, GameCube sales were abysmal.

"We're expecting the GameCube price to drop to $99 sometime in September," said Mike Wallace of UBS Warburg. "We're also expecting the Xbox and PlayStation 2 to fall to $149 by the end of September."

Most industry eyes are on Sony when it comes to price cuts -- and that's logical enough, given the company's gargantuan sales lead over Microsoft (MSFT: Research, Estimates) and Nintendo. Heck, Sony (SNE: Research, Estimates) itself said last month that its games division saw across-the-board declines last quarter, with nearly 2 million fewer PS2s sold. That alone would suggest Sony is giving some hard thought to price reductions.

Here's the wildcard, though. Nintendo, in May, admitted it had fallen short in this console cycle and needed to become more competitive in the market. Its follow-up to that comment at E3 (the industry's annual trade show) wasn't too spectacular, though. In fact, it was run of the mill -- a few mid-level franchise extensions, some third party games and a prototype of a revamped Pac Man game -- which the company hasn't mentioned since, incidentally.

Want to see competitive? Watch Nintendo start a price war.

"At E3 we saw Nintendo take baby steps in that [competitive] direction," said McNealy. "The price cut would be a big adult step."

"If Sony doesn't [cut prices] by September, I think Nintendo will," agreed Wallace.

It's going to need to if it hopes to hit its sales goal of 6 million units this fiscal year. Worldwide, only 80,000 GameCubes were sold between April and June. The company has suspended production on the machines until this fall, hoping to clear out the backlog of inventory.

Click Mario Morris for previous columns

Nintendo's previous attempts to spark sales -- including bundling free games and hardware with the console -- have run their course. Retailers are starting to pressure the company to lower prices or face the risk of reduced shelf space, which would further dampen sales.

Meanwhile, third-party software publishers have made it clear in recent conference calls that they, too, would very much like to see hardware prices on all consoles come down soon.

"In the event there's no price cut or there's no promotional equivalent by the holiday season, then we will have to revisit our hardware projections," said Activision (ATVI: Research, Estimates) president Ron Doornink.

Perhaps most importantly, consumers have made it clear that they're not willing to pay $199, $179 or, in Nintendo's case, $149 for two- and three-year old technology.

Traditionally no publisher cuts prices until after Labor Day, since August sales are slow anyway. Nintendo, though, could reinvigorate the market and put it ahead a curve with a surprise announcement this week. Maybe more importantly, it could start to reestablish its reputation as a company willing to take risks.  Top of page

Morris is Director of Content Development at CNN/Money. Click here to send him an e-mail.

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