PS3: hot or not?

You say you have an opinion on the likely success of the PlayStation 3? We've got one bit of advice--take a number.

In fact, the prognosticating has become so busy with competing voices and opinions, Sony boss Kaz Hirai last week chimed in with his own two cents.

Hirai's comments followed a mostly positive assessment of the PS3's future success from the Yankee Group, as well as a DFC Intelligence report lambasting Sony for the console's high price point and reliance on Blu-ray as the unit's media format. The Yankee Group pegged the PS3 as the likely winner of the next-gen console wars, while DFC Intelligence suggested Sony could find itself bringing up the rear if it doesn't change its ways soon.

GameSpot recently spoke with four more analysts to get their takes on the PS3: Michael Pachter of Wedbush Morgan Securities, Evan Wilson of Pacific Crest Securities, Colin Sebastian of Lazard Capital Markets, and Hiroshi Kamide of KBC Securities in Japan.

Is the PS3 too expensive?

Kamide: It's fair to say that at least initially, the hardware will sell very well--just like at any console launch. However, 6 to 12 months down the line, Sony's high-end consumer electronics approach will be detrimental in terms of raising market share. Pricing is too expensive, and the message of a "must-have" digital entertainment system without any real conviction over user demand doesn't bode well. It's a message that won't hold sway with mass-market gamers, where industry growth is currently being driven.

Wilson: I do not see the price as an impediment to the PS3's unit sales for this holiday season. The PS3 will likely still sell out, and Sony will reap the revenue benefits.

Pachter: PS3 will sell out at $499. It may sound like a lot of money but is certainly not significantly more in inflation-adjusted dollars than the PS1 at $300 in 1995. The "cheap" PS3 and the "expensive" 360 are identical in all respects, save for the Blu-ray drive. Both have similar processors, 20GB hard drives, and DVI cable interfaces that will support 720p high definition. The difference in price is $100, so if you like Sony more and want a relatively inexpensive option to buy into high-definition movies, the cost is probably justified. In other words, consumers will compare the $499 PS3 to the $399 Xbox 360 and will likely decide based upon the potential selection of software (Japanese, US, and European for Sony, US and European for Microsoft), plus their assessment of the likely winner in the format war. If Blu-ray is the standard, the price differential will hold.

Sebastian: Pricing is an issue they will need to address, particularly when you get past the first few million consumers who will snap up the system at any price. For the rest of us, Sony should be able to demonstrate the advantages of owning a PS3 versus a 360 or Wii.

Does Blu-ray help or hinder the console's chances at success?

Wilson: Sony has and will continue to lose mindshare because it has been unable to differentiate the PS3 relative to the 360 from a game-play perspective, and at this point, many gamers don't care about Blu-ray.

Pachter: There will be a Blu-ray market as soon as the first PS3 rolls off the assembly line. Anyone with a PS3 and an HD monitor is a Blu-ray customer. If Blu-ray is not the standard, [then] Sony will have to eat the price difference, and pricing will come to parity rapidly. We won't know for sure till holiday 2007. My guess is Blu-ray wins and consumers perceive more than $100 in value. Remember, most households have only one HD monitor, so it actually makes sense to buy a hybrid device.

Sebastian: For many potential customers, it will boil down to the quality of the games.

When will Sony need to cut the price to protect market share?

Kamide: As a yardstick, within seven months (as per PlayStation) as opposed to over a year (as per PS2) sounds more sensible to me, given that Xbox 360 has a year's head start and Nintendo Wii's hyper-competitive pricing. This will not be easy to achieve, given that losses per unit even at $600 must be quite substantial--but there may not be a choice in the matter if Sony wants to maintain any sort of leadership in the console industry.

Sebastian: Sony may have to cut the price within the first year after launch, particularly if Nintendo's Wii sells well and the Xbox 360 maintains its sales momentum.

What's your read on where publishers stand today on the PS3 launch?

Pachter: Most publishers are playing the launch conservatively. I'm sure that EA will have four or five titles ready and that Activision and Ubisoft will have two apiece, with one or two from Take-Two, Midway, and a few Japanese publishers. The others (THQ, Atari, Eidos/SCi) are less likely to be there at launch if they're not ready, mostly because the cost is not necessarily justified. I think that everyone will allocate resources to the 360 this holiday, because the installed base is likely to be 10 million by year end, so a game that captures five percent market share will be a nice success. The Wii is likely to be well represented, but my guess is that the US guys will be playing catch up, because I don't think that they realized before E3 what a big deal the Wii will "bii."

Wilson: The large US publishers are following a predictable development schedule for the PS3. Electronic Arts is pushing to have all its big properties on the PS3 in the launch window and to take the market share lead. Publishers like Activision and Ubisoft are developing select key franchises that cater to the audience that is willing to pay $600 for a console. THQ will have no PS3 titles in the launch window. The large publishers are not laying back in PS3 development and because of the size of the PlayStation ecosystem are forced to have a consistent presence to keep pace with industry growth.

Sebastian: There is no doubt that publishers are allocating resources more evenly among the three consoles at this point. The good thing for publishers is that they can shift development if it becomes apparent that one console is not performing up to expectations. I think by the time the PS3 launches in November, you will see a similar slate of titles as with the Xbox 360 last year, which is not a lot of titles.

Who will own holiday 2006?

Sebastian: I think the biggest risks to the launches are production issues and/or supply constraints, rather than consumer demand. The most likely scenario in my opinion is that each manufacturer declares their console a success this holiday with shortages likely at many stores.

Kamide: My bet is Nintendo--the company cannot afford to fail after a decade of disappointment and are throwing everything at it to make it right.

Pachter: Microsoft owns holiday 2006 on next-gen consoles, Sony owns the holiday overall (PS2 and PSP combined will outsell Xbox 360 by a lot). Nintendo may come in second in overall sales, since Microsoft has all but abandoned the Xbox and has no competitive portable product.

Who will win holiday 2007 and beyond?

Kamide: Well, if the software pipeline is as good as promised, then Nintendo should maintain the trend year-on-year.

Wilson: Either Microsoft or Nintendo. If you add in handheld exposure, Nintendo should win on a unit basis because of the DS.

Pachter: Sony wins holiday 2007, with Nintendo a surprise number two overall. Microsoft will do well, and I really think that on the consoles, this is a competitive race. My guess is that by 2010, Sony has 40 percent share and Microsoft and Nintendo each have 30 percent on the consoles. If Blu-ray is the standard early and HD-monitor sales reach full penetration by then, it's possible that Sony ends up with 50 percent. Microsoft will do well but can't compete if Blu-ray is the standard.

Sebastian: 2007 will shape up to be the more interesting year, as Microsoft could get to the point of cutting the Xbox 360 price and more mainstream consumers will need to make a choice between three compelling platforms.

Overall, what do you say to the PS3 naysayers--the game press and analysts who came down hard on Sony, claiming its E3 presentation underwhelmed and the pricing is ill advised?

Wilson: I do not believe that we have seen Sony's final strategy for the PS3 launch. Due to the reaction by gamers worldwide since Sony released launch pricing and feature sets, I think it's highly likely that we will see changes to the plan that has drawn so much ire.

Sebastian: Expect this to be a tighter race, but I wouldn't underestimate Sony at this point.

Kamide: My impressions to date are that the key PlayStation franchises will not be available at launch--the controller has suffered with the lack of rumble feature, high-definition is good but not altogether necessary, and questions are left over what online capabilities the platform will actually have. I'm not too concerned over the technical specifications as such, but surprisingly, after all that investment, Sony made it sound more like a hard sell to me than it has been for Xbox 360 and much less obvious in terms of differentiation compared to the Wii.

Pachter: Sony blew it by offering the $599 box. They should have added HDMI cables as an accessory later or modified the box once the 1080p monitor base expanded. They have confused most everyone (including David Cole [of DFC]) with their message and have inadvertently shifted the debate to pricing rather than features.

I'm not a fan and am not rooting for one over the other. Rather, I'm a pragmatist and don't think that most people buy consoles based upon price sensitivity at launch. How much did you pay for your first CD player? For your first DVD player? For your last TV set? A lot more than you could have paid by waiting or going cheaper. If Americans were so cost conscious, nobody would go to movies (rental is cheaper), eat out, drive cars (buses are cheaper), wear name brand clothing, etc., etc. Blue jeans cost $250, when you can still get them at the Gap for $50. Why? Because people are price insensitive.

Sony has a lot of brains in the area of marketing. This is about Blu-ray, and they intend to win that war. Watch the hype in September/October.

GameSpot: Gentlemen, thanks for your time.