LOS ANGELES -- The recent price cuts on the latest generation of video game systems will lead to more sales and rental opportunities for supermarkets, said retailers and industry experts.
The video game industry, which in its recent history has upgraded its technology about every five years, is on the verge of making its newest products more accessible to the mass market. Just before the Electronic Entertainment Expo, also known as E3 (the game industry's big trade show held here last week), the three major game system manufacturers all announced significant reductions in prices.
The Microsoft Xbox was cut from $299 to $199.99, Sony's PlayStation 2 went from $299 to $199 and the Nintendo GameCube was reduced from $199.95 to $149.95.
As with the game system price decreases of 1997, the current round of cuts bringing all systems under $200 is expected to spur sales and rental of hardware and software, industry observers said. It also comes at a time when the American Greetings Research Council is reporting that supermarkets can effectively sell general merchandise products -- including electronics -- at much higher price points than they have previously (see story on Page 51).
"Cost is a factor, and anytime you make it more manageable and cost-effective for the people who are struggling for their money, that's good," said Craig Hill, video specialist, Harp's Food Stores, Springdale, Ark.
"All of the game manufacturers are dropping hardware prices in an attempt to broaden penetration of the hardware," said Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn. "It takes the games from the early adopters to the mainstream game players."
In contrast to the last round of game technology, where the Sega Dreamcast ultimately failed, all three of these systems have long-term potential, with the Sony PlayStation 2 having the biggest market share at this time, he said. "All three formats have caught on and all three seem to have staying power," Bryant said.
The game system price cuts won't have an immediate effect on business at G&R Felpausch Co., Hastings, Mich., said Mandy Budreau, video buyer. "If they had done it in a different quarter, it would have had a bigger impact." Revenues probably will increase in the fourth quarter when more people buy the systems as gifts, she speculated.
"We view price cuts as a positive," said Brad Hackley, director of research, Video Software Dealers Association, Encino, Calif. "Price cuts put more video game consoles within the reach of consumers, and this means more video game rentals and purchases," he said.
"The price-point decline from $300 to $200 really spurs sales," said market researcher David Cole, DFC Intelligence, San Diego. "That has been shown in the past when they have gone from $300 to $200 and then down to $100.
"What this is doing is driving the installed base up so there is more demand for software overall. The more people who have the game systems, the more rentals there will be because the rental market depends on the installed base," Cole said. Meanwhile, there will be closeouts on software and hardware from older systems that supermarkets could take advantage of. "So you can have a nice range of price points."