GameStop Wants Cheaper Consoles, Predicts Hot Titles

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Consumers hoping for a price cut on video game hardware have a new—and powerful—ally.

While the video game industry has proved relatively resistant to the recession so far, the CEO of GameStop , the industry's largest specialty retailer, says lowering the price of the leading three consoles is necessary to keep momentum going.

Dan DeMatteo notes that he'd particularly like to see a cut in the price of Sony's PlayStation 3, which at $399 is the most expensive game machine on the market.

"That price point is clearly an issue in this economy," he says.

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Sony has repeatedly said it has no plans to reduce the price of the PS3. Despite these declarations, however, the company is widely expected to announce a price cut at or prior to E3, the industry's annual trade show in June. The big debate is whether the cut will be $50 or $100.

"I don't know that $50 gets you that much," DeMatteo said.

Sony did reduce the price of the PlayStation 2 in late March, but DeMatteo says the move came a year too late.

"To be honest, it really wasn't worth doing," he says. "If they'd done it earlier, publishers probably would have kept making games for the PS2, but once they've stopped, they've stopped."

And while the Wii is still a hot seller at $250, DeMatteo says Nintendo should consider a price cut as well.

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PlayStation 3

"I think [demand for] the Wii could slow down to the extent that Nintendo may want to cut the price," he says. "Nintendo has it within its arsenal to do that. The component costs have come down considerably. They used to break even on the Wii, but now they're making a considerable margin."

Executives at GameStop are less critical of Microsoft , which cut the price of the Xbox 360 to $200 last year—and saw a hardware sales surge.

Hardware price cuts would drive software sales, which would ultimately benefit GameStop and its shareholders. Even without the cuts, though, it has fared better than many competitors during the economic downturn.

The company focuses more on core gamers than big box retail stores do and has built a loyal customer base. While Wal-Mart , Target and others are regularly trying to woo those customers, analysts continue to recommend GameStop.

Revenue in the fourth quarter of 2008 came in at $3.5 billion, and the company expects to see sales grow 10 percent to 12 percent this year, with earnings per share increasing 18 percent to 22 percent.

Last year saw some major releases, however, including a new "Grand Theft Auto" from TakeTwo Interactive Software and Nintendo's "Super Smash Brothers: Brawl". So far this year, there are no titles of that caliber that have been released or announced for this holiday season. (That may change at E3.)

Still, DeMatteo and GameStop COO Paul Raines say there are a few games that they expect will lead the pack later this year.

"We think the new 'Call of Duty' from Activision will be one of the best selling games of the year," says DeMatteo. "People are dying to see footage—or anything, really—from that right now."

Raines says he has also seen excitement surrounding Activision's "DJ Hero," a music rhythm game in the same vein as the "Guitar Hero" franchise. Harmonix's "The Beatles: Rock Band," which will be published by Electronic Arts, has been garnering buzz in stores as well.

"The Beatles is such a powerful brand," says Raines. "I'm restricted about what I can say about the game right now, but it is very cool and is a very thorough Beatles property. They have done a lot more than just leveraged the Beatles catalog."

Meanwhile, says DeMatteo expects Nintendo to release a major title this holiday as well.

"We think there will be a Nintendo key property coming out by the end of the year," he says. "They haven't given us any insight, but they have told us to reserve [shelf] space."

There's speculation Nintendo may be working on a new installment in the "Zelda" franchise, development of which Nintendo hinted was underway last July but hasn’t mentioned since. That’s anything but a sure bet, though. If there’s one thing Nintendo does well, it’s defying expectations.