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Changing the game

Sales slump forces makers to slash prices

By Hiawatha Bray
Globe Staff / September 3, 2009

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Remember the notion that video games would sell briskly through the recession because people turn to home entertainment when the economy goes sour? Well, never mind.

Sales of living-room consoles and game software have plummeted. Two of the three leading console makers, Sony Corp. and Microsoft Corp., hope that cheaper machines and a host of major new games will set the stage for a comeback.

Last month, Sony said it would cut the price of its PlayStation 3 console by $100, to $299. The price applies to the current-generation PS3, as well as to a new model called the Slim, which will feature a smaller, sleeker case and larger-capacity hard drive. The Slim went on sale Tuesday.

Microsoft followed Sony’s lead by cutting the price of its most expensive Xbox 360 console, the Elite, from $399 to $299. Microsoft halted production of a second-tier model, the Xbox 360 Pro, but reduced the price of its remaining inventory from $299 to $249. The cheapest Xbox 360 model, the Arcade, will still sell for $199.

The lower prices follow a spate of bad news for the industry. Game makers rode out the early months of the economic downturn in good shape - total US sales of video game hardware and software hit $21.3 billion in 2008, up 19 percent from the year before, according to technology researchers at NPD Group. But 2009 has turned ugly. In July, sales of game hardware and software fell 29 percent, marking the fifth straight monthly decline.

Still, Microsoft and Sony insist the price cuts are not because of the economy.

“Some manufacturing efficiencies have been realized,’’ said Peter Dille, Sony’s senior vice president of marketing. “We’re able to pass that on to the consumer.’’ Dille noted that the prices of Sony’s two earlier PlayStation consoles were repeatedly lowered over the years.

Shane Kim, Microsoft’s corporate vice president of strategy and business development, said his company’s price cut is a traditional way of expanding the market beyond hardcore gamers who already own Xbox consoles.

“It’s part of our normal strategy, in terms of making the Xbox 360 experience more accessible to a broader range of people,’’ Kim said.

Still, Kim said, having relatively low-cost game hardware helps Microsoft stay competitive during the recession. “It helps to have the most affordable console at times like this,’’ he said.

Until the recent price reduction, the $399 price tag for an entry-level PS3 made it the most expensive game console. Dille said the new $299 price is already attracting penny-pinching consumers. “For a lot of people, this is the moment they’ve been waiting for,’’ he said.

“The price cuts are good,’’ said Billy Pidgeon, industry analyst at Game Changer Research in New York City, “although I think it would help . . . if the price cuts were more aggressive.’’ For instance, Pidgeon said pricing the Wii and PS3 at $200 would turn many more consumers into video gamers.

The most popular living-room console, Nintendo Co.’s Wii, has sold for $249 since its introduction in 2006, and Nintendo has no plans to change that. But the company has not been immune to the slumping economy. Last month, Nintendo reported a 60 percent decline in profit for its first quarter, which ended June 30. Wii hardware sales in the United States fell by almost two-thirds and by more than half in Nintendo’s home market, Japan.

Nintendo spokeswoman Denise Kaigler said the recession is not the main culprit. Her company’s schedule of game releases has caused the problem, she said.

“Last year, very strong titles were launched in the first half of the year,’’ Kaigler said, “whereas this year, our strong software is launching in the latter half of the year.’’

Nintendo is counting on recently released titles like Metroid Prime Trilogy and Wii Sports Resort to rev up revenues.

Sony and Microsoft also expect help from a wave of widely anticipated titles. Sales of music games like Guitar Hero and Rock Band, developed by Harmonix Music Systems of Cambridge, are down $390 million from the same period last year, according to the NPD Group. But next week’s release of a new version of Rock Band, featuring Beatles music, is expected to be a hit. All three console makers will benefit, since the game can be played on the Wii, PS3, or Xbox 360.

And a new action game in the popular Halo series, designed exclusively for the Xbox, is due this fall, in time for holiday shopping. Also on tap are Xbox 360 and PS3 sequels to the hit games Assassin’s Creed and Call of Duty 4: Modern Warfare.

Hiawatha Bray can be reached at bray@globe.com.

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