Is the US market ready to embrace a $500 game console?

[Karlston]

$500 ain't what it used to be. —

Is the US market ready to embrace a $500 game console?

A look at history, and inflation, suggests it might be.

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Last week, a Bloomberg report about PS5 component costs suggested the upcoming system would cost no less than $450 for Sony to manufacture. Add in costs for packaging, shipping, and retail markup, and Sony would likely need to charge about $500 per PS5 just to break even on the hardware at launch (though taking a loss on hardware has also been an option, historically).

 

The prospect of a $500 PS5 got industry watchers chattering about whether such a price point could be broadly acceptable to the US console-buying market. A look back at console-pricing history suggests that, while a $500 launch would be at the high end of nominal prices, it actually sits right near the middle of the pack when inflation and median buying power are taken into account.

Inflated expectations?

In the history of the game industry, only two game consoles have launched at an MSRP above $500: the $650 Neo Geo in 1991 and the $700 3DO in 1993 (Fig. 1). Both of those consoles sold for way more than the contemporary competition and became instant niche products, as well as cautionary tales for anyone who might decide to price a console too high in the future.

 

More recently, a few consoles have seen a $500 starting price at launch: the PlayStation 3 in 2006, the Xbox One in 2013, and the upgraded Xbox One X in 2017. In each case, the price was roughly $100 (or 25 percent) more than the closest competition at the time, and that price difference was often cited for the relative underperformance of the high-priced console in question, in terms of sales. That said, both Sony and Microsoft managed to sell millions of systems at that $500 price point relatively recently, and consoles launching at that price managed to remain relevant thanks in part to relatively quick price drops.

 

But discussing nominal prices can be quite misleading when looking back at over four decades of console launches. Adjusted for inflation (using the BLS CPI calculator), a $500 console launching in 2020 would actually be below the mean historical console launch price of $550.36 (Figs. 2 and 3). While that number is skewed somewhat by a few high-priced console launches in the late '70s and early '90s, the median launch price of $460.50 (in 2020 dollars) is a mere rounding error from a $500 MSRP in 2020.

 

Things look a bit different if you limit yourself to more recent history, though. For consoles launched since 2000, the inflation-adjusted median launch price for a US console dips to $444.50, and the mean drops down to $461. That doesn't make a $500 launch seem ridiculous or anything, but it does place it a bit above the recent "average" for TV-based consoles.

 

Of course, lumping all TV consoles together can be a bit misleading, too. When you arrange historical prices by console-maker (Figs. 4 and 5), it's easy to see that Nintendo and Sega consoles tend to be priced well below the inflation-adjusted average (with a few notable exceptions). Microsoft's consoles, meanwhile, are clustered a bit above the historical average, with a median inflation-adjusted launch price of $535 across four Xbox systems.

 

Sony, on the other hand, has played its PlayStation launch pricing closer to the middle. The PlayStation 2's inflation-adjusted price of $459 dollars represents the median launch for a Sony console, and it hits the historical median for all game consoles almost precisely. If you take the PS3 out of the mix (which even Sony now seems to concede was overpriced at launch), every PlayStation console has fallen in a sweet spot between $436 and $516 inflation-adjusted dollars. A $500 PS5 would be near the high end of that range but wouldn't be out of the ordinary by any means.

Comparative buying power

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While comparing prices in constant 2020 dollars is useful, we can also look back at how previous console launches would show up as bottom-line expenses for an "average" American household over the years. To do that, we compared console launch prices to the median household income reported by the US Census for that launch year (for systems launched since 1984). We also estimated how a $500 console launched in 2020 would impact an estimated median household income today.

 

(Though census data is not yet available for 2020, we projected inflation-adjusted growth since 2018 to come to a reasonable guess. The actual number may change the percentages reported here by a few hundredths of a point. Using median incomes also obscures a wide range of households at the extreme ends of the scale, but it serves as a good baseline.)

 

Looking at pricing this way shows that a $500 asking price is far from unreasonable in 2020 America (Figs. 6 and 7). While the median console historically has represented 0.73 percent of the median household income at launch, a $500 console in 2020 would represent about 0.74 percent of a median household income today.

 

Sorting by console maker, we can see that Sony's consoles are usually right in the middle of the pack when it comes to raw income-relative impact as well (Figs. 8 and 9). With the pricey exception of the PlayStation 3, Sony's systems are all clustered very close to the overall median on this metric, though Sony's price-to-income ratio has been coming down a bit over time.

 

As always, the market reception for a new console depends as much on the competition as the absolute price. That's especially true if that competition delivers an overall similar gaming experience at a significantly lower price (see: Xbox 360 and PS4, respectively). The rising popularity of free-to-play mobile games, cheap portable hybrid options like the Switch, and even high-end game streaming on low-end hardware could make a pricey new console seem less appealing.

 

But don't dismiss the idea of a $500 console just because that sounds like a higher price than normal. Measured on equal terms, that launch pricing would be well within historical norms.

 

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Source: Is the US market ready to embrace a $500 game console? (Ars Technica)  

 

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