Nintendo Enters Price War with $50 GameCube Cut

Nintendo announced Monday that it is cutting the U.S. price of its GameCube gaming console to US$149.95, a 25 percent reduction from the original list price of $199. The reduced price will take effect Tuesday.

The company implied that the cut was timed to coincide with the start of the Electronic Entertainment Expo (E3) annual trade show, taking place in Los Angeles this week.

However, Giga Information Group research analyst Rob Enderle told the E-Commerce Times that Nintendo's $50 price cut is clearly a reaction to cuts made by Sony and Microsoft last week.

Those companies -- Nintendo's closest competitors in the console arena -- slashed the prices of the Xbox and PlayStation 2 to $199.

The gaming business takes in about $20 billion worldwide annually. U.S. sales of gaming hardware and software totaled nearly $10 billion in 2001.

Offering the Best

"It's simple, really," Nintendo of America executive vice president Peter MacDougall said. "Nintendo is committed to offering our players the best games and the best price."

MacDougall noted that Nintendo was the first manufacturer to offer its gaming console for less than $200.

"Now we're leading the industry to $149, allowing even more players around the world to get their hands on legendary favorites like Mario, Zelda, Star Fox and Metroid this year," MacDougall added.

Executives at Nintendo have not announced a price cut for any of the company's software titles, which presently retail for about $50 each.

Giga's Enderle told the E-Commerce Times in an earlier interview that console manufacturers typically sell consoles as loss leaders, recouping their profits on software titles.

No Magic Number

Enderle noted that he does not believe Nintendo's cut will have the same impact on the marketplace as Sony's and Microsoft's.

According to Enderle, $199 is one of the "magic price points" that tend to occur when production volume has jumped. At that price point, potential customers who have not considered buying a console before will do so because the price no longer seems exorbitant.

Enderle said that in the gaming console market, the next magic price point is below $100, and another one is below $50.

What's the Game Plan?

In an earlier interview, Enderle pointed out that while Nintendo is a lower-cost alternative to Xbox and PlayStation 2, it does not have the breadth of features that its competitors offer, such as DVD playback and other attributes generally associated with gaming machines.

On the heels of criticism that Nintendo did not have an online gaming strategy to compete with either PlayStation or Xbox, Nintendo announced last week that it will begin selling adapters for both dial-up and broadband modems in the fall for just under $35.

"The profitable part of the online business is very likely several years away," Satoru Iwata, Nintendo's corporate planning director, said last week.

"Entering the business because it is the hot topic of the day does not make a profitable business or satisfied customers, [which] is why it will be a part of Nintendo's strategy, not the mainstay, as other companies are attempting to do," Iwata added.