| candyflip |
03-30-2004 03:01 PM |
GFY's Favorite Prize Just Got Cheaper
Microsoft (MSFT) might have been forced Monday to announce another price cut on its money-losing Xbox (news - web sites) video game console - sooner than planned.
The company had been expected to lower Xbox's price about the time of the E3 gaming conference in Los Angeles in mid-May.
But Friday, Piper Jaffray analyst Tony Gikas issued a research note predicting the price cut would happen within days. Word spread among video game enthusiasts over the weekend, forcing Microsoft's hand.
Because prospective buyers were likely to wait for the price cut, Microsoft was smart to make the cut immediately, says tech analyst Matt Rosoff of research firm Directions on Microsoft.
Monday, Microsoft said a $30 price cut to $149 would take effect Tuesday. The company hopes to trigger the same surge rival Nintendo (news - web sites) enjoyed when it slashed the price of its GameCube console last fall. GameCube has since supplanted Xbox for second place in worldwide shipments.
"They had to make this price cut to make Xbox competitive," Rosoff says. "This probably isn't the last price cut we'll see."
Microsoft launched Xbox in November 2001 at $299, optimistic that it could make GameCube irrelevant and challenge Sony's PlayStation 2 (news - web sites). Microsoft continues to lose money on each Xbox sold, but it aims to profit from game sales and subscriptions to its Xbox Live online gaming service.
But GameCube has proved resilient. Nintendo cut its price to $99 from $149 last September and has worked overtime to keep up with demand. By February, nearly half of U.S. retail locations were out of stock, and Nintendo's North American warehouse was empty.
Nintendo has sold more than 2.5 million GameCubes since September. As the only console priced under $100, "demand remains very high," says Beth Llewelyn at Nintendo of America.
PlayStation 2 has continued to outsell Xbox 5 to 1 in the $8 billion gaming console market. Scrambling to close the gap, Xbox has generated most of the $1.8 billion in losses Microsoft reported in its entertainment division for fiscal 2002 and 2003.
But Microsoft isn't ready to throw in the towel against Sony, either. Last week, it announced plans to introduce a new way for developers to create Xbox games that can be easily converted into PC games. The idea is to spur creation of more Xbox games by giving game developers a way to spread costs, which can run as high as $10 million to develop a hot title.
Also, Microsoft has hired music star Sean "P. Diddy" Combs to sing Xbox's praises. "I love playing Xbox games and believe that the system's cultural influence as a social entertainment brand has only just begun," Combs says in promotional materials.
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