Friday, January 20, 2006


Industry leading publisher Electronic Arts has officially cut the prices of many of its current-generation titles by between $10 and $20 in North America, reacting to continued sluggish sales of home console software in the early weeks of 2006...

In total, 48 of EA's current-generation SKUs, including the majority of its most valuable properties, are falling in price - and according to analysts at Banc of America Securities, it may not just be back catalogue titles which see price drops this quarter.

"We expect more price cuts to come from other publishers," the firm's analyst team commented in a research note today, "and believe very few new current gen releases will be able to charge a premium price. The Godfather is the only EA game that we think has a chance to be priced at $49.99 at launch - though we would not be surprised to see the game priced at $39.99."

Make no mistake--EA has just all but publicly announced that their current quarter is in the toilet. And in a desperate attempt to hit their projected revenue number, they've discounted the entire industry, because most other publishers will be forced to follow suit.

Every time there's a generational console transition, well-paid analysts talk about how the financial beating everyone took the last time around was unnecessary, and they sketch out brilliant strategies to avoid the pain.

Then everyone gets a boot to the face anyway.

Here's the deal. Companies get flayed by analysts for "abandoning" the current generation of platforms when next-gen consoles launch. What no one acknowledges, though, is that the transition creates a demand gap. There is a certain percentage of the market right now that has seen what the 360 can do and doesn't want to invest any more money in current-gen console games, even if they don't have a 360. Maybe that's only true for the 360 in conjunction with an HD set, but current generation consoles no longer give the "best" experience available.

I'm leaving PC's out of this, so get those hands off your keyboard.

There are a few games (like Guitar Hero) that transcend their generation, but there are a ton of people right now who have seen the 360 in HD and can't get very worked up about buying another PS2 title that looks craptastic in comparison. Meanwhile, a new PS2 or Xbox title gets released about every five minutes these days.

In other words, demand is dropping rapidly, but supply is not.

Here's the other problem. As consumers transition to the new console, they buy plenty of games, but there are far fewer games out there (particularly with the asstastic backward compatibility of the 360). Even worse, far fewer 360's have been available than originally promised, which even pollutes the potential of new 360 titles (at least temporarily).

In other words, demand (for both the console and the games) is high, but supply is not.

It's very misleading (and easy) to say that a generation of consoles was abandoned too quickly, because you can always point to a few games released after the next-gen got introduced that still sold really, really well. And it's true--but it's true because supply fell off the cliff. If everyone kept supporting the current generation indefinitely, they'd get hammered, because rapidly falling demand would puke on indefinite supply.

So it's absolutely inevitable in a console transition that not as many games in total are going to be sold, and it's going to be a significant decline, at least temporarily.

If gaming companies were more honest with analysts when it comes to financial projections, this wouldn't be a surprise, but it's awkward (to say the least) to predict a significant decline in your revenues as part of a console transition. So they don't, and then they act surprised when the large wet fish slaps them in the face.

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