Why Xbox One, PS4 price cuts aren't coming until 2015

Thanks to massively successful launches and finely tuned hardware, Sony and Microsoft have the luxury of waiting to begin dropping their prices.

CNET

Those holding out for a cheaper next-gen console come next year may need to reconsider their timeline for taking the plunge.

This month's PlayStation 4 and Xbox One launches have given Sony and Microsoft a definitive and reassuring answer to the demand question mark looming over high-end living room gaming. That means that unless one starts to aggressively undercut the other, we aren't likely to see our options decrease in price until well into the devices' life cycles.

"You would certainly cut the price of hardware because there is a demand issue," said Colin Sebastian, an interactive media analyst with Baird Research. "GameStop has 30 million PowerUp Rewards members who are active gamers, and we're only predicting sales of 6 million total units," he added of combined Xbox One and PS4 sales and the amount of growth 2014 holds.

At launch, that demand issue is nowhere in sight. When Sony debuted the PlayStation 3 in the US in November of 2006 -- for an unappealing $599 and a year after Microsoft released its Xbox 360 -- it sold a paltry 197,000 units in the first two weeks. Sony would go on to cut the price of its console eight months later. Fast-forward seven years and the change is eye-opening: Sony sold 1 million PS4 units in under 24 hours in the US and Canada.

And it's not alone in that success. Microsoft's Xbox One launch -- albeit in 13 markets worldwide -- may not have been as strong as Sony's the week prior, but it too saw sales of more than 1 million units and far surpassed those of the Xbox 360. Both consoles are now sold out at all major retailers.

While these launches have been a celebratory moment for the regaining health of console gaming, the one issue all fence-sitting consumers must now grapple with is when to make the next-gen dive. Unfortunately, because Sony and Microsoft have had such blockbuster launches this time around, it's very unlikely the Xbox One or PS4 will see a discount at the usual six- to eight-month mark favored by makers of struggling systems.

Game console price cuts by the numbers
"The two new consoles will likely not have official price drops until spring 2015, at the earliest," Matt Matthews, a game industry analyst who writes for Gamasutra, forecast in an interview with CNET.

That falls in line with history. The Xbox 360, launched in November 2005 to warm reception, didn't see a price drop until August of 2007, and even then it was only $50 on its middle-tier model and $20 on its low- and high-end models. The Nintendo Wii, on the other hand, launched at $249 in November of 2006 and didn't cut its price for nearly three years due to the strength of its sales; the Wii ended up outselling its competitors by tens of millions of units and broke December sales records after its 2009 price cut.

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Sony set an especially important precedent when it too waited roughly a year and a half to discount its PlayStation 2, doing so in May of 2002 by $100 and selling a then-record 690,000 consoles the following month.

That puts console discounts for systems with healthy launches on a standard 18- to 20-month cycle, excluding the Wii due to its reasonable initial price. The only deviations from this are with consoles that have poor debuts and lackluster sales in the immediate months post-launch. The GameCube was facing extreme competition from the PS2 -- resulting in Nintendo discounting it from $199 to $150 six months in -- while Microsoft was attempting to force its way onto the gaming mainstream with its initial Xbox and turned to a $100 discount six months after launch to make inroads in that goal.

Other examples of launch hurdles pairing with the early onset of price cuts are the Wii U and the PlayStation 3, devices that were both plagued with lackluster sales and poor launch lineups that forced their makers to move more aggressively and earlier. Nintendo eventually caved 10 months after its Wii U launch and discounted the console by $50 in an attempt to improve sales momentum into the holiday season.

And only eight months into the PS3's life cycle, Sony was forced to discontinue its unfavorable 20GB model and cut the price of its 60GB model by $100. That substantial move helped it push more than double the number of units monthly, but it meant that Sony was then losing even more money on each console sold, ultimately adding up to a $3.3 billion loss after two and a half years.

Video game console price cuts are governed by demand. Looking at sales histories of the previous generation, it's easy to see why the Sony moved faster and more aggressively on discounts and introducing new models. Wikia

All of this illustrates that when it comes to the PS4 and Xbox One, we're seeing two of the most well-received console launches in gaming history. Both systems' midnight events went off without a hitch; day one sales clocked more than 1 million units; and each platform is offering consumers improved hardware and software at a more reasonable price point than the previous generation. To call the launches and Sony and Microsoft's preparedness for their respective moments successful would be an understatement.

Granted, Sony is grappling with thousands of units -- less than 1 percent of PS4s it claims -- that are experiencing what users call a "blue light of death" during startup, while Microsoft has just publicly acknowledged a disc drive issue that it's aiming to quickly snuff out. But those issues are easily addressable and nowhere near the disasters with the Xbox 360's "red ring of death" hardware failure and the shortage crunch Sony ran into with its PS3 launch.

Even Microsoft with its Xbox One at its higher price point of $499.99 is not projected to make a drastic move with regards to price if it can even remotely keep up with Sony's cheaper alternative.

"On the Microsoft side, it would take dramatically low sales -- around 50,000 per month in the US -- for them to consider a real price drop," Matthews said. "That happened to Nintendo's Wii U this summer, and I think Microsoft isn't likely to be as stoic as Nintendo in this regard."

With Sony, Matthews noted that it has traditionally announced its last few price changes at August's GamesCom in Germany. Pending Sony's rebuttal to any potential Microsoft price cut that could dramatically hasten the race to the bottom, that standard will likely stick around. "The nearest point at which that makes sense is August 2015, so I wouldn't expect a price drop until then," he said.

Microsoft declined to comment on console price cuts or sales strategy, and Sony did not respond to requests for comment.

Of course, that doesn't discount the possibility of a retailer price drop in the realm of 10 percent. That's happened before with the PS3 and Xbox 360 as soon as four months after launch, and will likely come from major players like BestBuy and Walmart rather than from more gamer-oriented retailers like GameStop.

"Retailers will use certain products to drive traffic," Sebastian noted of major retailer discounts. "That's very different than an MSRP cut. Next holiday we can expect these consoles to be at the same price," he added.

Bundles are the next best bargain
While hard price cuts in the realm of $50 to $100 are likely off the table for 2014, that doesn't rule out the next best bang for one's buck: bundles. With console exclusives Infamous: Second Son and Titanfall coming to the PS4 and Xbox One respectively in March, both systems' platforms will be more rounded out and therefore more ripe for Sony and Microsoft to incentivize potential buyers.

Respawn Entertainment

"I would expect Sony and Microsoft to let those exclusives try to move hardware on their own first, during midyear," Matthews noted, saying by October we may see Infamous or Titanfall bundles. "If there are midyear bundles, I would expect them to consist of launch titles, not new titles."

"You get to titles like Titanfall in March and Destiny in June and they [Sony and Microsoft] expect those to be drive titles for next-gen platforms," Sebastian said. By timing bundles against those big-name releases, Microsoft and Sony can beef up the pull to play new games, and push more units, by throwing in free titles.

Still, a Killzone: Shadow Fall or Ryse: Son of Rome bundle, alongside the availability of games like Infamous and Titanfall, could make a March purchase the perfect time to jump in, especially for those who were holding off both in hope for a potential price cut and due to the systems' lackluster launch lineup.

The Kinect question

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That brings us to the Kinect, one of the more pertinent debate fixtures on the plate for those who have yet to declare their allegiance to the PS4 or Xbox One.

After all, Sony was only able to achieve the price of $399.99 by unbundling its less expensive -- yet less capable -- motion sensor and selling it for $60. If Microsoft did that, it could likely boost sales and offer a true point of differentiation from its higher-end model in the absence of rolling out consoles with smaller hard drives, which is nearing an impossibility at this stage given that games must be installed on both systems' HDDs.

"I am still not ruling out the possibility that they will consider a Kinect-less version in 2014," said Matthews. "That would lower the price of entry to Microsoft's system, but would also fracture the baseline hardware that developers can count on. For that reason, I'm not sure they'll pull the trigger on a Kinect-less Xbox One, but it should be considered."

Fracturing that baseline, though, is exactly what makes Sebastian apprehensive to expect a Kinect-less Xbox One anytime in the near future. "Microsoft thinks that capability is integral to the platform," he said.

That means Microsoft is willing to play the long game with motion control, even at the expense of pushing fewer units. By unbundling the devices, Microsoft would be signaling to developers that its vision for the Xbox-centered entertainment hub -- equipped with voice and motion control -- could crack under the pressure to wrack up more sales.

Although Microsoft conceded to criticism and had to repeatedly ensure gamers that the Xbox One would in fact work without the Kinect plugged in, unbundling the two devices would seem to be counterproductive to Microsoft's overall plan. Back in August, Microsoft Corporate Vice President Phil Harrison said in response to an unbundling question posed by CVG , "Xbox One is Kinect. They are not separate systems. An Xbox One has chips, it has memory, it has Blu-ray, it has Kinect, it has a controller. These are all part of the platform ecosystem."

If you're still on the fence about the next-gen consoles going into Black Friday and the holiday season, there are three important points to consider: History and launch success tells us that neither the Xbox One nor PS4 are projected to sell poorly enough to warrant price cuts within the first 12 or even 18 months; bundles are on the horizon, though all but certainly reserved for launch titles until next fall; and Microsoft unbundling the Kinect to reach an Xbox One price of $399.99 is an extreme long shot that would come with little benefit to Microsoft or developers.

So while there are a lot of reasons to hold off on making the move to next-gen console gaming , waiting for price cuts should not be one of them.

 

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