(Adds comments from analysts in third through fifth paragraphs,
comments from Nintendo executive in eighth paragraph and updated
stock price.)
DOW JONES NEWSWIRES
Sony Corp.'s (SNE) Sony Computer Entertainment America will cut
the price of its PlayStation 2 game system to $99.99 starting
Wednesday.
Sony hopes the 23% price cut will sustain the life of the PS2,
which it says has sold more than 136 million units worldwide since
its launch in 2000.
Sony also said it will still offer its newer PlayStation 3
console for $399.99 for an 80-gigabyte model, its least expensive.
But after showing a willingness Tuesday to lower console prices,
industry watchers now expect Sony to indeed cut PlayStation 3's
price by another $100 sometime in the next few months. Sony is
still losing money on every PS3 it sells at $399, so a price cut
could hurt the games division, analysts said in December.
The new PS2 price should resonate with consumers facing a
challenging economic environment, despite the relatively limited
number of video games still available for the console, said BMO
Capital Markets analyst Edward Williams. Sony, and leading
PS2-compatible game publishers Activision-Blizzard Inc. (ATVI) and
Electronic Arts Inc. (ERTS) should also see a benefit, he said.
Used videogame retailer GameStop Corp. (GME) also stands to
gain. That's because value-seeking shoppers that frequent used
goods retailers, like GameStop, are more likely to buy $99 PS2s,
according to Sterne Agee analyst Arvind Bhatia.
The cut suggests Sony's strategy of selling a pricey game
machine with advanced features and cutting-edge components appears
to be backfiring as a deepening recession has U.S. consumers more
price sensitive than ever.
The company is in the midst of a major restructuring - shedding
16,000 jobs worldwide - in an effort to reverse out of the net loss
it expects to post in the fiscal year through March. That will be
the first net loss in 14 years at the company.
The NPD Group reported earlier this month that PlayStation 3
sales fell 1% last month. Sterne Agee analyst Bhatia said Tuesday
he expects the company to cut PS3 prices by up to $100 in the next
60 days. The PS3 is more expensive than the market leader, Nintendo
Co.'s (NTDOY) Wii. Nintendo has no intention of cutting the Wii's
price, a Nintendo executive told Dow Jones Newswires.
Analysts said in December that Sony might not reach its goal of
selling 10 million PS3 consoles through March, as sales for the
hardware dropped despite gains by competitors.
Sony also faces increased competition from a new business model
in the industry that would allow gamers to purchase or subscribe to
games without going to a store, and even without having to buy the
latest hardware.
If Sony doesn't close the gap with its rivals, it could risk
making the PS3 an afterthought to game publishers, who focus their
resources on the machines with the most users.
Microsoft Corp. (MSFT) cut Xbox 360 prices in early September
and started bundling games with the most basic console for
$199.
Part of Sony's strategy hinged on selling the PS3 as a
relatively inexpensive Blu-ray player. But prices of Blu-ray
players have fallen so sharply recently that it's now possible to
buy a Blu-ray player and an Xbox 360 for less than a PS3.
Sony's shares were recently down 0.7% to $20.61.
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com
(Ben Charny contributed to this report.)