You made it! This is finally the week in which Sony (NYSE:SNE) and Nintendo (OTC BB: NTDOY.PK) roll out their new video-game systems. Good luck landing one if you want one. The Nintendo Wii will be in short supply but should be reasonably attainable if you've got an hour or two to burn camping out in front of a store. Sony's PS3, on the other hand? Ready yourself for heartbreak as you paddle upstream on a river of tears.
By now, everyone knows that the same Sony that beat out rivals Microsoft (NASDAQ:MSFT) and Nintendo to the launch of the sixth-generation consoles by releasing its PlayStation 2 a year before the competition is the one running behind the pack at this point. The Xbox 360 was launched last November and is readily available. That will serve Microsoft well as shoppers scurry about for the four million Wii units that are expected to be shipped worldwide this year. Sony has slashed its global PS3 shipments to 2.4 million, and it's widely anticipated that only a few hundred thousand will be available domestically come Friday.
Yes, that will be a problem for Sony. The high-end system was already pricey to begin with, at $599 a pop for the loaded version. It's no doubt worth it to the avid gamer, as the PS3 packs impressive specs and also serves as a Blu-ray disc player, but now that supply has been constrained from the same company still smarting over combustible laptop batteries, some anxious buyers are willing to pay far more than that to make sure they land one of the first PS3 boxes.
If you want "it," you'll have to pay for "it"
Over on eBay (NASDAQ:EBAY), PS3 systems have been selling briskly for well over $1,400 during the past few days. On the other hand, the $250 Wii has been fetching less than $500 during completed auctions, and that price should drop once the market stabilizes and buyers realize that the Wii systems aren't that hard to come by given Nintendo's aggressive production push.
Yes, the Wii is cheaper than the PS3 for a reason. It's not as technologically advanced if we go by the spec sheet. It can't double as a high-def movie player like the PS3. Wii's motion-activated controller is revolutionary, but it remains to be seen whether couch potato gamers are ready to work some real-life exercise into their gaming (even though watching the popularity of home versions of active games like Dance Dance Revolution and Guitar Hero is certainly encouraging).
However, Nintendo -- like Microsoft -- smells some vulnerability in market-leader Sony. Sony will have botched the 2006 holiday season with the scarcity of its PS3, but that point will be moot by this time next year. This makes the next month and a half critical for Microsoft and Nintendo. They need to pad their leads over Sony quickly because, if history repeats in this, Sony will find a way to overtake everybody the way it did during the fifth and sixth console generations.
How to hunt a Sony
Nintendo's got an ambitious $200 million marketing campaign to promote Wii. SouthPark fans were already treated to the ultimate product placement as we watched Cartman travel to the future so he could play Wii. TV ads for the system will invade your home over the next few weeks, and good luck walking into a 7-11 or opening up a can of Pringles without seeing the result of Nintendo's promotional wingspan.
Microsoft hasn't exactly been asleep at the wheel, either. It's doing its part to swipe some thunder. It can't be a coincidence that Microsoft's Zune is rolling out today in a move to conquer disposable income and holiday spending budgets. It also wasn't a coincidence that Microsoft announced the availability of digital downloaded films and television shows on broadband-enabled 360 systems just last week.
Microsoft and, to a lesser extent, Nintendo can afford to flex their marketing muscle because they know their systems can be readily attained. Sony can't compete with what only a handful of gamers will be holding in a few days.
The PS3 madness is evident in the lack of preorders. On Sunday, Toys "R" Us began a second round of taking Wii reservations. Over at GameStop (NYSE:GME), the retailer's website recently had a preorder opportunity for bundled Wii packages. PS3 preorders have been rare sightings. CompUSA won't let you reserve a PS3 unless you agree to spend at least $2,000 on a Sony HDTV this week. Then we have this month's botched preorder attempt from the biggest name in consumer electronics.
Best Buy (NYSE:BBY), still stinging from last year's 360 fiasco, blew it again earlier this month when it briefly accepted PS3 preorders online and had to cancel them. It sent disappointed shoppers a $10 gift certificate as an apology, but the consumer electronics giant isn't doing its reputation any favors if it continues to alienate the gaming community. Even the financial community noticed the glitch with Business Week tagging Best Buy as "This Year's Grinch" in a recent headline.
The business of playthings
A lot is at stake, of course. Microsoft and Sony are willing to take a hit by subsidizing hardware and making it up in software royalties. As big as Sony is, there have been years in which video-game title royalties make up the lion's share of its operating profits. That's the rub for Sony. A limited rollout means a limited audience for PS3 games.
This doesn't mean that Sony is doomed. The scarcity will probably extend the lifespan of the PS2. The problem is that software developers have often turned to Sony because of its attractive royalty rates and larger installed base. A slow ascent for the PS3 coupled with a slow descent for the PS2 may result in fewer hit titles for the PlayStation. Just last week, Disney (NYSE:DIS) announced that it was creating a new video-game studio that would emphasize the development of Nintendo titles.
So where does that leave us? Sony's production delays because of its bet on Blu-ray will cost it. Since we really won't see PS3s in abundance until next year, the Xbox 360 will have a two-holiday advantage. Nintendo will own the low-end market. Sony has never been in a position that has made it accustomed to fighting for scraps, and the speculative trading on auction sites like eBay is going to make Sony look even worse if its first batch of systems prove buggy.
Your move, Sony. And remember, your legacy is at stake.
Best Buy, Disney, and GameStop are Motley Fool Stock Advisor recommendations. Want to learn why? Check out the subscription-based research service with a free 30-day trial membership. Microsoft is an Inside Value selection.
Longtime Fool contributor Rick Munarriz can watch time fly at a consumer electronics store, but he knew better than to count on Best Buy in his successful preorder pursuit of a Wii. He does own shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
