Sony Faces PlayStation Price Pressure After Nintendo Cuts

Sony PlayStation Vita’s Debut in U.S.
The Sony PlayStation Vita (PS Vita) is shown June 7, 2011. Photographer: Sony Computer Entertainment Inc. via Bloomberg

Sony Corp., the world’s second-largest maker of video-game machines, shouldn’t count on Yukinobu Takeda to stand in line for the $380 PlayStation Vita when the portable player begins selling this year.

“PS Vita’s quite expensive,” said Takeda, 36, an event planner in Tokyo, who owns both a PlayStation Portable and a Nintendo Co. DS handheld machine. “I don’t think I’ll be one of those people rushing to buy it on the release date.”

Takeda helps illustrate why pressure is building on Sony to cut prices of its newest game machine after Nintendo slashed the cost of its new 3-D portable player to as low as $169 and as more gamers flock to Apple Inc.’s iPhone and iPad to play titles such as Rovio Mobile Oy’s “Angry Birds.” Kazuo Hirai, Sony Chairman Howard Stringer’s top lieutenant, signaled yesterday the company won’t engage in a price war with Nintendo.

“Gamers are increasingly anticipating Sony to lower prices, especially after the 3DS cut,” said Hideki Yasuda, a Tokyo-based analyst at Ace Securities Co. “Sony is under major pressure to cut the price of the Vita or risk a major failure.”

U.S. consumers will be able to lay their hands on PlayStation Vita, the successor for the model that went on sale in 2004, after Christmas, starting at $249 to $299 for a 3G version. Japanese consumers will be able to buy the Vita, which feature an organic light-emitting diode display and touchpads at the back, by the end of this year from 24,980 yen ($317) to 29,980 yen.

‘Drastic Measures’

That’s pricier than Nintendo’s competing 3DS after the world’s biggest maker of video-game machines cut the price of its new 3-D handheld player from $249 to as low as $169.

“We have a very good product at a very affordable price,” Hirai, president of Sony’s Consumer & Products Services group, said. “There’s no need to lower the price just because somebody else that happens to be in the video game industry decided they were going to.”

Sony, which lost 38 percent of its market value this year, fell 5 percent to close at 1,828 yen in Tokyo, its lowest level in more than two years. Nintendo rose 1.4 percent to 12,120 yen in Osaka, narrowing its loss this year to 49 percent.

Reviving demand at the games division is key for Hirai, the front-runner to succeed Stringer as the head of Sony, as the company faces an eighth consecutive year of losses at the main television business and the online service recovers from its worst hacker attack ever.

Cutting Forecasts

Last week, the maker of Bravia televisions and Walkman music players cut its full-year profit forecast 25 percent, citing sluggish demand for TVs. Nintendo lowered its annual profit forecast 82 percent.

Sony, Nintendo and Microsoft Corp., maker of the Xbox 360 and Kinect gaming devices, are confronting new competitors in the gaming industry who are beginning to reshape the field.

Among them is Cupertino, California-based Apple, which estimates it’s sold more than 200 million mobile devices capable of downloading and playing games. Apple’s App Store offers a choice of more than 100,000 game and entertainment applications to users of the iPad, iPhone and iPod Touch.

“The market opportunity for specialist devices is shrinking rather than growing” because of the convergence of activities into a single device, said Piers Harding-Rolls, a senior analyst at a research firm IHS.

“Angry Birds,” a popular mobile-phone game where players slingshot birds at pigs hiding behind barricaded wood and stone shelters, is aiming for 100 million downloads in China alone. Customers are also flocking to online games such as “Farmville” and “Cityville” on Facebook Inc.’s social-networking site.

Resisting Price Cuts

“The environment for portable game players has become more difficult because of smartphones,” said Koki Shiraishi, an analyst at Daiwa Securities Group Inc., who estimates shipments of the PS Vita will be about half of the PlayStation Portable sold during the product’s first two years.

Hirai isn’t alone in expecting Sony to resist price cuts.

“The customers Sony is targeting with its Vita are those willing to spend a lot of money,” said Shiro Mikoshiba, an analyst at Nomura Holdings Inc. in Tokyo. “That’s a valid strategy even if the volume’s low as long as it can sustain the higher price.”

Sony is unlikely to cut prices until next year, said Harding-Rolls, the London-based IHS analyst. The company may sell 36 million PlayStation Vitas by 2015, short of the 46 million PSPs sold at the same stage of its life cycle, he wrote in an e-mail.

Trailing Nintendo

“If strong titles aren’t there for Vita, there is a risk I might have to cut my estimates,” said Kazuharu Miura, an analyst at SMBC Nikko Securities Inc. in Tokyo, who expects Vita sales will reach 2.5 million units by March.

Introduced in late 2004, Sony’s PlayStation Portable has failed to catch up with the popularity of Nintendo’s DS. Sony has sold 71.4 million PSPs worldwide as of June 30, while Nintendo has sold 152.2 million DS players, according to the two companies.

The U.S. video-game market, the world’s biggest, is shrinking. Sales dropped 10 percent to $1.03 billion in June, a second consecutive drop, Port Washington, New York-based NPD said last month. In Japan, revenue fell 16 percent in the first half of 2011 amid a lack of hit titles, Tokyo-based researcher Enterbrain Inc. said in June.

That may put pressure on Sony to win customers like Tokyo event planner Takeda, who plans to sit out.

“I don’t really see a reason to pay that much for another game player,” he said. “I’m satisfied with my devices.”

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