Price Cut Pushes PS3 Over the Top in September

It's an overnight success story that's been almost three years in the making: For the first time since its launch, Sony's (NYSE: SNE) PlayStation 3 outsold rival gaming console makers in September, thanks to a price cut that brought the PS3 more in line with Microsoft's (Nasdaq: MSFT) and Nintendo's offerings.

The PS3 sold nearly 492,000 units in the month, compared to 462,800 Nintendo Wiis and 352,600 Xbox 360s, according to video game market analyst NPD. Consumers who may have laughed at the US$599 price tag when the PS3 was introduced in January 2007 may have suddenly found themselves grinning at the prospect of buying a cheaper gaming console that doubles as a Blu-ray DVD player.

Price slashes last month also brought the 360 and Wii down to $199. That, along with new much-anticipated titles like "Halo ODST" and "The Beatles: Rock Band," helped the entire gaming industry recover slightly from its 2009 recessionary slump. Combined hardware, software and accessory sales topped $1.28 billion, a 1 percent jump over the same period last year.

"The industry managed a modest increase over September 2008 and generated the second bestselling September on record after 2007, when 'Halo 3' released and sold over 3 million copies that month," NPD analyst Anita Frazier said. "On a unit sales basis, the industry was flat. The increase in revenues is driven by a rise in average retail prices in all categories, with the exception of console hardware, in which the average retail price decreased 8 percent from last September."

Momentum for Sony and the Industry

The challenge for Sony will be to keep the mojo from its PS3 price cut going into the crucial holiday buying period, Frazier emphasized. That challenge, in what may be a surprise to some industry watchers, comes from Microsoft and not previous console market leader Nintendo. "Across all categories, the Xbox 360 platform contributed the most to industry unit and dollar sales, as sales of 360 hardware, software and accessories comprised 32 percent of the month's revenues," Frazier said.

Yet Sony may reap the most rewards as the industry and consumers finally see some light at the end of the year after struggling under a sour economy's shadow for all of 2009. "Sony will absolutely maintain its healthy momentum going into Christmas," Michael Cai, an analyst at Interpret, told the E-Commerce Times. "The $299 price point is accentuating PS3's value compared to Xbox 360, Wii and standalone Blu-ray DVD players. The industry as a whole is benefiting tremendously from the hardware price cut, and some of the pent-up demand built during the past year in anticipation of the price cut will materialize in the next couple of months. The industry has hit the bottom."

Sony's game publishers may see a trickle-down effect as well, according to Mark DeLoura, a gaming industry technology consultant. "I'm optimistic we'll see a bump in the software sales as well," DeLoura told the E-Commerce Times. "There's a huge catalog of great games that have come out in the last three years that (consumers) haven't been able to play. Publishers should see a bump because they've been having a lot of economic pain in the last year too."

The Developer's Point of View

The strength of Sony's brand around the world and the onboard Blu-ray player should keep the PS3 in consumer's sights as the holidays roll around, said Corey Dangel, a former Sony Online Entertainment game designer. "The big differentiator is the Playstation Network for free online multiplayer action," Dangel told the E-Commerce Times. "With Xbox (Live) you pay extra, on the PlayStation it's free. A lot of the games are taking advantage of this."

Both the PS3 and Xbox 360 have their own quirks and technical challenges for developers working on those platforms, said Dangel, who now develops games for social networks and smartphones as cofounder of Detonator Games. "However, when you take advantage of the PS3's multiple Cell processors, you do have an awful lot of processing power. The familiarity of the 360 is its advantage -- you're essentially developing on a Windows-like interface. It's easier to find programmers familiar with that than on PlayStation, but games are starting to take advantage of that (PS3) power."

However, what will those developers -- along with the rest of the industry -- face when the last present of a "Beatles" game/guitar accessory bundle is unwrapped in December? The industry is in turmoil, and not just because of the recession, according to DeLoura.

"We have added challenges -- massive increases in the number of free-to-play games via Facebook, 99-cent games on the iPhone, the competition for leisure time that keeps increasing in the game space. That's got to be a huge concern if you're a game publisher," he said. "How are they going to make money and cross-leverage on all these platforms? It's super challenging and only going to get more and more challenging."