EA CFO Eric Brown has some interesting predictions for this console generation. Although a typical generation lasts about 5 or 6 years, Brown predicts this current one will last longer with more price cuts coming in the future. The reason for this anomaly? Well, according to Brown, there’s just not much to improve on from a technological standpoint. Both the PlayStation 3 and Xbox 360 can run high definition visuals at a 60 frames per second, and he believes we’ve almost hit a ceiling in the graphics department as far as today’s technology is involved. Plus, even if there was some way to improve there, Brown says the Wii’s success has shown that high-tech does not necessarily correlate with high sales. The growth opportunities that do exist are in digital distribution, a channel that does not require new-fangled hardware to grow and prosper.
As far as price cuts go, Brown used past statistics to demonstrate how consoles sell a majority of units not right after launch, but after one or more price cuts make the products more affordable. For example, the original PlayStation sold just 3% of total units at its $299 launch price while 44% of sales occurred once the price had dropped to $99. The PS2 was more successful at launch, with 21% of sales at $299, but still accomplished a solid 45% of sales when the price dropped below $150.
Those stats help explain how the Xbox 360 gained a 40% sales advantage over the PS3 in the latter half of 2008 after Microsoft dropped its baby’s price down to $199. Interestingly, Nintendo’s Wii has kept its MSRP — previously the lowest among its competitors — at $250. Of course, when you rule the market the way Nintendo has since 2006, you don’t really need to drop your price just because the competition does.
As this generation continues into year 4, look for units sales to jump as all three competitors lower their prices in order to compete in today’s struggling economy.