PlayStation, XBox Regroup After Being Waxed by Wii

Sony Knocks $100 Off Price of Console; Microsoft Hypes 360's Nongaming Side

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YORK, Pa. (AdAge.com) -- Nintendo of America President Reggie Fils-Aime took the stage at the E3 video-game conference last week announcing, "My name is Reggie, and I am happy."
Nintendo of America President Reggie Fils-Aime
Nintendo of America President Reggie Fils-Aime Credit: Mario Anzuoni

As well he should be. Nintendo's Wii system has taken the video-game-console market by storm, is still tough to find on store shelves even eight months after launch and has sold a brisk 3 million units in the U.S. already. His competitors, on the other hand, aren't nearly so convivial these days -- and are being forced to rethink their game plans. "The Wii is putting a lot of pressure on them," said David Cole, analyst with DFC Intelligence.

Wii has sold more than twice as many units as Sony's PlayStation 3 (at 1.38 million), according to NPD Group, even though both brands launched at the same time last November. And though Xbox still leads, with 5.5 million, it was introduced a year before the others -- and is reeling from a recall that will cost it $1 billion.

Other options
Sony is responding by slashing PlayStation 3's price $100 and appears to be parting with TBWA/Chiat/Day, Playa del Rey, Calif., its ad agency since 1984. Microsoft, meanwhile, is hyping Xbox 360's capabilities beyond gaming by offering downloadable Disney movies to Xbox Live Marketplace.

"Sony especially needs to get fairly price competitive in the next two years," Mr. Cole said. "Microsoft Xbox has price issues too."

Sony caved in last week after gamers, analysts and pretty much everyone else had complained about the $599 price tag driven by the inclusion of a high-definition Blu-ray player. Microsoft was rumored to be announcing its own price cut at the industry confab last week. (That turned out to be false, although some believe it may still cut Xbox 360 pricing before the holiday season.)

Sony also looks to be redrawing its creative approach after its PS3 launch campaign -- which included images of a crying baby doll, eggs that smashed against a wall and turned into ravens and an oozing PS3 console -- garnered mixed reviews.

'Mistakes'
Both TBWA and Sony Computer Entertainment America declined to comment. But in an earlier interview, the agency's top creative, Lee Clow, told Ad Age's Bob Garfield, "I don't think we did, in the U.S., our best work on the PlayStation [3] launch." He added, "When you are asking creative people to be brave and do daring things, sometimes they'll make mistakes and get into trouble."

Analyst Rob Enderle of the Enderle Group added: "Edgy is nice, and maybe it will win you an award or two. But if you have to trade memorable for selling the product, for god's sake, sell the product."

Xbox 360's woes are more technical. A still-unspecified problem has caused some units to stop dead. Microsoft two weeks ago extended the warranty on all 360s and agreed to pay back owners who'd had the problem fixed at their own expense.

And while price isn't the only factor in the console wars, it is the dominant one, at least for now. Even with PS3's lower sticker, it's still more expensive than Xbox 360's most popular model, at $399, and Wii, at $249.

More power
Sony's and Microsoft's machines are technically superior to the Wii, with much better graphics, robust online services, superior multimedia functionality and a host of other "extras." Both do their best to point that out, and maintain it is part of their long-term advantage and appeal.

Mr. Cole said he spent hours poring over Sony's future PS3 lineup and was impressed, saying PS3 looks "really great for 2008." However, the time differential could become a major problem, thanks to the Wii's mass-market appeal right now.

"If a ton of people buy the Wii in the next years, then they've got a tough sell going down the road and trying to convince them to upgrade to PS3," he said.

Harder for Sony
It's generally agreed that the pressure is worse for Sony than for Microsoft. "After unheralded domination with two previous game systems, for Sony not to be the dominant player seems a failure," said Jupiter Research analyst Michael Gartenberg.

There are some indications, however, that Sony's price strategy is already working. Sony Computer Entertainment America President-CEO Jack Tretton told an E3 crowd last week that the price cut had doubled sales at its top five retailers. He added that Sony plans to ship 11 million PS3s by the end of the year.

"We're still very, very early into this, and people who are counting Sony out are probably making a mistake," Mr. Gartenberg said.
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