Sony’s Andrew House and Jack Tretton introduce the Brazilian built PS3 in Sao Paulo.

MAY 8, 2013 • Rather than continue with negotiations with the Brazilian government to lower import duties on video game hardware like the PlayStation 3, Sony Computer Entertainment has followed the example of Microsoft Corp. and is now making PS3s in Brazil. Production of the 250GB model by Sony Brasil Ltda is now under way in Manaus located in the state of Amazonas. The suggested retail price of the console will be cut from 1,599 ($799) Real to 1,099 ($549) Real and will include a copy of God of War: Ascension. At an event in Sao Paulo, SCEA chief executive Jack Tretton said Naughty Dog’s The Last of Us will be released fully localized in Portuguese in Brazil on June 14, the game’s worldwide release date. In addition, Rockstar Game’s Grand Theft Auto V will be the first installment in the series to have captions found in Portuguese. Sony will back the new lower MSRP locally with a major marketing campaign adapted from its current Latin American effort, Viva Em Estado Play (Living in a State of Play). According to SCE President Andrew House, bringing PS3 production to Brazil will add $300 million to the Brazilian economy in the upcoming 12 months.

Impact: Several years ago when SCEA made its initial push into Brazil, Jack Tretton told us that the biggest barrier to officially operating in the country was the high import duties. At the time, Tretton said the best option was to negotiate a better deal with the authorities. Obviously, in-country production turned out to be the surest way to get the job done. Knocking off $250 does make the PlayStation 3 cheaper for Brazilian gamers, but in no way is $549 cheap. The console will still be a luxury item in Brazil despite the growing middle class there. Usually launching a system this late in the cycle would be cause for some concern, but emerging markets march to a different tune. There is substantial growth potential there for the PS3. The arrival of the PlayStation 4 at a substantial premium MSRP will likely encourage sales of the older model in Brazil rather than deter them. Our analysis is that consoles need to get quite a bit less expensive now that the initial job of making their sales official has been accomplished. Brazilians love their free-to-play online and social games. Sony’s shift to local production is an important step, but we can’t see how viable scale will be achieved at this MSRP.  However, we would note that all consumer electronics are expensive in Brazil.  The Wall Street Journal did an article on how Brazilians love to flock to places like New York City to save on purchases.  In some cases, the savings from buying in the U.S. can make up for the cost of airfare and hotel.  With nearly 200 million people in Brazil this is clearly an underserved market mainly because of high consumer prices.