EUROPE'S GAME CONSOLE PRICE WAR STARTS EARLY
By Paul Jackson, Analyst Forrester Research

22_04_02

Today, Nintendo followed up Microsoft's Xbox price cut by slashing 50 euros
off the yet-to-be-launched GameCube. It's great for consumers, but
manufacturers now need to focus on quality software at a better price point
to recoup their hardware losses.

Historically, manufacturers drop the price of game consoles a year after
initial launch as they aim for wider, mass-market ownership. Not anymore it
seems -- Microsoft significantly cut the price of the Xbox after just six
weeks in Europe, and Nintendo has announced a reduced GameCube price even
prior to the May 3 launch. How will this affect the multibillion euro games
market?

* Nintendo's rapid response saves its USP. It must hurt to cut the price of
an unlaunched product, especially when retailers were already complaining
about the GameCube's low 249 euros price. But Nintendo had to act to
maintain its "dedicated games machine at a lower cost."

* Microsoft's price cut is essential for Xbox success. Microsoft is now
showing the same resolve in cracking the game console market as it did when
it embraced the Net. The Xbox was too expensive; now, with better software
titles and DVD playback, the Microsoft console represents a very strong
gaming proposition.

* Sony will respond with a PS2 price cut within a month at most. The PS2 is
the most established next-generation console, with a good catalog of games.
But at the same price point as the Xbox, the PS2 now looks tame -- Sony has
to cut 50 euros off its console price in response to Microsoft's and
Nintendo's moves.

* Larger hardware losses endanger long-term viability. Manufacturers cannot
sustain even bigger per unit losses on their consoles without higher games
sales -- software is where they recoup their money. Will cheaper hardware
mean more software sales per console? No; only better, cheaper games will
do this. Can future online gaming service revenue make up the difference?