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TechNewsWorld.com

PS3 Breaks Out of Funk With Sales Spike

By Walaika Haskins
Jul 24, 2007 2:51 PM PT

Sony Computer Entertainment America (SCEA) executives finally have something to celebrate. Newly released sales data show the company's beleaguered PlayStation 3 (PS3) gaming platform saw a significant jump in sales for the month of June.

PS3 Breaks Out of Funk With Sales Spike

Sony was not the only winner last month, according to tracking firm NPD Group. NPD reported an overall video game market increase of 31 percent over the same period last year in the U.S. As it has consistently done in recent months, Nintendo led the pack in unit sales with its Wii console and DS portable player.

The news wasn't as cheerful for Microsoft. It reported a nearly US$2 billion loss for its Entertainment and Devices Division, under which the Xbox line falls.

'Impressive Arsenal'

Sony gave the bulk of the credit for the bump up in sales to the $100 price cut for its 60 GB PS3 console, announced two weeks ago.

"The new price on the 60 GB PS3, coupled with our very strong software showing from E3, is certainly paying dividends in terms of impressive sales across the board at retail," said Jack Tretton, president and CEO of SCEA.

"This jump in sales bodes very well for us heading into the fall as we launch an impressive arsenal of hardware and software, leading off with the new 80 GB PS3 in August along with the unveiling of highly anticipated games such as 'Lair' and 'Warhawk.' That will be followed by 'Heavenly Sword' in September and six more exclusive first-party PS3 games in October, including 'Ratchet & Clank Future: Tools of Destruction.'"

A Happy Moment

Sony has also seen encouraging preliminary sales reports for July. Based on internal sales data, the console maker said, PS3 sales had jumped by more than 135 percent at the company's top five retailers since the new $499 price was announced on July 9.

PS3 sales were not the only good news for Sony. Total PlayStation hardware sales grew by 161 percent, Sony said, while software increased 15 percent and peripheral sales rose by 60 percent.

Sony's upswing is supported by sales data for June from NPD, which showed the increase in sales began in June weeks before the game maker announced the PS3 price cut. The PS3 posted a growth in sales of 21 percent over sales figures from May, with 98,469 units sold at retail. Overall PlayStation sales grew by 21 percent in terms of total retail dollars generated year-over-year in North America, with total sales of $393 million.

Not to be left out, the PlayStation Portable (PSP) saw a jump in sales of 31 percent over the same period last year, selling 290,108 units, while the company's trusty workhorse, the PlayStation 2 (PS2), sold 270,763 units in June.

Call It a Sale and They Will Come

Sony's PS3 woes have always centered on the console's $599 price tag, James McQuivey, a Forrester Research analyst, told TechNewsWorld, so naturally sales would improve if the company cut prices. However, McQuivey had one caveat -- discontinuing the 60 GB model could cause a consumer stampede and set Sony up for a fall come autumn.

"Price has always been the problem that plagued the PS3 from the beginning," he explained, "a price drop should give sales a boost, but remember ,the boost is also accelerated by the fact that the market knows the cheaper boxes are being discontinued, causing a rush on the devices.

"Sales," he added, "should settle back down as soon as stock of the discontinued model is depleted."

McQuivey also cautioned consumers not to expect Sony to slash prices on the 80 GB model until 2008.

Michael Cai, an analyst at Parks Associates points to another cause for the sales boost -- a bevy of incentives.

"The $100 discount is definitely having an impact," Cai told TechNewsWorld. However, he added, while Sony dropped the price, retailers like Circuit City have thrown in their own freebies, such as five free Blu-ray high-definition DVDs.

"Such promotions, combined with recent announcements from Blockbuster about carrying only Blu-ray, not HD DVD movies, might have brought more attention to the Blu-ray aspect of the players."

Xbox 360 Slow Down

Things at Microsoft's Xbox division are not so rosy. The company reported an operating loss of $1.892 billion for the year ending June 30. That increased the amount of red ink at the Entertainment and Devices Division by some 47 percent.

The numbers, however, include Microsoft's $1.057 billion write-off following the announcement that the game maker would extend its warranty program for defective Xbox 360 consoles. Subtract that amount, and the Redmond, Wash.-based company saw a loss of about $835 million for the year.

"Microsoft is in it for the long run," Cai pointed out. "Profitability of the Xbox division has improved over the past several years, and if it wasn't for the warranty issues, the Xbox might have turned a profit."

The company could cut prices for the console before the coming holiday season, Cai said, adding that "Microsoft is likely to leverage the Halo 3 launch and then [issue] a price cut shortly after to boost sales."

Adding to the less-than-positive news for Microsoft, NPD reported that in June, U.S. consumers purchased 198,400 Xbox 360 consoles, a 43,400 unit increase over sales logged in May. May's sales totals of 155,000 units sold were disappointing -- they represented a drop of 19,000 units from April, when 174,000 consoles were sold.

Why the decline? It has a lot to do with the Xbox 360's performance problems, McQuivey said. Owners of the machines reported high failure rates -- so high that Microsoft pledged to triple its warranty program. Still, the publicity may have caused many would-be buyers to reconsider, regardless of the company's promise to fix the units if they stopped working.

"The Xbox 360 isn't faring well because of bad publicity surrounding the warranty problems," he opined. "That's not a good time to ask Mom and Dad to buy one."

However, sales should peak by year's end, he said, driving as much as 40 percent of full-year sales in the last quarter.

"What remains to be seen is whether the PS3 has any real momentum by that time or not," he noted. "If not, Sony will have to rethink everything -- from pricing to long-term forecasts."

"Microsoft will still be ahead, but will it have grown significantly? That's the thing to watch for year-end 2007," he concluded.


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