Consoles fly out door in Xmas price war

By PETER GRIFFIN

Sony sold 5000 of its PlayStation 2 video gaming consoles in the week before Christmas, but retailers made little money out of the sales, instead relying on games and peripheral devices to boost their profits.

In the two months before Christmas the New Zealand public snapped up more than 16,000 PlayStation 2 consoles and 14,000 of the cheaper, less-powerful PS one models.

PlayStation 2 sales were up 100 per cent on the same week in the previous year, but large retailers in most cases sold the consoles at or below cost just to compete.

A Dick Smith spokesman said the company had dropped the price of PlayStation 2 from $678 to $648 and then to $595 during the Christmas period in a bid to beat rival Electronics Boutique, which was selling the consoles at $599.

"$595 cost plus GST was the breakeven point on PlayStation 2 for us," he said.

"Either [Electronics Boutique] got them cheaper than we did or they made a loss on them. We certainly weren't making any money."

Dick Smith in fact made tiny margins on most of its large electronic products but peripherals such as game controllers, DVD remote controls and memory cards boosted revenue from PlayStation.

The best margin came on simple products such as telephone sockets, which sold in large quantities but at low prices.

Electronics Boutique executive Andrew Jose said selling the consoles near cost price was necessary to build up a customer base and therefore make return sales on games and peripherals.

"The margins have always been fairly slim on the console side of the business. But the important thing is to get the consoles out there and build an installed base," he said, adding that margins on games which sold for up to $150 varied from 20 to 30 per cent.

In the US, Microsoft's Xbox made its debut in November priced at $US299 ($708), the same as the standard price for PlayStation 2.

In Japan, where Xbox will be launched on February 22, it will take on PlayStation 2 at at a discounted $US263. But at that price Microsoft looks likely to make a major loss on its maiden foray into console gaming. Once again, high margin games and peripheral devices will make up the shortfall.

Morgan Stanley estimates that Microsoft could lose up to $US1 billion on the Xbox by the end of the 2004 financial year before recouping its costs.

Xbox is expected on the New Zealand market by June.