Monday, April 24, 2006

Is the Xbox 360's price to low?

E3 is on the horizon. Price announcements for both PlayStation 3 and Nintendo Revolution are seemingly right around the corner. System configurations are now mostly known although certainly Sony might fiddle with PS3's configuration before release. Many of the hardcore gamers who don't have a problem with giving more of their hard earned cash to Microsoft have already plunked down $400 or more on an Xbox 360 depending how badly they wanted one. Strangely, I've run across a lot of folks I don't think of as hardcore at all who already have one of those hot white consoles under the TV.

Before this new generation began, rumors of higher priced games and a higher priced initial console buy swirled around the 360 launch. When Microsoft finally announced the price, many people including myself thought that $400 was simply too much to ask for a brand new machine, especially one from an also-ran console maker in a Sony-dominated market. I have completely flip-flopped on this after the last holiday season.

I think Microsoft didn't charge enough for 360.

The beginning of a console generation has typically been for those with deep pockets or an unhealthy hardcore jones for videogames. These people are willing to smack down big bucks for the latest technology. The price of 360 was too low to keep the launch confined to that group and it was a big mistake in my opinion. With a higher price tag, Microsoft would have made more money, made sure sellouts wouldn't have lasted for months after Christmas and still sold through all the units they had to sell before the holiday. The demand for a new system was far higher than most people anticipated, especially given the early demise of the original Xbox, a system that will probably be gone from store shelves by February 2007.

In addition to those positives for Microsoft's bottom line, the original Xbox would've looked far more attractive in 2005. Even with a limited release schedule for last holiday season, the original box probably would've sold better with a bigger price disparity in place between it and the new machine. Folks who looked at $400 as reasonable might have backed off at $500 or more as a list price, especially those that didn't already have an Xbox at home but did own a PS2. Essentially, by making the price $400 for the Premium Pack (the "real" 360), it was priced low enough to be mass-market right out of the gate. This one simple fact causes all the problems Microsoft experienced at the holiday and even represents the first big mistake of the transition to new consoles. Microsoft cut the generation short unnecessarily because they undercharged for Xbox 360, hurting both their bottom line and everyone else's at the same time.

So what happened to make even $400 too low a price for the next generation? Gaming grew up.

You have to look at home entertainment trends. People spend a lot more time and money in general on entertainment, especially at home. It used to be surround sound setups for their den, now it's a massive HDTV to go with it. These buys are "expensive" but often easily justifiable because of the inordinate amount of time people use these devices. Even the folks with lower incomes are buying very good TVs and the latest technology to pair with them. The high end is now the middle. The low end is nearly unprofitable commodity stuff that five years ago was cutting edge. Suddenly, a $400 game system with $60 games and accessories price-hiked by $10 or more from last generation isn't really that much to pay because of the sheer amount of time it will get used. I can see this outlay for 360 being justified in homes that are obviously spending beyond their means to some extent but definitely keeping up with the joneses at all costs.

I think what's happened is there's this group of folks in my age group who grew up with videogames and of course never left them behind. We're still playing and we're not going to stop anytime soon. As long as the spouse is conducive to the expense ("Pick up a new pair of shoes if you want, baby... I'm getting this new videogame."), we're going to keep on buying. We're also doing pretty well for ourselves. Growing up in the era of technology, we're comfortable with it and we've got jobs based around it. Buying more of it is how we entertain ourselves. Essentially, times have changed from even the launch of the last generation.

The greying of gamers is driving more purchases of games and gaming systems.

t's going to take a massive economic downturn to change this trend. That's why I think Sony should be aggressively high with the price of PS3. Push that newly priced at $129.99 PlayStation 2 into every single home possible by sending the message that right now, the next generation of gaming is SUPER expensive. Send the message that if you want to play the best games at the top of the technology curve, you're going to have to pay for it, just like every console before this. Make good money right away and give yourself plenty of room for price drops because clearly the mass market price is now much higher than it was before. Yes, I'm saying gouge your early adopters and make the system a luxury item again. I mean, why not? What's the benefit of pricing lower and selling out anyway? No one who wants one will be sitting there saying "It's great it's so cheap!" if they can't buy one. They're going to be moaning about the eBay prices that you could've been charging for your own goods right out of the gate instead of fueling that resale market of losers who lined up days in advance to get one to finance their son's college books for the year.

When it comes to Nintendo, they've already succeeded in breaking out of the technology game. Revolution is no longer mentioned in the media (print or online) in discussions of PlayStation 3 and Xbox 360. That mental association is already broken. They're on their own road. Pricing for them becomes an issue of impulse buy so a lower price makes sense. They want the Revolution to be purchased by almost anyone at any time because the technology inside almost assures the system of being easily produced in ridiculously high quantities and a launch of millions available on day one if they choose. Instead of kids getting a Game Boy for Easter (a huge item at Easter believe it or not), they're going to get Revolution. Price the games at the usual $50 for top tier titles and everything's a-ok. It's amazing to me how quickly the press have cut Nintendo out of system discussion, but you can pick up any print publication and see for yourself. It's already happened. Nintendo and their products are always talked about separate from the PS3 and 360 ones, often without any comparison whatsoever. I personally find this mental shift over the last year fascinating.

Despite the recent downturn in sales when comparing year to year, things have never looked brighter. Gaming is huge but the console transition was handled poorly. Expect this holiday season to create huge demand that will make 2007 and 2008 into massive years for the industry. If the price is right, expect Sony, Microsoft and Nintendo to also end up with hats made of money.

Long Shot is a weekly column here at GamerDad. Dave Long's work has been published in Computer Games Magazine and various websites. The Longshot Logo by Lee Johnson. Click the target symbol above to access the archive.


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