The PS4 Pricing Game: What might Sony do?

"Unlike PS3, we are not planning a major loss to be incurred with the launch of PS4..."

-- Sony CFO Masaru Kato, May 9th, 2013

It's understandable to want to jump to conclusions based on Mr. Kato's statement above. Does this mean that Sony would dare to repeat its $600 miscalculation from 2006? Could this mean higher costs than expected at retail and potentially put off consumers? Does this open the door for Microsoft to undercut Sony out of the gate?

To those of you asking these questions, I urge patience. While I'm comfortable at this point in projecting the suggested price point for the PlayStation 4 somewhere between $400 and $500, we've been down this road before. Flashing back to 2011, when Sony was set to unveil the Vita, there were similar questions as to the price point, given the tech involved. $250 was not what most people expected, even though Nintendo went on to drop the 3DS price point and made Vita seem far more expensive than what it was. I'm not saying that we should expect another bombshell in terms of asking price, but I'm suggesting that we leave the door open a bit wider when it comes to making pre-launch price estimates.

The $400-$500 window is not a mass-market window, and I believe that Sony and Microsoft execs know this. It is, however, enticing to early adopters and core consumers who have been waiting impatiently for new hardware and if that window is met, sales will be okay at the start. While we'd like console hardware sales to sprint off the blocks, the hardware race isn't a 100-yard dash. Generational transition will occur in waves, starting with early adopters and at least portions of the core consumer demographic in the launch window (first 6 months) and then will gradually expand to other demos from there as more games fill the channel and price cuts come.

The chances for actual launch pricing being outside of the $400-$500 window decrease on either side of the range. Anything more than $500 is risky given Sony's failure to drive the PlayStation 3 at a high price point and that it's still fresh in the minds of the consumer demographic that will be targeted at launch. Anything less than $400 would seem to call Mr. Kato's statement above, based on what we've seen and heard regarding the hardware. It's not going to be a cheap console to produce. If I had assign probability percentages for these ranges as of today, they'd look something like this:

• Less than $400: 25%
• Between $400 and $500: 60%
• Greater than $500: 15%

It's fair to point out that the idea of subsidized console sales makes sense to limit losses on hardware while also presenting the platforms at an affordable up-front cost. Microsoft piloted the idea with the Xbox 360 last year and the plan expanded from its own branded stores to other retailers. I believe that Microsoft is in a position to do so again with its new console, and I believe that Sony can present a comparable subsidy plan to match for the PlayStation 4. In the long run, these subsidy plans can make more money for Microsoft and Sony than by otherwise selling the hardware at a base price thanks to multi-year commitments to their online services. Nothing has been reported or rumored in terms of potential Sony subsidy plans, but it makes sense as something to watch for-- either during E3 or a bit later this summer when launch details are firmed up.

Of course, the time for speculation will be replaced by more accurate analysis and projection once Sony and Microsoft come forward with their launch specifics and strategies. For now, though, based on what we know, I believe that Kato's comments should not be misconstrued for another exorbitant launch.