Game console affordability compared to the previous generation

TLDR: Prices are up, wages are down, affordability is off by 10% for the Wii U (after price cut) and Xbox One. PS4 is cheaper in both real dollars and wage adjusted buying power than both PS3 SKU's and the Xbox 360 at launch.

From time to time I've seen console prices compared to their predecessors with this general idea that with inflation adjusted dollars that it's cheaper. I posted in the Wii message board about this but thought a general discussion of all console affordability would be a good thing to have. I'm doing some math here so we can see the actual affordability of the consoles. First, note that next gen console prices will be in 2013 dollars while wage data is from 2012. This would create a small discrepancy.

Median household income in 2012 is $51,017
The inflation adjusted median household income in 2005 was $54,486. Real wages have fallen 6.4% since 2005.
The inflation adjusted median household income in 2006 was $54,892. Real wages have fallen 7% since 2006.
The inflation adjusted median household income in 2007 was $55,627. Real wages have fallen 8.2% since 2007.

$300 in 2005 = $359 in 2013 dollars
$400 in 2005 = $479 in 2013 dollars.
$250 in 2006 = $290 in 2013 dollars
$500 in 2006 = $580 in 2013 dollars
$600 in 2006 = $696 in 2013 dollars
$350 in 2007 = $394 in 2013 dollars
$500 in 2007 = $564 in 2013 dollars

Taking into account inflation adjusted changes to the dollar and the lowered household average incomes since each console's perspective launch, we get the following:
The Xbox One would have to cost $336/$448 (depending on SKU) to be the same affordability as the Xbox 360 was in 2005.
The Wii U would have to cost $270 to be the same affordability as the Wii was in 2006.
The PS4 would have to cost $539/$647 (depending on SKU) as the PS3 was in 2006.


In 2007 Sony dropped the 20GB model and lowered the premium model $100. MS cut the price of the Xbox 360 premium by $50.
The Xbox One would have to cost $362 to match the 2007 reduced price Xbox 360.
The PS4 would have to cost $518 to match the 2007 reduced price PS3.


When people discuss the buying power of inflation adjusted dollars in previous console cycles without taking into consideration the depression we just went through is disingenuous and gives the false illusion of affordability. The Xbox One is about $50 more expensive, the Wii U is about $30 more expensive, and the PS4 is about $250 less expensive than each of their previous respective launches. The PS4 is actually more affordable now than the Xbox 360 was at launch by 50 inflation adjusted and wage reduced dollars.



Feedback and calculation checking is appreciated and I will adjust figures as necessary.

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edit:

GC
Sept 2001
200 = 264 in 2013 dollars

PS2
Oct 2000
300 = 407 in 2013 dollars

Xbox
Nov 2001
300 = 396 in 2013 dollars

Inflation adjusted average household income in 2000 was $55,987
Inflation adjusted average household income declined 8.9% since 2000

Inflation adjusted average household income in 2001 was $54,766
Inflation adjusted average household income declined 6.8% since 2001


So while the PS2 is roughly the same inflation adjusted price as the PS4 will be, the affordability of the PS2 was much higher because wages have declined 6.8% since that console's launch.  Lowering the price of the PS2 by the lowered wages shows that the PS4 would have to cost roughly $379 to be the same affordability as the PS2 was.  

I'm not sure if it would be particularly beneficial to look all that closely at the others since each consoles' affordability in today's dollars and wages should be obvious.

I think what's really striking is just how bad the recession was. We all know it was bad but when you consider the fact that wages in 2000 and 2001 are so 8.9 and 6.8 percent higher respectively it really hits home.  Inflation adjusted wages dropped to incomes from 20 years ago.

http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=300.00&year1=2000&year2=2013

http://www.davemanuel.com/median-household-income.php

Bottom line: PS4 rulez. Again.

To be fair, the bar that was set by the PS3 was kind of steep. It started off at $500, and also had a $600 deluxe model available. The PS4 launching at anything below those prices would have seemed appealing. Likewise, the Wii launched at $250, which was extremely low at the time. That's also a big reason behind its early sales dominance.

Another big difference is the expected shift in install base. With the last console cycle, Microsoft and Nintendo both dropped their previous systems HARD. The XBox and the GameCube fell off a cliff as soon as their successors were on the market. The same scenario is not going to play out this time around. The PS3 and 360 enjoyed enough success that they will be viable platforms for software sales for several more years. It isn't really in Microsoft or Sony's best interests to drop their previous systems quickly. A slower, more gradual console transition is actually desirable in many ways. Higher console prices play into this.

Frankly, I think the whole thing is going to be a big, chaotic mess. All of the major players are banking on their disparate approaches, and just throwing the spaghetti against the wall. No one can say for certain how it's going to shake out. I'm looking forward to enjoying the show.

matrix9280 said:

Bottom line: PS4 rulez. Again.

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For now it seems like the best deal. If MS launches a Kinect-less X1 next year it could change the pricing quite a bit as the rumor has it that they could come in at 299.99 or 349.99 without the Kinect 2.0 We shall see what next year brings.

Richard Kain said:

To be fair, the bar that was set by the PS3 was kind of steep. It started off at $500, and also had a $600 deluxe model available. The PS4 launching at anything below those prices would have seemed appealing. Likewise, the Wii launched at $250, which was extremely low at the time.

Click to expand...

I listed all of those prices and even included the following year's price drops for 360 and PS3 because of the very high PS3 prices. I feel like I covered all these bases with that information. The PS4 has a cheaper launch price than the 360 did in terms of the dollar buying power when adjusted for inflation even after netting out the lowered median wages in the country. I don't think a higher price in terms of inflation adjusted dollars and a lower median income are things that should just be blown off with "but it's a great value" (Wii U/X1) kind of thing. The consoles are less affordable.

Richard Kain said:

Frankly, I think the whole thing is going to be a big, chaotic mess. All of the major players are banking on their disparate approaches, and just throwing the spaghetti against the wall. No one can say for certain how it's going to shake out. I'm looking forward to enjoying the show.

Click to expand...

I do think that a large part of Nintendo's traditional launch demographic is a bit more price sensitive than MS's and Sony's. I didn't even bother doing the comparison of the $350 Wii U launch price to the Wii because it's very obvious that the price difference is huge.

I have a feeling that we'll see a $399.99 Xbox One (though they could probably go lower as I mentioned above) next year and a 249.99 Wii U. I was actually expecting the 250 Wii U this year but it seems Nintendo wants to give it another try with a price higher than a large part of their demographic is used to paying.

One final thing, unemployment in November 2006 was 4.5%. It's currently around 7.3%. I didn't go into this in the OP because it's relevance to the affordability should already be played out in the median family income. That said it's obvious that families with unemployed workers are far less likely to have and spend disposable income. This also means that more families towards the lower end of the income distribution that would purchase a launch console during good times will not do so now.

Blaster man said:

The PS4 has a cheaper launch price than the 360 did in terms of the dollar buying power when adjusted for inflation even after netting out the lowered median wages in the country.

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A fair point. My post was just to highlight again the drastic difference between the circumstances of the market, not from the point of the consumer, but from a competitive standpoint. The fact that times are hard is undeniable, and this will affect the purchasing patterns of consumers going into the holidays.

However, the current circumstances make the situation dire for both the PS4 and the XBox One. (also the Wii U) While reduced buying power on the part of consumers is part of it, I think the competition from legacy systems will play right into that reduced purchasing power. The PS3 and 360 are considerably less expensive than any of the next-gen offerings, including the Wii U. They have massive existing libraries, and used game stores packed to the gills with low-cost reduced price offerings. Those families with lower incomes won't have to say no to video games this holiday season. They will have plenty of affordable alternatives, ones that are much more friendly to their lighter wallets. Those that already have PS3s or 360s will have an ample supply of games this year as well.

While the reduced buying power of the average household could give the PS4 an edge over the XBox One this holiday season, I think the circumstances are much more likely to give the PS3 and 360 a boost in sales.

matrix9280 said:

Bottom line: PS4 rulez. Again.

Click to expand...

I don't think you can boil it down that simply. The information in the OP is comparing the price of the new systems to the prices of their individual predecessors. So relative to the PS3 launch, the PS4 much more affordable. And even relative to the 360 launch, the PS4 is a slightly better price. However, the differences in price between the 3 new systems aren't the same as comparing each of the new systems to their own predecessors. The fact that the PS3 was so expensive at launch makes it easy for the PS4 to look good by comparison. But by that standard, even the XBox One looks slightly cheaper even after price adjusting for inflation compared to the PS3 60gb model.

So while the PS4 is indeed priced well, the information in this thread is more useful for comparing each of the big 3 to themselves last gen instead of comparing them to each other.

Richard Kain said:

A fair point. My post was just to highlight again the drastic difference between the circumstances of the market, not from the point of the consumer, but from a competitive standpoint. The fact that times are hard is undeniable, and this will affect the purchasing patterns of consumers going into the holidays.

However, the current circumstances make the situation dire for both the PS4 and the XBox One. (also the Wii U) While reduced buying power on the part of consumers is part of it, I think the competition from legacy systems will play right into that reduced purchasing power. The PS3 and 360 are considerably less expensive than any of the next-gen offerings, including the Wii U. They have massive existing libraries, and used game stores packed to the gills with low-cost reduced price offerings. Those families with lower incomes won't have to say no to video games this holiday season. They will have plenty of affordable alternatives, ones that are much more friendly to their lighter wallets. Those that already have PS3s or 360s will have an ample supply of games this year as well.

While the reduced buying power of the average household could give the PS4 an edge over the XBox One this holiday season, I think the circumstances are much more likely to give the PS3 and 360 a boost in sales.

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I agree with this assessment. If you look at the Wii U's launch, it (more or less) sold out on that launch day but then once restocked it was never sold out again. I think a similar thing is likely with the PS4 and X1. They'll sell out on launch day but MAY have systems sitting on the shelves on Christmas day. I don't know for sure if it will play out this way again but I do think it's a possibility. With the PS4's lower price it will likely be a better seller unless the X1 has some surprise like a game pack-in or something (which so far only seems to be the case in Europe).

For the 360/PS3, I think you're right. Those consoles will probably sell well and will continue to do so through holiday 2014. While both consoles are to be supported for the next 2-3 years, it will likely be a pretty half-hearted effort in the 2015-2016 years. That combined with price reductions on the consoles will probably mean that the install base will explode then.

ihadFG said:

I don't think you can boil it down that simply. The information in the OP is comparing the price of the new systems to the prices of their individual predecessors. So relative to the PS3 launch, the PS4 much more affordable. And even relative to the 360 launch, the PS4 is a slightly better price. However, the differences in price between the 3 new systems aren't the same as comparing each of the new systems to their own predecessors. The fact that the PS3 was so expensive at launch makes it easy for the PS4 to look good by comparison. But by that standard, even the XBox One looks slightly cheaper even after price adjusting for inflation compared to the PS3 60gb model.

So while the PS4 is indeed priced well, the information in this thread is more useful for comparing each of the big 3 to themselves last gen instead of comparing them to each other.

Click to expand...

This is pretty accurate. As I mentioned, I was pretty tired of reading comments about how some console or another was just about the same price after inflation adjustments like the last 5 years didn't happen or something. Maybe I should go back and do the previous generation's console launches...

Alright, I added in some info from the PS2/GameCube/Xbox era.  I didn't do all the affordability calculations but it's pretty obvious that things aren't looking good in that regard.  Even though the PS4 is the same inflation adjusted price as the PS2 was, household income has dropped to a level not seen for 20 years which means that it's somewhat less affordable.  I didn't bother with the Xbox One or Wii U for an affordability comparison because the price differences are so high that it's obvious.

Sony blew the PS3 launch and the run-up to the launch. This caused the company to lose the momentum it created with the PS2. The PS2 is probably the most successful console in history, in my opinion. A case could be made for other consoles in certain areas. But the point is that Sony lost a lot of goodwill with the PS3's launch that it was always fighting to regain later in that console's lifecycle. Just as I thought Sony was getting it back, the PSN debacle happened.

They regained some of it with the PS4 reveal. I think people are cautiously optimistic about the PS4. In comparison, the Xbox One is a lost cause in my opinion.

Anything can happen between now and the future, but I think Sony will overtake Microsoft in the console arena and Nintendo will cease to be a hardware manufacturer in about half a decade.

Blaster man said:

For the 360/PS3, I think you're right. Those consoles will probably sell well and will continue to do so through holiday 2014. While both consoles are to be supported for the next 2-3 years, it will likely be a pretty half-hearted effort in the 2015-2016 years.

Click to expand...

Absolutely. Holiday 2014 will be the last we hear of the Xbox 360 and the PS3 in a major way. Games will trickle out as "inferior" versions of Xbox One and PS4 games. I say "inferior" in terms of having a lower resolution or perhaps different features. I don't mean to say those versions will be necessarily bad on their own merits.

Neither console will last as long as the PS2, which was still releasing games as of this month. I think the last game is out either this month or next. The PS2 was something special and an outlier in terms of lifecycle. The PS3 will not emulate that in terms of new sales. The used games market will always be robust, however.