In 1997, Sega arrived at E3 with an announcement. Their game system, the Sega Saturn, was dropping its price by $50. Prior to then, it was $249.99, now it was $199.99. This meant that it was now the same price as the Nintendo 64, and the Sony PlayStation was now the most expensive console on the market at $249.99. The price drop went into effect immediately. When asked about whether or not they were going to drop their prices, Sony and Nintendo replied that they weren’t. However, the next day they both did.

And so born was a tradition. At E3 each console company announces that they’re going to slash the price of their consoles. This happened last year – the PS2 and Xbox were both $299.99 and the GameCube was $199.99. The PS2 and Xbox both got $100 cuts to $199.99 and the GameCube got a $50 cut to $149.99. This year they’re rumored to all three be recieving a $50 cut, making the PS2 and Xbox $149.99 and the GameCube $99.99. It took five years for the Nintendo 64 to be slashed to $129.99, so to have the GameCube be slashed down to under $100 so quickly says something about how competitive the console market is.

Obviously now each console company comes to E3 armed with price cuts ready (and in this case people working at game retailers are reporting that their stores have already recieved the literature), but I think it’s still as simple as the 1997 situation at heart – in theory all three companies could decide that they simply won’t drop their price and the other two companies will follow suit. But of course that will never happen. Either Company A or Company B will drop their price, rendering the other of those two companies in the unpopular situation of having the most expensive console, so the other of those two will then go on and drop their price. Then Company C (always Nintendo) will have a console with the same price as both Company A and Company B, so they’ll drop their price as well, since one of their strongest selling points will be the fact that they’re cheaper.

So that’s what’s going to happen next week. Ergo, hold off on buying that new console until then – you can get a game for the money you’ll save.

The price drops are an extension of the “give away razors to sell razor blades forever” idea. For the most part the consoles are more expensive to make then they sell for, so when manufacturing costs go down a peg, the price goes down another peg. At some point the price goes low enough to stay there a while. The price of the PlayStation went down until it hit $99.99, then it stayed there for a few years. Of course, it was estimated at one point that the PSX’s manufacturing costs went down considerably – in 1999 they’re still making this 1994 console with a 2X CD-ROM drive and 2MB RAM, so it probably cost about $25 to make. 2000 saw the release of the PS2 and the PSOne, a $50 reslimming of the console aimed at the somewhat-portable market.

The reason for the E3 timing is simple – a big media event to pull off the price drop right before the typically slim summer months. Plus they’re getting people hyped about the games they plan on releasing in the Fall.

On the one hand I don’t see the prices of any of these consoles going lower next year. Then again I didn’t see them going so cheap so fast, so who knows. I don’t think next year the GameCube will drop to $50. $75 maybe, but not $50. The other consoles might drop to $125 or $129.99.

I wonder who will benefit most from this drop. My bet is Nintendo – there’s probably enough people out there who are interested in Metroid or Zelda and figure $99.99 is worth it.

Of course this brings in the other big unknown – the deals. Nintendo’s giving away a free game with their console (not technically bundling) and Microsoft has a disc with the Xbox giving away Sega GT 2002 and Jet Set Radio Future for free. I don’t know if these deals will still be there once the price drops.