PS3: No longer the next-gen console punching bag

Is Sony's PlayStation 3 at long last ready to stop being its rivals' punching bag?

With its first-place finish in September in number of units sold, Sony finally has a tangible response to persistent criticism that its PS3 can't keep up with its next-generation video game console competitors, Microsoft's Xbox 360 and Nintendo's Wii.

For the month, according to video game analysts at the NPD Group, Sony sold 491,800 PS3s in the United States, while Nintendo moved 462,800 Wiis and consumers bought 352,600 of Microsoft's Xbox 360s. It was the first time since the next-generation console wars began in earnest nearly three years ago that the PS3 finished a month on top.

Yet, as everyone knows, a single positive piece of data does not a trend make--something Sony's competitors are quick to point out--especially when the existing trend is so contradictory. So, on the heels of those rosy-at-long-last September numbers, and the August price cut and launch of the new PS3 Slim that preceded them, can Sony finally demonstrate conclusively to its detractors that it is through being badly outmaneuvered?

According to a group of experts interviewed for this article, the answer appears to be yes. No one will yet predict that Sony is ready to grab hold of the leadership position it enjoyed in previous console generations. However, there does seem to be widespread agreement that for the first time since its November 2006 launch, the PS3 is ready to seriously compete for that role.

"I think that the fact that they did introduce a new footprint for the PS3 (the Slim) and a lower price point, coupled with some of the really high-demand games" coming out for the platform, "could really prime the pump for Sony to have a resurgence for the PS3," said Brian Crecente, editor of the popular video game blog Kotaku.

"I do think that we are probably going to see, if not it topping the charts leading into the holiday, it...doing better than it has in (the recent) past," he said.

Beginning a comeback in a hole
There's no doubt, however, that Sony is beginning any PS3 resurgence in a rather sizable hole. Since the start of the current console generation (in November 2006 for the PS3 and the Wii, and November 2005 for the Xbox 360), Sony has sold 25.26 million PS3s worldwide and 9.76 million in the U.S, according to VGChartz, a Web site that aggregates video game sales data. By comparison, the Wii has moved 54.19 million units worldwide, of which 25.05 million were in the U.S., and Microsoft--with its one-year head-start--has sold 32.51 million Xboxes, including 18.66 million in the U.S.

By those measures, the PS3 has a minimum of a 2-1 disadvantage, in the U.S. at least, when it comes to the PS3 install base. That fact puts pressure on third-party developers working on games for the console because they know that there are at least twice as many Xbox buyers in the U.S. as there are for the PS3.

That dynamic, in turn, has led to one of the biggest complaints over the years about the PS3: that the software lineup has paled in comparison to that of the Xbox. To be sure, Sony has always disputed that notion.

Hard to prognosticate
Over the last three years, this space has been home to multiple arguments that the PS3 would one day emerge as the clear-cut winner of the next-gen console wars. But there's also been plenty of room here for the theory that Sony's flagship video game device was doomed to languish behind the Xbox and the Wii.

Clearly, prognostication about the PS3's fortunes has been difficult. And with the state of the economy in flux, supply chains always hard to analyze, and consumers' whims ever-changing, there's no way to know for sure how the console wars will go from here on out.

But Sony definitely feels like it's finally in the driver's seat.

"Overall, we're just hitting a stride that just (reasserts) what we knew all along--that there's tremendous value under the (PS3's) hood," said Julie Han, Sony PlayStation spokesperson.

That's a notion that video game industry analysts agree with. Yet when talking about Sony's laudable September numbers, they also point, first and foremost, to the fact that there were a lot of consumers sitting on the sidelines, just waiting for the company to lower the PS3's price. In August, with the release of the $299 PS3 Slim, Sony did just that.

"It's really a combination of pent-up demand and (the point) where value and pricing meet," said Jesse Divnich, an analyst with Electronic Entertainment Design and Research. "The (thing) about the PS3 was, it was really a system ahead of its time. Developers didn't really have the capabilities to take advantage of all the power in the PS3, and at the same time you had systems like the Wii, which just had perfect timing. But now, (the PS3) has caught up."

That means, Divnich continued, that the time has finally come where the PS3's jam-packed collection of a powerful video game console, a Blu-ray player, and built-in Wi-Fi met consumers' needs, even as the price dropped to where large numbers of people feel they can afford it. The lowest-priced Xbox costs $199, while the Wii runs $249.

Finally hitting a 'sweet spot'
Divnich said that at $299, the PS3 has finally hit its "sweet spot." And he said while it's likely the initial boost of sales that came as a result of the August price cut will slow down, "Long term, into 2010 and 2011, I don't think the PS3 is going to be in last place to the degree it was before. The gap between the systems will be much smaller."

For his part, Wedbush Morgan analyst Michael Pachter said he expects the PS3 to outsell the Xbox during the holiday season because of the perceived value of the $299 PS3, loaded as it is with the Blu-ray player and Wi-Fi. He and others do, however, still think that Nintendo will sell more Wiis because of the broader general appeal of that device and the fact that it is seen as a better Christmas present.

"Is Sony back? Yeah," said Pachter. "Are they back as the leader? Probably not. Are they back in second? Probably."

Another analyst, Lazard Capital Markets Senior Vice President Colin Sebastian, also attributed the September PS3 sales boost to the "pent-up" demand for a lower price, and said that there would have been serious trouble for the console if the results had not been so good.

"If they had not shown the uptick with the price cut," Sebastian said, "then we'd all be putting a nail in the coffin for (the PS3). But what we're seeing is that there's still life left for the PS3, and that's an encouraging data point (for Sony)."

Still, as Pachter put it, "Microsoft is not the type of company that's going to stay (down) for a long time. They don't like it."

That's why, Pachter said, if the PS3 can keep pace with the Xbox for the next few months, there's a good chance that Microsoft will drop the price of its console another $50 sometime early next year, a move he doesn't think Sony would be able to match.

To be sure, Microsoft wouldn't easily cut the Xbox's price--"they're certainly not going to give money away just for the hell of it," Pachter said--but it is an arrow in their quiver.

Sebastian said he, too, could see an Xbox price cut next year, as well as one for the Wii. Would Sony follow suit if its rivals did so?

"They could do it," Sebastian said. "It's just a matter of what their tolerance is for absorbing less revenue on the hardware side, and whether they can make up that revenue on the software side."

According to Xbox spokesman David Dennis, a price cut is just one of many things Microsoft would consider as a way to keep pace with the market. He said other possibilities include different hardware and software bundles. "There's a lot of different levers you can pull," Dennis said.

Not surprisingly, Dennis is dismissive of the PS3's sales boost. He agreed that there were a lot of people waiting to buy the console at a lower price, but said that the impressive initial jump in units sold came as a result of early leaks of pictures and information about the PS3 Slim, and so there were "months of pent-up demand."

Further, he predicted that Sony would not see a sustained resurgence for its console and that even in September, when the PS3 outsold the Xbox and the Wii, Microsoft brought in more revenue for the entire Xbox ecosystem--including accessories, software, and fees for online services--than did Sony.

The two halves of 2010
In the end, most people seem to agree that the overall fortunes of the consoles have as much to do with software as price. That's why each of the analysts talked to for this story pointed to a bright future for Sony: They see a lot of strength in the PS3's coming games lineup, which includes titles like God of War III and Gran Turismo 5. And then there's also Sony's PlayStation Motion Controller, which could bring the PS3 more Wii-like functionality.

That's why Divnich said he thinks that the PS3 is likely to dominate the first half of 2010.

But he also expects that Microsoft will release its highly anticipated Project Natal motion-sensitive controller in the second half of 2010, a move that could stir up the console pot anew. Indeed, Divnich said he thinks that the Xbox will once again overtake the PS3 at that point.

And after that? It's anybody's guess.