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Sony Faces Heat From Game Publishers to Cut PS3 Price

By Adam Satariano

March 16 (Bloomberg) -- Sony Corp. is under pressure from video-game publishers to cut the price of the PlayStation 3 console or risk seeing more development funds shift to Nintendo Co.’s Wii.

Sony, which has resisted calls for lower prices, is likely to shave $50 to $100 off the PS3 this month or next, said Mike Hickey, an analyst with Janco Partners Inc. in Greenwood Village, Colorado. Starting at $399.99, the PS3 is $200 more than the lowest-priced Xbox 360 from Microsoft Corp. and $150 more than the market-leading Wii.

Three years into the latest generation of game consoles, Sony is stuck in third place, data from the manufacturers show. The Tokyo-based company, once the dominant player, has half the worldwide users of Wii, even though the PS3 has earned praise for its processing power, graphics and Blu-ray movie player. U.S. sales of the PS3 have declined for three straight months.

“If they can’t meaningfully increase their install base, then you will likely see a capital reallocation,” Hickey said.

In 2008, Activision Blizzard Inc., the world’s largest game company, generated 32 percent of its console revenue from Wii titles. That compared with 19 percent for PS3, according to Activision.

Electronic Arts Inc. is releasing some titles solely for Wii as part of a push to stem two years of losses, and showcased games for the Nintendo player at a company event last week.

“You can’t ignore the guy who has half the market,” said Peter Moore, head of sports games at Redwood City, California- based Electronic Arts, maker of the “Madden NFL” series.

‘A Ways to Go’

“Sony obviously still has a ways to go with their pricing,” Moore, a former executive in Microsoft’s Xbox division, said in an interview. Electronic Arts is committed to the PS3 and expects a cut eventually, he said. PS3 games increased to 27 percent of the company’s console sales last quarter, bolstered by a popular soccer title.

Sony has no immediate plan to reduce prices, said Peter Dille, senior vice president of marketing for Sony Computer Entertainment America in Foster City, California.

“Everybody in the development community would love for the PS3 to be free, so they could just sell razor blades,” Dille said in an interview. Sony is concerned with profitability, as well as the installed base, he said.

Sony, the world’s second-largest consumer-electronics maker, is in the middle of a corporate overhaul, cutting 16,000 jobs and closing factories. Chief Executive Officer Howard Stringer took over the main electronics business last month and named Kazuo Hirai, who leads the game unit, to head a new division combining Vaio computers, the Walkman and the PlayStation.

Exclusive Games

Sony is benefiting from exclusive titles for PS3, including the recently released “Killzone 2,” and non-gaming deals like the one announced March 10 to deliver movies and television shows for NBC Universal over the PlayStation 3, Dille said.

Earlier this month, PS3 weekly sales in Japan topped Wii and Xbox ahead of the release of Capcom Co.’s latest “Resident Evil” installment, the Web sites GameSpot and IGN Entertainment reported, citing researcher Media Create.

Not everyone predicts a big shift in spending, because PS3 and Xbox 360 share many titles and costs. Game companies who fail to commit enough money to PS3 risk losing business, said Mark Rein, vice president of Epic Games Inc., the Cary, North Carolina-based maker of “Gears of War.”

“You make very good money on PlayStation 3 if you develop a good game,” Rein said in an interview. “You can very easily take that game to Xbox 360 or PC.”

Seventh Generation

U.S. traded Sony shares gained 11 cents to $19.49 at 4:15 p.m. in New York Stock Exchange composite trading. They have declined 11 percent this year.

The seventh generation of game systems began hitting stores in November 2005 with Microsoft’s Xbox 360. Sony and Kyoto-based Nintendo followed a year later. At the end of December, Sony had sold 21 million PS3s worldwide, compared with Nintendo’s almost 45 million Wii players and Microsoft’s 28 million-plus Xbox 360s, according to the companies.

PS3 sales in the next 12 months are likely to total 14 million, compared with 28 million Wiis and 9.7 million Xbox 360s, according to the Daiwa Institute of Research, a Tokyo-based researcher and consultant.

Price cuts have an immediate impact.

Sony reduced the PS3 price from $499.99 in October 2007 and sales more than doubled in the next month. In September, Redmond, Washington-based Microsoft released its lowest-priced Xbox 360, at $199.99. The company almost doubled Sony’s U.S. shipments from October to January after trailing PS3 in the prior three months, NPD data show.

Two Directions

“Anytime a console manufacturer reduces the price, software publishers benefit,” Yves Guillemot, chief executive officer of Ubisoft Entertainment SA, Europe’s largest video-game maker, said in an e-mail.

Game makers now focus development in two directions: one for the top-selling Wii and the other for Xbox 360, PS3 and personal computers.

Titles for Microsoft and Sony are typically more expensive to produce. Sony posts a loss on each console it makes at the current price, according to researcher iSuppli Corp.

“The publishers need the PS3 install base to grow in order for most of these games to be profitable,” said Evan Wilson, an analyst at Pacific Crest Securities in Portland, Oregon. “It’s an easy equation for them, but it’s very different from the one that Sony has to take on.”

Last Updated: March 16, 2009 17:27 EDT
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