Analyst Raises Kinect Holiday Sales Estimates To 4M

Although the game industry is clearly excited about the potential in upcoming fall launches of motion controls, many analysts and publishers have measured their enthusiasm. As with any brand-new initiative, the addressable audience and potential install base remains to be seen -- but one analyst sees reason to believe Microsoft may make a bigger Kinect launch push than initially expected. "Based on updated channel checks, we believe that production quantities of Microsoft’s Kinect motion sensor could exceed our original expectations -- suggesting to us potentially more aggressive launch plans for the device," says Lazard Capital Markets analyst Colin Sebastian. The analyst sees Kinect production approaching about 2 million units per month, and he believes Microsoft's Xbox 360 shipments to retailers will favor the Kinect bundle over the standalone console. These initiatives could lead to more Kinect units sold than he initially predicted, says Sebastian. "We are increasing our Kinect unit sales expectations for [the holiday quarter] to 4 million worldwide, up from 3 million units previously," he says. Wedbush analyst Michael Pachter predicts a range of 2-4 million initial units for the device. But although Sebastian thinks bundle sales will drive Kinect's early install base, Pachter's estimates seem to target existing "early adopter"-type Xbox 360 users -- about 5 to 10 percent of the Xbox 360's overall current install base -- while suggesting most current console owners will take a wait-and-see approach. Sebastian and Pachter seem to agree, however, that Kinect's confirmed launch price of $149 may be a little high, an assertion that forms part of Sebastian's prediction that bundles will be a strong driver of Kinect sales. "While launching at $149 as a stand-alone device, we believe the better value is the Xbox 360 bundle for $299," Sebastian says. Kinect's price point endured much discussion and speculation ahead of its formal confirmation. For his part, Pachter has suggested for some time that consumers would resist a price point over $99 for the device, while EEDAR's Jesse Divnich said the price was "appropriate." Says Sebastian today: "We continue to believe that $99 would be a 'sweet spot' for Kinect, and production quantities suggest that Microsoft may be leaving open the possibility for price promotions on Kinect next year." The likelihood of price promotions depends on the success of the initial launch, and Sebastian says Microsoft will run "a significant advertising blitz" ahead of the November 4 U.S. launch. "We believe that Microsoft is preparing a significant marketing and advertising campaign for Kinect, coinciding with the device launch." "Games using the Kinect sensor will initially include fitness, dance, sports and kart racing, suggesting that Microsoft is targeting a casual (Wii) audience," adds Sebastian. That's at least a solid strategy for industry growth, he says, but notes that the casual games sector may be less resistant than it once was to the same market weaknesses that currently challenge core games -- some of which do continue to sell well. "While Microsoft may have other applications planned for Kinect beyond games, we assume the bulk of production near-term is planned for the Xbox 360. Over time, we also anticipate that motion sensors will show up in connected TVs, living room PCs, set-top boxes and other consumer devices." He also believes that market response to Sony's PlayStation Move counterpart, which arrives slightly earlier on September 19, will be telling -- and though it will arrive "lacking some of the retail 'buzz' versus Kinect," it may provide a bellwether for demand for next-gen motion control.