When is Microsoft's Xbox 360 Price Cut Coming?

If you look at the relative positions of Sony (SNE) and Microsoft (MSFT), this is a no brainer.

Sony are losing a billion dollars this year alone in retail price support for the Playstation 3 because it is far more expensive to make than consumers are prepared to pay. To finance this they have sold off other chunks of their business and raised equity capital. The PS3 is also suffering from a lack of AAA exclusive games, so currently there is little motive for a gamer to buy one. This changes during 2008 when the system seller titles start to appear.

Microsoft have first mover advantage in that the Xbox 360 has a lot of AAA exclusives. Hence they have sold twice as many consoles worldwide, thus far, as the PS3 has. However their superiority in exclusives will start to erode during 2008. They have a second advantage in that the 360, whilst technically as capable as the PS3, is relatively economic to manufacture. This is something Microsoft have put a lot of effort into. So as their AAA exclusives advantage reduces, then their ability to use the price mechanism will come further into play. Especially as Microsoft have lots of money in the bank.

Currently Microsoft can easily sell every Xbox 360 they can make, fueled by the demands of the festive season. However, as we get into Q1 2008 the demand will, naturally, slacken off. This would be the absolutely perfect time for Microsoft to use the price mechanism to stimulate demand. They could put together, say, a Halo 3 package at a price where it was a “must buy” and so move a huge number of units off the shelf.

By acting sooner rather than later, they preempt Sony’s upcoming AAA titles. And by using the price mechanism they know that they are using a tactic that Sony just cannot afford to follow.

This really is a one off moment where Microsoft could put in the knock out blow against Sony and so win this generation of the console war.

Comments

[Moof]

Sorry, but which AAA-titles?

There are very few console sellers (and those would only be to the hardcore) that aren't coming to 360 as well. That said I think the price drop would indeed be a mean punch in Sony's jaw.

[Blue Peach]

It makes sense if XBox 360 reduces the prices and it would still stay as #2 in the market with Wii leading as #1. It wouldn't matter which exclusives all of those consoles have, so as long as the console is affordable. I might be wrong, but we'll just have to wait and see how this war turns out.

[NickA]

I'd say that the PS3 already has some good titles for it, including Uncharted: Drakes Fortune, Ratchet & Clank, Heavenly Sword, Warhawk, Resistance and Motorstorm.

[yohoho]

"Uncharted: Drakes Fortune, Ratchet & Clank, Heavenly Sword, Warhawk, Resistance and Motorstorm."

None of those are AAA or must-have. Zero.

[AndySJones]

The article failed to mention one of the reasons Xbox360 has sold twice the systems could be that it has been out twice the time.

It fails to mention that the first year sales matched X360s almost exactly, despite hard competition from two other consoles.

It fails to mention PS3 being superior in hardware. I understand why this isn't a big issue with the SPUs, as nothing really uses them yet, but the BluRay player is important.

It also fails to mention that the article is only relevant to America, since Europe and Japan are selling far more PS3s and X360s.

I'm not saying it is biased, just uninformed at times. But I do agree with the overall message of a price cut possible early next year.

I think the tone should change from making it sound like the price cut will be the final blow, more to the price cut trying to keep it ahead of PS3s growing sales momentum.

[AndySJones]

The article failed to mention one of the reasons Xbox360 has sold twice the systems could be that it has been out twice the time.

It fails to mention that the first year sales matched X360s almost exactly, despite hard competition from two other consoles.

It fails to mention PS3 being superior in hardware. I understand why this isn't a big issue with the SPUs, as nothing really uses them yet, but the BluRay player is important.

It also fails to mention that the article is only relevant to America, since Europe and Japan are selling far more PS3s and X360s.

I'm not saying it is biased, just uninformed at times. But I do agree with the overall message of a price cut possible early next year.

I think the tone should change from making it sound like the price cut will be the final blow, more to the price cut trying to keep it ahead of PS3s growing sales momentum.

[Tom B]

The author clearly knows nothing about the game console business.

The only real and relevant question is: "When is MSFT going to terminate this money-losing division?" The answer, realizing Steve Ballmer is dumber than a butterball turkey is probably "never".

Sony obviously has troubles with PS3. Inclusion of Blu Ray* meant delays and greatly increased unit cost. NEITHER PS3 or XBox has the broad appeal of the Wii. But, given the PS2 installed base and future trends, I would NOT say XBox is gaining much ground on PS.

*I think it's about 95% likely Blu Ray will win the format war against HD DVD, but including the player HAS been troublesome for Sony in the short term. Long term, it may prove to be a smart move, assuming the PS3 (I don't own one) doesn't sound like a vacuum cleaner, like the XBox.

I have no MSFT or SNE at this time.