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Resurgent Rivals Threaten PlayStation's Lead

Resurgent Rivals Threaten PlayStation's Lead

By Nick Wingfield, The New York Times | Updated: 5 January 2015 18:33 IST

Not so fast, Sony. Your two biggest rivals in the game console business, Microsoft and Nintendo, are showing signs of life.

After the last holiday season, when competitors made a series of missteps, Sony looked as if it might gain an unassailable lead in the console market over the course of 2014 with its PlayStation 4. Nintendo was losing money, and Microsoft - which released the Xbox One system around the same time as the PlayStation 4 last fall - lagged behind Sony's sales, a gulf that widened as the new year progressed.

During the recent holiday season, though, both companies were resurgent, with Nintendo releasing a series of hit games for its Wii U system that underscored the unwavering loyalty of its fan base. And Microsoft, Sony's most direct competitor in the games market, cut the starting price of the Xbox One to $349, $50 cheaper than the PlayStation 4. The move helped it regain a lead in sales in the United States, the most important market for the product.

"It seemed like Microsoft this holiday season had a better message for core gamers than Sony," said David Cole, an analyst at DFC Intelligence, a game research firm. "The price drop is huge - you can't discount that."

On November 2, with the most important selling season approaching, Microsoft temporarily dropped the starting price of Xbox One, a promotion that ended Saturday.

The discount highlighted a sharp turn in strategy by Microsoft. When the Xbox One was first released, it included the Kinect motion-sensing device, and the package was $499 - $100 more than the PlayStation 4. In June, Microsoft began selling an Xbox One without the Kinect, for $399.

The initial high price of the Xbox One was one of several mistakes analysts believe Microsoft made when it released the system. It also alienated many gamers early on with a plan, abandoned before the console hit shelves, that could have restricted purchases of used games and with overemphasis of the Xbox One's nongame entertainment features.

Microsoft's price-cutting finally paid off in November, allowing it to outsell the PS4 in the US, Microsoft said, citing data from the NPD Group, a research firm. (NPD does not publicly release sales information for individual consoles.)

"Clearly, Sony has jumped out to a lead with a great console and, I think, a great pricing strategy," Blake Jorgensen, chief financial officer at the game developer Electronic Arts, said at an investor conference in November. "But Microsoft is catching up quickly."

A Sony spokeswoman declined to comment on Microsoft's improved position in the U.S. Mike Nichols, corporate vice president for Xbox marketing at Microsoft, said, "We're proud of the progress we've made in 2014 and can't wait to build on that momentum in the year ahead."

Sony and Microsoft have not said how well their systems sold in December, but it is a safe bet that the PlayStation 4 still has an overall sales edge on Xbox One. In mid-November, Microsoft said it was on the verge of shipping its 10 millionth Xbox One, while the previous month Sony said it had shipped 13.5 million PlayStation 4s. Both figures represent sales of consoles to retailers, not necessarily systems sold to the public.

While Sony held firm with the price of the PS4, retailers bundled popular games with the system throughout the holidays to entice more shoppers. And sales of the Xbox One could suffer if Microsoft decides not to make its price cut permanent.

The U.S. and Britain continue to be strongholds for Microsoft's Xbox business, but it is weaker outside those markets. The company's games business is especially feeble in Japan, one of the largest games markets in the world, where Sony and Nintendo are homegrown favorites.

Nintendo's fortunes have improved, too, though the company has not come close to repeating the success of the original Wii, the motion-sensing console that became a breakout hit during the last generation of games hardware. The Wii U, its successor, is centered on a touch-screen game controller that has taken a while to catch on with consumers. The company said it had sold 7.29 million Wii U consoles as of September 30, even though it went on sale a year before the latest Microsoft and Sony offerings.

Even though its hardware sales are lagging, Nintendo makes the most popular games for its systems, including longtime game franchises like Mario, Zelda and Pokémon. Those games give the company another big source of income. Several of its Wii U titles, including Super Smash Bros. and Mario Kart 8, are big sellers.

After posting a net loss last year, Nintendo is forecasting a profit for its current fiscal year, which ends March 31. Cole, the game industry analyst, said he believed the stronger sales of newer Wii U games showed that Nintendo could still attract its longtime dedicated fans, but not necessarily the wide range of gamers, including fitness fanatics and seniors, that the company won over with the original Wii.

Also troubling for the company is that children today are increasingly playing games on tablets and smartphones, where Nintendo has no real presence, rather than on Nintendo handhelds, an important business for the company.

"That's the biggest concern with Nintendo is that they lose out on that audience," Cole said.

That is also a worry for Microsoft, which partly explains why it paid $2.5 billion (roughly Rs. 15,812 crores) last year to acquire the developer of Minecraft, an enormously popular game for mobile devices, consoles and computers.

Michael Pachter, an analyst at Wedbush Securities, said he thought Microsoft's price-cutting showed how aggressive it was willing to be to beat Sony in the console market.

"In my view, Sony will be content with second place if they sell 50 percent more consoles than last cycle," he said, "while Microsoft won't be content with second place no matter how many consoles they sell."

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