Nintendo, Under Extreme Pressure, Cuts Wii Prices

Nintendo has shipped more than 52 million Wii units worldwide since it was first launched in late 2006. That dwarfs the sales of its rival consoles the Microsoft (MSFT) Xbox 360 and Sony (SNE) PS3. The third generation of the PlayStation was supposed to salvage Sony’s reputation and earnings in the consumer electronics markets. Instead its has been a very public failure. Microsoft has had technical problems with the Xbox which caused the company to take a $1.1 billion charge for warranty and repair costs.

To salvage sales for the holiday season, Microsoft and Sony have cut prices on their models, in some cases by $100. Microsoft says it has seen a pick-up sales. Sony management recently said that PS3 units shipped have jumped 300% since the price cut and that the firm may actually run low on supply which could hurt its sales in the last quarter of the year.

The tremendous reaction to the lower prices is clearly putting pressure on Wii sales. The recession has cut console sales by as much as 30% compared to last year.  New sales of an Xbox 360 or PS3 is likely helping them improve market share. In a recession console sales are probably a zero-sum game.

Nintendo will cut the price of the Wii, realizing that its position is eroding quickly. It has to hope that the move comes in time to keep its No.1 spot as Christmas approaches.

According toThe Wall Street Journal, “Nintendo Co. is knocking $50 off the price of its Wii video game console, hoping to counter the effects of the recession and expand the market for the popular device.” That will bring the price under $200.  The will put the Wii’s retail sticker well below the PS3 and Xbox 360 again.

The Wii has proved itself to be the most popular console, but it was about to have that position threatened. With the discount it is about to announce, its margins may drop a good deal but it should hold on to the No.1 spot.

Douglas A. McIntyre