Xbox 360 Elite Enters Fray in Japan

With Nintendo's Wii continuing to set the pace for gaming console sales , Microsoft (Nasdaq: MSFT) said it is planning an October launch date in Japan for the upgraded version of its Xbox 360 console.

Xbox 360 Elite -- a high-end version of the console that features a 120-gigabyte hard drive, a high-definition TV interface and other advanced capabilities -- will go on sale in Japan on Oct. 11, Microsoft said.

The launch comes as Xbox 360 sales have lagged badly in the gaming hotbed of Japan, outshined by both the surging Wii from Nintendo and by Sony's (NYSE: SNE) PlayStation 3, which has widely been seen as a disappointment but has been handily outselling the Xbox in Japan over the past several months.

The Xbox Elite console will sell for US$390 in Japan, considerably less than the model sells for in the United States, where the retail price is around $480. The device will still be almost twice as costly as the Wii, but will be comparably priced to the PS3, which sells in Japan for around $408.

The Xbox sold just over 122,000 units in Japan during the first six months of 2007, according to estimates from research firm Media Create. By comparison, Nintendo sold nearly 1.8 million of its Wii consoles in that time frame while Sony hawked 503,000 PS3s.

Going Down?

Globally, the Xbox remains the best-selling of the next-generation gaming consoles, with approximately 10 million units sold worldwide. However, much of the sales edge came from Xbox being available nearly a year before the PS3.

Japan has long been seen as a key predictor of worldwide success in the gaming market, though the country's role as a harbinger of global sales may be waning somewhat as gaming platforms morph into home entertainment devices that can access the Internet, store music, movies and TV shows and play high-definition DVDs.

Still, the Wii's success in Japan and elsewhere is already seen forcing the other gaming device makers to rethink their market strategies, particularly how they price their units. While Sony has said it was aiming at hardcore gamers with the PS3, it has been faulted for putting too much computing and graphics power into the device, loading it up to the extent that even though it retails for twice what the Wii sells for, Sony still loses money on each unit it sells.

The diverging fortunes of the various game makers was underscored last month when Nintendo briefly surged past Sony in terms of total market value.

Mounting Pressure

For Microsoft, meanwhile, pressure is mounting to move its entertainment division -- which includes the Xbox line -- out of the red, where it has been since the company invested some $20 billion to get the gaming machine developed.

Microsoft has said that it believes the Xbox business will become profitable sometime during the next fiscal year and that it was making decisions aimed at driving profitability rather than grabbing market share.

Microsoft's strategy with the Elite has been to appeal to high-end users, possibly as a way of testing whether the Xbox can morph into even more of a centerpiece of the in-home digital entertainment setup, InStat analyst Brian O'Rourke told the E-Commerce Times.

With such a massive hard drive and high-definition capabilities, the device could be used to record and store television programs and movies, much like a digital video recorder (DVR), he noted.

While the Elite itself isn't a major upgrade to the Xbox, "as part of a larger strategy, it may help to seed more software sales and establish Microsoft as a player in terms of getting digital content into the home."

Long Horizon

The next-generation console market isn't expected to reach maturity for another three years or more, setting the stage for plenty more jockeying for position in the meantime, Yankee Group analyst Michael Goodman told the E-Commerce Times. The Wii is more of an anomaly in the market since it wasn't built to have impressive functionality beyond gaming, he noted.

"The Wii caught people by surprise because the attention was on all the bells and whistles on the gaming consoles and they just offered a fun gaming experience that appeals to a much broader audience," Goodman said.

Despite the Wii's massive commercial appeal, Sony and Microsoft are unlikely to diverge from their quests to establish their devices as multifunction gadgets with a host of uses beyond gaming as well as top-of-the-line gaming experiences for more traditional gamers, Goodman added. Wii may also aid the higher-end devices in the long run by introducing new players to gaming, some of whom may expand their horizons into more traditional gaming, especially if console prices continue to come down.