PS3 negative price hype is just that

At first glance, $999 for the 60GB version of the PS3 seems ludicrous compared to $188 for the PS2. After all, until a decent PS3 games library is built up, many - maybe most - of the games being played on the new high priced console will probably be PS2 games. Likewise, most of the videos being played will probably be ordinary DVDs rather than high definition Blu-ray discs.

Then I remembered something. Almost six years ago, on November 30 2000, the PS2 went on sale in Australia for $750. Back then, it seemed an outrageous price, even if it did include a DVD player, which themselves were quite pricey in an era when most people were still using VCRs. In addition, there weren't all that many PS2 games available in the early days. Regardless, they just seemed to walk out the door. Shops couldn't get enough stock in the early months.

We already had a Nintendo 64 and DVD players were gradually coming down in price, so we decided to pass on the PS2. To cut a long story short, we decided to wait until prices came down. By the time we purchased our PS2 it was about half the size and one quarter the price of the original PS2. During that time, 106 million PS2 consoles were sold around the world. Sales kept ticking over throughout the period that the console gradually dropped in price and the PS2 reportedly still outsells the Xbox 360 today, even though it's a generation behind.

The question is then, what will happen when PS3 is released? This time there is competition from both Nintendo and Microsoft, which both have cheaper machines. In addition, the Nintendo Wii offers a novel gaming experience with its Wiimote and Xbox 360 has a respectable range titles in its kit bag.

When PS3 and Wii first hit the shelves in Japan and the US, demand will easily outstrip supply for both products. When they finally reach Europe and Australia, the same thing will happen. In the affluent markets of the West, the high price of PS3 will not deter early adopter hard core gamers.

Quite a few PS2 gamers will probably hold back until PS3 prices come down. Some or even many may buy a Wii in the interim because, unlike Xbox 360, it offers a different gaming experience to what they already have. It is unlikely that many PS2 owners will opt to buy an Xbox 360 just because of the higher price of PS3, especially if they have a considerable investment in PS2 games.

However, a number of market analysts are saying that the first year of sales does not determine the success of a console. The sales cycles of the PS1 and PS2 have already demonstrated that. By the time that initial demand for PS3 drops off, there will be more exclusive PS3 games in the stable and Sony will slash the console price, which will stimulate further demand. If PS3 follows the path of PS2, and Sony gets its way, the cycle of successive price cuts and an ever growing library of PS3 games will continue for about five years until PS3 is a fraction the price it is today.

Sony is banking on this happening because there is more at stake for the company than maintaining its leadership of the console market. Getting PS3 with an integrated Blu-ray player into people's living rooms is also a key part of Sony's plan to win the high definition video format war. If it can repeat the 100 million unit success of PS1 and PS2, then PS3 could go a long way to helping Sony achieve critical mass for its high definition format.

This Australian summer and Northern Hemisphere winter could prove to be a fascinating period for the gaming market.