CONSOLE GAME PRICING ISSUE STILL UNCLEAR ON EVE OF E3 EXPO

While noting that 4th quarter software channel could be as crowded as last year, TDK Mediactive CEO Vincent Bitetti told Consumer Electronics Daily: “The only good news about this year is I think you'll see a lot more $29 front line titles that appeal directly to the E [rated] gamer.” He said many publishers had concluded that industry needed lower game prices -- especially for non-AAA titles, saying real debate was whether mass market price should be $29 or $39. He said: “I think if you ask the retailers what is a mass market price point, they will tell you $29. I think $39 is a bit of a no-man’s land.”

Sales executive for major 3rd-party publisher agreed with need for lower game prices but disputed that it would need to be sub-$30: “I think you need $29 for B titles,” one source said. “But even at $29.95 you're not guaranteed shelf space. The real debate is $39 and $49.”

Randy Webster, head of game purchasing at Rogers Video rental chain told us: “I think that there’s room for some games at a higher price such as the EA [Electronic Arts] franchises. But if it’s a [small game with a] small development budget and small marketing and very little awareness, you've got to bring that price down. You can’t have that sitting on the shelf next to a Grand Theft Auto: Vice City at the same price and expect it to sell.” Webster conceded that for rental market, lower software pricing was bit of mixed bag: “It is nicer to have lower inventory costs,” he said, but higher game prices mean that consumers are far more likely to rent rather than buy.

This year’s E3 finds publishing and retailing communities optimistic as well as somewhat nervous. First few months of 2003 haven’t really given much sure indication that console gaming is heading for either another record year or possible slump. As usual, most vital part of year for industry is months away. Bitetti said: “It’s not horrible but it’s not great either. I think the market has been working through inventory by price adjustments and alternative channels. The only new titles that seem to carry the day are those that are anticipated like Def Jam Vendetta or Zelda.”

Webster said general lack of new titles had been somewhat of welcome respite for retailers after torrent of games last holiday: “I've seen a real cutback in the number of titles that have been released. But from our perspective [what’s] been great is that we haven’t had the nonstop stream of product because there are only so many dollars that retailers have to spend and they can’t bring in every piece.”

Executive of leading 3rd-party publisher said only issue right now was that catalog titles weren’t necessarily picking up slack for lack of new hits: “It seems to be really quiet right now,” he said, and retailers he spoke to already were worried about making their May numbers: “Last May was the previous [hardware] price drop, so [results in May this year] are going to be really hard to make up.”

Webster said that while he expected number of new releases to increase as year went on, he didn’t see anywhere close to number of games that were released in 2002: “We might see half the titles we saw last year. A lot of publishers have dropped titles from their release schedule after spending some dollars and deciding ‘Look, this isn’t going to sell.'”

As for hardware price-cut speculation, even Sony Computer Entertainment America apparently is feeling some pressure on PS2, despite indication only days ago that it was comfortable with PS2’s $199 pricing, 3rd-party publishing executive told us: “They're selling them as fast as they can on the one hand, but on the other hand they're not tracking to the numbers that they promised us.” As for Nintendo, executive of another major game publisher said: “I'm not 100% certain what they're going to do [but] the truth is they're going to have to do something” on GameCube pricing. Webster and others said GameCube bundles had been doing so well that company might be able to put off price cut on hardware until early fall. But they said that while software/hardware bundles currently being offered by Nintendo were great for consumers, they weren’t so great for retail because buyers often walked out of store without picking up additional games to play on their new machines. One executive told us: “Nintendo only has to do something to save their relationship at retail. They do not have to do anything for any other reason. They've got money in the bank, they got their next console in development and they only care about their own software.” Despite latter comment, however, Nintendo recently indicated it was taking steps to change that perception, perhaps by drop in royalty rates charged to 3rd-party publishers and efforts to boost 3rd-party game support.