What Lies Ahead - Pricing
I predict that Microsoft will lower the cost of its Xbox 360 by $30 – $100 here in North America in what will mark their most aggressive move in the console race thus far. The pricing strategy of Microsoft and its Xbox 360 have confused many in the industry. The Xbox 360 was the first out of the gate yet pricing, in line with reduced manufacturing costs, has not been what you’d expect in a normal console cycle. There doesn’t seem to be any type of general strategy which has resulted in different cuts at different times and different amounts. This confusion doesn’t appear likely to change but as I predict, the next round of adjustments will be the catalyst that Microsoft needs to create an interesting end to 2008.
Rumors of new chipsets to even further reduce manufacturing costs are paving the way for this. Plans of this should surface around E3 or perhaps later towards the Tokyo Games Show. It’s been nearly a year since the last US price drop and not even 6 months since a drop in Canada. I don’t think Microsoft risks yet another holiday season without a more consumer friendly price especially considering the Xbox 360 will celebrate its 3-year anniversary in November and especially considering they’re not taking a loss anymore in that division.
Currently the Xbox 360 has 3 skus; Arcade, Pro and Elite. In one last attempt to best Nintendo’s Wii, Microsoft will announce a $249.99 price for the Xbox 360 Arcade and will cause quite the stir by including a hard drive. With the increase in Xbox Live Arcade size and the push for HD content, the Arcade sku has been long overdue and I suspect that will happen soon.
“You’re going to continue to see technical innovation, it might be additional capabilities to the current format – but honestly we haven’t made those kind of decisions yet,” said Microsoft Game Studios’ Shane Kim in an interview with CVG.
In order to stretch the 7 years out of the Xbox 360 as Shane Kim eluded to, all Xbox 360 versions will need to incorporate the hard drive allowing developers to maximize the console’s ability. The Xbox 360 Pro and Elite will be moved to $299.99 US and $349.99 US respectively. With the addition of a hard drive to the Arcade, Microsoft will opt to increase the size of the hard drive on its Pro console. While the Elite won’t see a change in its 120 gig offering, the Xbox 360 Pro will see an increase in its hard drive from 20 gigs to 60 gigs.
Nintendo will opt not to decrease the price of the Nintendo Wii in response to Microsoft’s lower Arcade sku. Since launching in November 2006, the Nintendo Wii has been outselling its rivals handily. Because of this, I see no reason or motivation for Nintendo to adjust the price of its console.
What may come as a surprise to many is that not even Sony will react to Microsoft’s new pricing strategy this year. Sony has made strides to address manufacturing costs and they even expect to turn a profit on the PS3 in early 2009 despite my belief that it won’t. Having to carry the weight of Blu-ray puts them in an unfortunate situation. I expect a continued focus on highlighting the fact that they’re “built for the future”. It’ll be their tagline when talking about price drops and why they’ll elect not to follow suit with any drastic cuts to the PlayStation 3 in North America.
You can even point to the release of Konami’s Metal Gear Solid 4 as more of reason Sony will opt not to make price adjustments. They’re willing to see how the PS3 will perform post-MGS4 without any price cuts. If things aren’t going well, expect Sony to move quickly with a price drop.