Wedbush Analysts Predict Industry Rebound Fueled by New Hardware

Wedbush analysts Michael Pachter and Edward Woo believe that 2010's new hardware introductions "have great potential to reinvigorate the video game market," if manufacturers can surmount major pricing hurdles. Pachter and Woo, having observed the capabilities of Nintendo's 3DS, Microsoft's Kinect, and Sony's Move at the recently concluded Electronic Entertainment Expo, note that consumer interest in all three devices could spur industry growth, ending a recent slump. The pair was most impressed with Nintendo's 3DS, describing it as "truly impressive" and a device that "appears to us to be the 'must have' consumer electronics product over the next few years." The new technology will not come cheap; the analysts predict that the 3DS will cost upwards of $250. Regardless of price, however, Pachter and Woo are confident that Nintendo "will sell many millions of them in the first full year of production." Cost may be more of a factor with Microsoft's Kinect and the PlayStation Move peripheral. Wedbush describes a scenario in which Microsoft in particular is "struggling with a pricing strategy." "We think that if Microsoft prices Kinect close to cost (which we estimate to be around $70), it will see a very high attach rate, with the potential to drive $200 – 400 in lifetime value from each Kinect household," the pair states. "On the other hand, it is equally logical to charge a very high price for the device, especially if it is expected to be supply-constrained." Pachter and Woo continue: "We are not yet convinced that the hard core Xbox 360 user, who typically 'controls' decisions about his/her console, will find the game lineup for Kinect sufficiently compelling to purchase the device at a price point over $100, and think that pricing at the higher point would severely limit sales." PlayStation Move purchasers face a similar dilemma, with Pachter and Woo noting that Sony's pricing "has the potential to confuse consumers." The analysts explain: "Some games can be played with the PlayStation Eye camera and a Move controller, some with the Eye and two Move controllers, and some with the Eye, a Move controller and a Navigation controller. In order to be safe, consumers wishing to participate in the Move experience will have to purchase the Eye ($29.99), two Move controllers ($49.99 each) and the Navigation controller ($29.99), plus a game. "If purchased as part of a bundle, the all-in cost to play with Move will approach $180, which we think is beyond the reach of the typical household. We think that Sony's Move is truly impressive, but remain concerned that initial sales could disappoint." In regards to software, Pachter and Woo believe that this year's E3 lineup "was perhaps the most impressive in years." The pair describes MTV's Dance Central as the Kinect's "killer app," and predicts that Activision's Call of Duty: Black Ops will be this year's top overall seller.