Sizing up Wii U's price tag against history

Today Nintendo took the first real step into the next generation of video game consoles and announced the launch details for the Wii U in the U.S. The two features I took most note of during the announcement were the two models being released and the prices. Launching at $300 for the entry-level model puts Nintendo at the high end of historically successful console launch prices. Nintendo's plan to launch with two Wii U models in the U.S. is a departure from the single-model approach that the company has traditionally taken. For example, the original Wii launched in November 2006 in the U.S. at $250 with Wii Sports and didn't change in any essential way for nearly three years. Some analysts criticized Nintendo for the $250 price of the original Wii, saying that the company left money on the table when demand outstripped supply month after month. With two Wii U models at two prices, Nintendo is attempting to maximize income from the high-end models while still capturing consumers with tighter budgets on the lower end. In fact, the Wii U now represents the most expensive console ever launched by Nintendo. If we look back across the history of console launch prices in the U.S., it's clear that most consoles launching above $300 have struggled or outright failed in the marketplace. In particular, the Phillips CD-i and ill-fated 3DO in the 1990s were priced extravagantly and largely ignored by consumers. The $400 Sega Saturn found a somewhat more receptive audience in the U.S., but still struggled against Sony's original PlayStation, which was priced at $300. Sony's PlayStation 3 is an exception, since it launched with an entry-level model at $500 and higher-end model at $600, well above $300, and yet has sold over 20 million systems in the United States. No other expensive console has started that high and sold so well for so long. Still, a good entry-level price is not sufficient to guarantee success. Before the wildly popular Wii, Nintendo's GameCube launched at $200 but still sold fewer total units during its lifetime than the higher-priced Microsoft Xbox. And the Sega Dreamcast was out ahead of the PlayStation 2, and very competitively priced, but for various reasons ended its run in the marketplace with disappointingly low sales. The following diagram gives a history of console launch prices in the U.S., from the Atari 2600 back in 1977 through the Wii U in 2012. (It shows only the entry-level price for systems where multiple models were available.) The price of the Atari 2600 back in 1977 was $200, and the U.S. Bureau of Labor Statistics has an inflation calculator online that tells us that $200 in 1977 has roughly the same buying power of $750 today. Of course, that's measuring inflation across a variety of goods needed by a household including food, clothing, and entertainment, and need not relate directly to consumer electronics. Regardless, it is an interesting metric for the sake of comparing system prices several years ago and today. The war over pricing is sure to heat up next year, when I expect Sony and Microsoft to both release new iterations on their consoles. If Microsoft inverts the traditional business model, promoting its games, Xbox Live network, and media portals (Netflix, Hulu, etc.) as a slate of services that just happens to require their console, you can expect their entry-level price to come in quite low but with a required monthly fee. Launching a new console at under $200 under those circumstances would be incredibly disruptive to the current business, and carries great risk for Microsoft, but also a chance for immediate and long-lasting success. Sony is still struggling to make a profit on its current PlayStation 3 console and while I do anticipate a new Sony console next year, what form it will take is still unclear. It seems likely at this point that Sony may iterate its hardware slightly and release an upgraded box that puts it ahead of Nintendo's Wii U technologically.