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Leaked Ad Shows Xbox Ready to Do the Price Cut Shuffle

By Mike Pearson
Aug 25, 2009 1:15 PM PT

The gaming console rumor factory is grinding away again, pushing out shiny new reports of Microsoft's alleged plan to cut the price of its Xbox 360 gaming system by up to US$100 in the U.S.

Leaked Ad Shows Xbox Ready to Do the Price Cut Shuffle

The rumors are based on an image posted by gadget blog Engadget purported to be of an advance Target ad sheet with a price of $299.99 for the 120-gigabyte Xbox 360 Elite system, a price drop of $100, and a $249.99 price point for the 60-gigabyte Pro system, a $50 cut.

No Confirmation

Microsoft hasn't confirmed the rumor, and a request for comment left with the public relations firm hired by Microsoft to handle inquiries on the Xbox was not returned by deadline for this article.

Given that Sony this month dropped the price of its PlayStation 3 console, the suggestion that Microsoft might cut its prices isn't entirely preposterous.

Sony announced Aug. 18 a new addition to its PlayStation lineup, a redesigned 120-gigabyte model selling for $299.

Sales History

On the other hand, according to the NPD Group, the Xbox 360 was the one gaming console still gaining ground among consumers last month -- averting a trend among the other two major home gaming consoles of slowing sales amid the recession.

The console has sold 15.73 million units in the U.S. since its launch in 2005, said David Riley, a director with NPD's entertainment group. That compares to 8.05 million units for the PlayStation 3, which launched in 2006, and an industry-leading 20.89 million units for the Nintendo Wii, which also debuted in 2006.

Cuts Coming Late ...

What differentiates the current generation of consoles from previous iterations is that price cuts are coming so far along in their life cycles, said Michael Goodman, an independent technology consultant and former video game analyst for the Yankee Group.

The first two generations of PlayStations and the original Xbox saw regular, significant price cuts that you could almost set a watch by, Goodman told the E-Commerce Times. However, consoles in the current cycle, despite being three or four years out of the gate, are still selling at high price points, even with some Microsoft Xbox price cuts last year.

"They've really broken the cycle of commoditization," he said.

The primary reason for that is because they are so much more costly to make, Goodman said. Manufacturers tend to lose money on console hardware early in the lifecycle, something that was exaggerated by the costlier hardware specifications of the high-definition consoles.

... But Now Due

However, the market saturation for both systems is coming to a point where price cuts are likely necessary, Goodman said.

"It's a combination of it being later in the product life cycle and a poor economic situation," he said. "One of the levers you have to increase demand is a price cut."

Some analysts have predicted that the rise of low-cost casual and mobile gaming could spell trouble for console systems, where the hardware costs $200 and up and games can run $50 or $60 each. However, Riley, while declining to specifically discuss the Microsoft rumor, said price cuts don't suggest trouble's in store for consoles.

"All three of these platforms have been around for a while, and they have reached a certain level of maturity," he said. "They can afford to start playing around to start finding the sweet spots for consumers."

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