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Microsoft Slashes Xbox 360 Prices

4 Sep, 2008 By: John Gaudiosi

After weeks of Internet chatter, Microsoft has finally made the latest round of Xbox 360 price cuts official. Beginning Sept. 5, the company has slashed the price of its bare-bones Xbox 360 Arcade console, which does not include a hard disc drive, to $200 from $280.

The Arcade bundle does come with vouchers for five downloadable Xbox Live Arcade games.

This makes Xbox 360 the first next-generation console to hit this price during the current cycle. Historically, game consoles sell briskly once they drop below $200, accounting for more than 75% of all console hardware sales. Microsoft also now holds the honor of having the most affordable game console on the market, $50 less than Nintendo’s still hard-to-find Wii.

Microsoft is also cutting the prices of its other hardware by $50. Its bestselling Xbox 360 Pro, which comes with a 60GB hard disc drive, will retail for $300. The Xbox 360 Elite, which has a 120GB hard disc drive, will sell for $400. Sony currently sells its 80GB PlayStation 3 for $400.The U.S. price cut follows Microsoft’s moves in Japan and Australia to attract a larger audience. Microsoft currently holds a narrow lead over Sony in the global hardware race. Nintendo leads all consoles with 30 million Wiis sold since November 2006. Although Microsoft and Sony introduced their hardware in fall 2005, they trail Nintendo with 20 million PS3s sold and 14.4 million Xbox 360s sold globally.

Billy Pidgeon, video game analyst for IDC, believes when all is said and done Microsoft will edge out a second-place finish in the current console battle, leaving Sony alone in third place.

Microsoft made these cuts early as some of its key games for this holiday, including such exclusives as Fable 2, Gears of War 2 and Banjo Kazooie, are nearing completion.

Microsoft gets a short window of exclusivity with Rock Band 2 in September before the music game migrates to competing platforms.

Ben Schachter, video game analyst for UBS, said that when Microsoft cut prices on the Xbox 360 in August 2007, total unit sales increased 35% that month versus its prior seven-month average in the United States. He said consoles have seen an overall average unit increase of 53% in the month of or directly after a price cut.

Schachter said he believes this cut aims to slow Sony’s momentum before first-party PS3 releases such as LittleBigPlanet, Resistance 2 and SOCOM hit stores.

“Sony is unlikely to cut in response, though, in the unlikely event that PS3 sales significantly slow, Sony might have to reassess,” Schachter said.

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