Market Analysts Predict Sales Challenge for PS3

The biggest variable that could affect sales of Sony‘s PS3 may not be the technology it incorporates – from BluRay to the Cell to 1080p – or the lineup of games, game developers, and gamers just itching to get a crack at the system, at launch or otherwise.

To quote a former US President’s campaign slogan (and according to Wikipedia, rather imprecisely), it’s the economy.

Market analysts are generally bearish regarding the potential sales in the long-term for the PS3, given economists predicting dampening consumer confidence due to a rash of terror attacks, increasing oil prices, and declining disposable household income playing off against the PS3’s US$500/600 pricing scheme.

Sony itself forecasts sales of two million units for the first month-and-a-half post-launch, and an additional six through 2007. The analysts surveyed by a TG Daily article agree that the first number is attainable, but remain uncertain about the second.

The biggest variable that could affect sales of Sony‘s PS3 may not be the technology it incorporates – from BluRay to the Cell to 1080p – or the lineup of games, game developers, and gamers just itching to get a crack at the system, at launch or otherwise.

To quote a former US President’s campaign slogan (and according to Wikipedia, rather imprecisely), it’s the economy.

Market analysts are generally bearish regarding the potential sales in the long-term for the PS3, given economists predicting dampening consumer confidence due to a rash of terror attacks, increasing oil prices, and declining disposable household income playing off against the PS3’s US$500/600 pricing scheme.

Sony itself forecasts sales of two million units for the first month-and-a-half post-launch, and an additional six through 2007. The analysts surveyed by a TG Daily article agree that the first number is attainable, but remain uncertain about the second.

(This opinion piece tends to be on the ironic side, given that we’ve reported that a Boston research firm predicts Sony will capture the market for next-gen consoles by 2011. On the other hand, they also said that the total sales for the three  – PS3, XBox 360, and Wii –  will be less than the sixth-gen consoles (PS2, XBox, Gamecube) due to high prices. And – worrisome for the PS3 – they also mention that Microsoft is well-placed to cut 360 prices in spring 2007.)

There is no argument from the analysts that hardcore gamers and longtime PlayStation fans will be snapping up the first PS3 run as they arrive on shelves. After all, given that Sony had earlier announced prices, they’ve had the time to save up for it. But that’s the hardcore market, only ten percent of the total market for consoles, say the analysts.

It’s the other market, the one less driven by technological shock and awe and more sensitive to the pocketbook, that will decide whether the console will fly off the shelves. The mass market. And their decisions – and the future of Sony’s market share in the console industry – will depend on a number of factors, primarily price drop and the future of BluRay in the wider entertainment industry.

We’d normally not worry about price drop too much – after so much experience with game consoles across manufacturers and generations, it tends to be a historical inevitability. It’s the BluRay adoption that could be worrisome. Sony’s betting that the PS3 will drive greater interest in BluRay, not just in games but for the greater entertainment industry as well. They had recently released BluRay recordables to the market to emphasize the point.

One analyst, Michael Cai (Parks Associates) sees the cart pulling the horse there. It will be BluRay’s fate in the home entertainment market that will decide the future of PS3 sales, he argues (PS3 being the cheapest BluRay player out there notwithstanding). Another analyst, Chris Crotty (iSuppli) sees differently, though: BluRay vs. HD-DVD wouldn’t matter too much, not with online content delivery to deal with, and besides, both these technologies as well as online delivery will probably take five years to mature – just in time, he notes, for the PS#@%!18
19#@%!. Which leaves the PS3 some breathing room. Besides, Sony’s arguing that with the growth and maturing of the HDTV market, there’ll be enough interest in high-def players – and thus the PS3 – anyway.

Maybe all this economic talk and number-crunching has the same effect on us as those mandatory economic classes in college: put us to sleep. But there is a bottom line to worry about: should we worry? As said before, hardcore gamers/Sony fans will gladly pay for the PS3, even if it means paying through the nose, no matter what the Knights Who Say Nay – professional economic analyst or otherwise – say. (Remember all the critics of Star Wars Ep. I?) Speaking for himself, this writer wants his chance at the PS3, as well as the other next-generation consoles and a multicore PC gaming rig, though his disposable income will be a problem.

But it’s those who can’t afford to pay through the nose that will face the challenge. We eagerly await the inevitable price drop, but that drop and by how much are still dependent on continuing market interest in the PS3 to justify increased production runs to cut or spread costs for both the console and the games that come out for it. In economic terms that’s called “economies of scale.” And that variable will be affected by a lot of factors from both the specific game industry and the wider entertainment industry, such as wider BluRay adoption (which makes the format and the players cheaper), or whether Sony may shift to making the “home entertainment” capability an optional add-on (which allows the company to delete some components – and thus costs – from the PS3 package). Economics, even for games, is both democratic and Darwinian. A Wall Street Journal article says it all: “Sony needs more than hardcore gamers” to pick up the PS3.

Let’s spice up the comments a little bit. Here’s the challenge to you gamers: what do you think manufacturers can do to cut costs on their next-gen consoles – not only the PS3, but also the 360 and the Wii? How fast do you think the price drop will occur for each system? And, especially for us budget-conscious gamers, how can we make it go faster? Do your research, fiddle about those economics books collecting dust somewhere, and let’s keep these comments constructive. Who knows? Maybe one of you might come up with The Idea, and maybe some industry rep will look it up and actually try it.