As the dust settles after this year’s Tokyo Game Show, Sony appears to be unstoppable. As the only console manufacturer hosting a press conference at the show, the company was able to pull out all of the stops and take command of the four day event. Sony made a slew of announcements, including new games such as Capcom’s Resident Evil: Umbrella Corps and Koei Tecmo’s Nioh as well as unexpected sequels like Gravity Rush 2. They also demoed their virtual reality headset, renamed Playstation VR, and revealed it to be compatible with the MMO Final Fantasy XIV.
However, Sony’s biggest announcement was undoubtedly the upcoming price drop for the Playstation 4. The console is currently selling for ¥39,980 in Japan. The price drop will see it sell for ¥34,980, a discount of ¥5,000 which translates to roughly $42. The price change is confirmed for Japan and the U.K., but there has been no word yet if it will carry over to North America.
Many feel that it is only a matter of time before a price drop is announced for the remaining territories. Speaking with IGN, head of Xbox Phil Spencer claims history proves that Sony will be dropping the price of the Playstation 4.
“I fully expect [Sony] will drop price. When I think about the playbook they’ve used in the past, we feel good about the plans we have in place going forward in the holiday. If history tells, then we’ll see a price drop from them coming.”
The three previous Playstation home consoles saw price drops in North America within two years of their release. The Playstation and Playstation 3 each got their first price drops within a single year of release. Prior to the Playstation 4, only the Playstation 2 sold well enough to make it through the first year without lowering the price.
However, the landscape has changed drastically since the launch of the PS3. Sony is a different company, no longer riding on the success of the PS2. They’ve created a console aimed at a specific audience and priced it competitively. The landscape has changed and console gaming is more prevalent than ever. So the question is, does Sony need to drop the price?
Technically, the PS4 has already received a price drop of sorts. When the system launched in 2013, a console and controller cost $399. If the new owner wanted to play one of the PS4 launch titles, they were expected to shell out an additional $60. Today, nearly every console comes bundled with at least one game. New games like Metal Gear Solid V have their own bundle, effectively cutting the price of the console itself by the cost of game. It doesn’t look as good on paper as an official price drop, but the effect has largely been the same.
As of June 30th, Sony had reportedly shipped 25.3 million PS4s to retailers. While that number doesn’t reflect consoles sold through to the consumers, conservative estimates put the install base at over 22 million. To put that number into perspective, the PS2 took over two years and eight months to reach 25 million units shipped. The PS4 has only been on the market for a year and ten months.
Compared to the PS2, the PS4 is a rousing success. But the PS4 isn’t competing with its predecessor. The PS4’s direct competition is Microsoft’s Xbox One.
Putting their current SKUs side by side, it’s easy to see why one might pick the Xbox One as the obvious winner this holiday season. The console is cheaper and its slate of upcoming games is dominated by exclusives such as Halo 5: Guardians and Rise of the Tomb Raider. However, the most recent numbers have the PS4 outselling the Xbox nearly two-to-one. Playstation 4 currently costs $50 more, but it has the majority of the consumer’s mind share and that momentum continues to propel it to astronomical success.
So does the PS4 need a price drop? No, not necessarily. But that doesn’t mean it isn’t going to happen.
Sony has the mind share and are currently dominating the sales chart. However, compared to Microsoft’s set of exclusives coming during the holiday season, Sony’s lineup lacks the big names. A price drop will not only keep them competitive with the Xbox, it will likely continue to widen the gap between the two systems. A $50 dollar price drop doesn’t sound especially impactful, but a $349 price tag is easier for many consumers to stomach than $399. It’s more than likely that there are quite a few consumers out there just waiting for the first price drop to hit before picking up their new console.
Assuming that Sony does drop the price of the PS4 in North America, the discount will have to go into effect before Black Friday. The biggest shopping day of the year in the U.S. falls on November 27th this year, giving Sony over two months to plan and implement their new pricing. Any discount that the company implements would have to be permanent as well. Otherwise, they would risk facing the same outcry that Microsoft did last holiday season when they tried to return the Xbox One to its original price.
Price drops benefit the consumer in obvious ways, but there’s another important aspect to consider in Sony’s overall strategy. As the push toward consumer virtual reality begins to heat up going into 2016, Sony’s Playstation VR is positioned to be a strong competitor in the field. While Oculus Rift and the HTC Vive require investment in an above-average PC, the Playstation VR works in tandem with the PS4.
The more Sony can expand the PS4 install base, the more potential customers there will be for Playstation VR. Not everyone is going to want to invest in virtual reality, but those who already own the console are more likely to give it a try. While pricing for virtual reality headsets is still unknown, the company is in a position to offer a more affordable hardware option with PS4.
By this time in November, it’s more than likely that the Playstation 4 will have received a price drop in all major territories. Whether or not it’s a necessary move, it’s the right move. Phil Spencer noted in his interview that “it’s great for gamers when price competition happens.” The companies benefit, but consumers benefit just as much, if not more. As the install base of the next gen consoles grows, so too will the number of exciting projects in the works from developers large and small. The current drop in price will effectively increase the value of the consoles in the long run.