Xbox sales "fallen off a cliff;" PS2 price cut impacts little.
Microsoft continues to trumpet the emergence of next-generation gaming, but outside of videogame publishers dealing with rising costs associated with developing on these new machines, sales of current generation machines and software continues at a slow place that, while typical of the industry in a hardware transition, isn't getting any better.
One of the surprising aspects of the PlayStation-era was the continued sales of the original hardware after PlayStation 2 was introduced. No doubt fueled by the redesigned PS One, Microsoft has shown no interest in a similar approach to Xbox, prompting Piper Jaffery senior analyst Tony Gikas to notice original Xbox hardware and software sales "have fallen off a cliff."
Microsoft isn't the only one Gikas sees taking a lax approach to current hardware; he views Sony's $20 price cut for PS2 as weak -- though sales are expected to increase once the PR campaign kicks in. "...we think Sony's $20 price cut on PS2 hardware looks like a bad prank. We do not think the price drop was deep enough to provide the incentive needed to push sales meaningfully over the next 18 months," he said.
The great hope is that hardware penetration over the next two years will reach a point where publishers and hardware makers can start turning a profit around next Christmas and moving into 2008.
Until then, though, Gikas points out several key risks for the industry: slow Xbox 360 supplies, consumer abandonment of current hardware, lack of meaningful hardware price cuts on consoles and handhelds, PlayStation 3 delay, lack of innovative products (Revolution, anyone?), high software price points (at least someone agrees with gamers here), and new revenue streams such as in-game ads and cellular games falling short.
"The video game sector does not possess the high-growth characteristics the industry did back in the mid-90s," he says. "The next cycle will be an intense market share game for publishers."
Next generation...for the win?