Thursday, February 21, 2013

Sony/Microsoft/Nintendo console

The Xbox 360 infamously suffered from quality control problems. A study from SquareTrade indicated that within the first two years of ownership, 23.7% of Xbox 360s suffered system failures vs. 10% for PS3 owners and 2.7% of Wii owners.  The infamous "red rings of death", and even after repair, it would get so hot during gameplay that I could make steak and eggs on it. And of course, it didn't help that it was so loud that I needed 500 watts' worth of surround sound to hear what I was playing. But to its credit, Microsoft's customer service team was very responsive and helpful, and they eventually worked out the kinks.
Now, if Sony is going gangbusters to get to market this holiday season, there is a chance they'll suffer from quality-control problems, which will be very costly. Console gaming is a razor & blades business. The consoles sell at a loss to generate high-profitable royalties on individual game sales. If the PS4 suffers from a high repair or return rate, the losses are going to pile up.
Cycle-over-cycle, Sony/Microsoft/Nintendo console unit sales are up 25%, which frankly, isn't very impressive when the smartphone and tablet markets grew by 36% and 75% in Q4 of 2012, according to IDC As I stated above, the PS3 launched at a premium price relative to the Xbox 360 and Wii. The lower-priced PS3 was $499 at launch, while the most expensive Xbox 360 package was $399 and the Wii was just $249 including a game. Now, look at what's happened with recent video-game hardware. The Nintendo 3DS and Wii U have bombed, as has Sony's own PS Vita handheld. Assuming Sony wants to move some units in this tired market, will it have to take a lower price, driving larger-than-expected losses on PS4 console sales? And bringing back to the smartphone/tablet issue, will mass-market consumers (as in the casual audience) be willing to shell out another $400-500 for a gaming device after they've spent money on smartphones and tablets, whose technological sophistication is growing at a rapid rate.

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