Analysts bet on 360 price cut

  • By Curt Feldman, GameSpot
  • Posted Jan 8, 2007 8:15 am PT

Microsoft decision could lead to extending lead in race to capture market share; $100 reduction not unthinkable, says one.

LAS VEGAS--This Nevada town, where betting and speculation are the norm, is an appropriate place for talk of a price cut to the Xbox 360 to find traction.

Yesterday, two analysts--Michael Goodman and Colin Sebastian--spoke of a possible announcement from Microsoft. Goodman, of the Yankee Group, went so far as to consider a $100 price drop for the one-year-old-plus console--a doubling of the traditional $50 reduction. A third, Wedbush Morgan's Michael Pachter, offered his opinion as well, which, not surprisingly, contradicts Goodman's and Sebastian's.

In a morning note to investors, Lazard Capital Markets analyst Colin Sebastian hedged his bets, declining to speculate on an exact figure a price cut could take, but he did introduce the topic.

Pegging his theory on the dual combination of greater production efficiencies and component cost reductions for the console, as well as a shift of the platform to a more mass-market consumer audience, he said a price drop in 2007 was a "possibility."

"At CES, Microsoft is introducing several new services and updates for the Xbox 360 aimed at broadening the content available over the platform beyond video games...specifically, Microsoft is now positioning the Xbox 360 as a media hub and set-top box for the living room, linking broadband connectivity and the Xbox Live service with providers of traditional media content through Internet protocol television (IPTV)."

Goodman put a few more chips on the table, telling GameSpot he was looking at the March-June time frame as fertile ground for a price drop--and that if Microsoft really wanted to disrupt the console playing field, it would slash the price by $100.

"It's a market share battle," Goodman said. The $100 cut in price is what Microsoft would do "if [it] wants to be super competitive--put Sony against the wall and put competitive pressure on the Wii."

Pachter scoffed at talk of a preemptive Microsoft price drop. The rationale? Greed.

"Microsoft will not cut price below its cost of production," Pachter said. He posits that the 360 currently costs Microsoft $359 to produce, so "why not enjoy a $50 profit per box," he said. In addition, assuming a price drop, Pachter still saw little upside: "I'm not convinced a $300 [price point] will spike demand."

But it was on philosophical grounds that Pachter based his reluctance to join the price-cut chorus. "Microsoft is not in the business of wealth transfers to the consumer...they don't give anything away." He also doesn't see Microsoft playing the role of a price leader; rather, he sees the company as a follower in the marketplace, or a price taker, in conventional business-development lingo.

"Sony isn't prepared [to drop the price of the PS3] until summer," Pachter said. And with no Electronic Entertainment Expo in May to use as a platform for news, there isn't the usual incentive to target such drama (a price drop) in late spring--it can wait, according to Pachter. Wait until Sony does drop the price, he says, and then watch out. "Microsoft will follow, eight seconds later."

And when will Sony deliver a lower-priced PS3? Maybe it was the Ls Vegas setting that got to him: "A Sony price drop?" Pachter pondered. "July 11...7-11. Mark that day down in your calendar."

GameStop currently sells the two Xbox 360 configurations for $399 and $299. The Wii is priced at $249 at most retailers.

235 Comments

  • lhardwick692

    Posted Feb 23, 2007 3:47 pm PT

    i dont care about price drops..all it is saying is this..for companies like microsoft and sony to say they are already selling these consoles at a loss..and talking about a price drop..makes me wonder if they are loosing as much as they say they are..hmmmm

  • JSharpe_187

    Posted Feb 23, 2007 1:53 pm PT

    Zephyr is basically an Xbox 360 with an updated graphix card, to support HDMI, and with a beautiful 120 GB HD. Sexy, no?

  • Shundhit

    Posted Feb 23, 2007 6:51 am PT

    What is Zephyr??

  • LosDaddie

    Posted Feb 23, 2007 5:23 am PT

    A price cut for the x360 makes sense.

  • Breakfast_Clubber

    Posted Feb 22, 2007 8:47 pm PT

    if i can get a fully loaded xbox 360 for under 200 dollars with a prospect of at least half a dozen games i'd like to buy, i'll get one. until then, i'll play DS and Wii.

  • StarFoxCOM

    Posted Feb 22, 2007 7:52 pm PT

    Yeah. They might drop the price when Zeypher comes out

  • spcphilpot

    Posted Feb 22, 2007 7:47 pm PT

    I could definitely see a price cut especially with the zephyr set to come out in the fall. The may loose a little money but heck Bill Gates has lost money on Xbox in the past just to get established. I think the production costs are going to come down, and if they start making more money on all the live downloads it won't matter much.

    For those that say it's all about making money you obviously don't understand the big picture. Sony looses $279 per system, it's not about money as much as it is about having a massive fan base and hoping that 1st party games, peripherals and households buying multiple systems; that's what makes you money. By the way the Sony Rep. came into our store the other day and said that there will be a price drop on the PS2 to $99. Also the fact that MS and Nintendo are pulling the plug on the Xbox and Gamecube respectively could lead to some price changes at least for MS.

  • notm3

    Posted Feb 22, 2007 6:48 pm PT

    With the staggered release and the holiday season done an over with, the pricing wars can begin to come in to play. I'm becoming more and more glad I have held off buying any next gen...

    "I dont see any point in 360 dropping prices because the ps3 (their only compition) is so inflated price wise. Plus it cost 359 to make so making it worth 300 wouldnt be relistic at this point in time. Hopfully microsoft cant work some magic like they have in the past and make it 300... we can only hope"

    Their only competition? You are aware that the Wii has been absolutely slaughtering since Christmas right?

  • warlokman67

    Posted Feb 22, 2007 6:10 pm PT

    it all sounds so interesting

  • JSharpe_187

    Posted Feb 22, 2007 5:15 pm PT

    I bet this will come with the release of the "zypher", the remake of the Xbox360. The new pricing scheme might be, from higher end to lower end, in USD: $479 (according to gameinformer.com article), $349, and $249, to match the price of the Wii.

  • coxmartin

    Posted Jan 26, 2007 7:07 am PT

    Only time will tell if a cut and by how much. It will happen, it always does

  • eViL_kA

    Posted Jan 25, 2007 6:46 pm PT

    Joel_elwick "people in the know" LOL are you joking. What other systems have had as many great RPG's as the PS1 and the PS2 esp. if you like JRPG's? none. i won't argue that the systems were overpriced but to label them as simply a fashion item is a bit ignorant and fanboyish. i suppose that could be said about the PS3 though, considering it really has nothing (in relation to games) to offer at the moment. PS1 and PS2 had one thing that the competion did not and that was a ton of variety in games. they covered every genre rather well. but then if you were really "in the know" as you stated you would "know" this. Also the reason the N64 did not dominate is the same reason the original Xbox did not dominate the market, neither could match the sheer number of games available on Sony's systems. It does not matter how powerful the system is if it doesn't have any games to offer. it's ironic because at the moment this is the problem (besides the price) with the PS3, it has no games. It is also the reason why your money is better spent on a 360 rather than a PS3 at this point in time. I agree though that Nintendo did a great job with the wii overall esp. price!

  • joe_elwick

    Posted Jan 22, 2007 5:40 am PT

    i think instead of dropping the price of the xbox 360, i think they need to concentrate on educating people on the fact that the machine you get with microsoft is capable of the same looking games as the very overpriced sony machine!!! sony only really sell there machines on the back of there so called reputation, originating from the playstation 1 machine! they advertised the hell out of it, at the time when the much better machine, the nintendo 64 was not!! they got a grip on the market hence the reason for everyone buying a ps2, and its a slide from that really!!! I think what nintendo has done is amazing and i think this might encourage people to even look at other machines! people in the know, know that sony machines have always been a bit of a fashion item more than the best machine on the market!!!!!

  • French023

    Posted Jan 19, 2007 4:28 pm PT

    I dont see any point in 360 dropping prices because the ps3 (their only compition) is so inflated price wise. Plus it cost 359 to make so making it worth 300 wouldnt be relistic at this point in time. Hopfully microsoft cant work some magic like they have in the past and make it 300... we can only hope

  • siscofjm

    Posted Jan 18, 2007 12:29 am PT

    A price break would be sweet, but compared to the PS3s over inflated after market prices the 360 is still the best deal.

  • morororo

    Posted Jan 17, 2007 11:27 am PT

    Better not cut the price anytime soon, I only just bought one! Like another poster said, bring down the price of games if anything. Games here in the UK have come down to 40 sheets from 50 which is nice, but that's still a bit pricey. Shops like Gamestation are great though. I just picked up Table Tennis and King Kong in a 2 for 20quid deal and Oblivion and Lego Star Wars in a 2 for 40quid deal.

  • runejedi

    Posted Jan 16, 2007 1:16 am PT

    whoa hold on a second (insert word) the 360 price drop. has any noticed that some 360 game go 4 $120 au dont drop the console price .drop the price of the games 10 bucks that way thell sell way more games and instead of losing money thell make it. id much rather buy a $600au console if i knew i could get the games cheaper.! oh and on the process front i read somewhere that they use 3 cores in a 360 ud think with the intel quad-cores they would bell able to make a tri-core cheaper than a 3-core setup, that should drop the price.

  • Gmacrusher

    Posted Jan 15, 2007 7:25 pm PT

    ohh its ment to happen soon!

  • ert47

    Posted Jan 15, 2007 5:55 pm PT

    Well... aren't M$ producing a new processor for the 360, that could lower the production cost?

  • MrSickVisionz

    Posted Jan 15, 2007 5:17 pm PT

    $100 might be a bit extreme. I've been hearing that they are working on an even bigger hard drive for the system now that they let people download HD movies. With this IPTV thing I think you're gonna need way more space than what they currently offer.

    I'd almost suggest dropping the HDD all together and just selling one system for under $299 *hopefully like $249* then selling hard drives totally sepereate as you need them, or not at all if you don't feel like having one. Or be like Sony and let you load up any USB2 hard drive into it.

  • okassar

    Posted Jan 15, 2007 4:28 pm PT

    Well no duh,they've been goin' for a year and they want to crush the competition into smaller pieces.Even without the price cut,it's a great system with great games and great games to come and really good online gameplay(xbox live) plus a good price.

  • ricsuave

    Posted Jan 15, 2007 2:37 pm PT

    "audioaxes
    funkybar88....
    are you serious?
    companies, especially one like MS are smart enough to think long term
    if eating a loss means winning a bigger user base for larger profits 1 year, even 5 years down the road, then they will do it

    i expect a $100 price drop on the premium system before this spring is out and will be shocked if this doesnt happen before the beginning of Fall"

    I expect it in time for the next holiday season and Halo 3. And what's more if MS can drop the production costs just a little I wouldn't be shocked to see then drop the 20Gig premium to $250 to match the Wii and introduce a 100G version at $350-399.

  • brotherscampos

    Posted Jan 15, 2007 2:26 pm PT

    Man I have my X360 but I paid $399, In my case that isnot really important

  • audioaxes

    Posted Jan 15, 2007 8:21 am PT

    funkybar88....
    are you serious?
    companies, especially one like MS are smart enough to think long term
    if eating a loss means winning a bigger user base for larger profits 1 year, even 5 years down the road, then they will do it

    i expect a $100 price drop on the premium system before this spring is out and will be shocked if this doesnt happen before the beginning of Fall

  • ricsuave

    Posted Jan 14, 2007 9:47 pm PT

    "funkybar88
    Leading the console war is one thing, but these companies are here to make a profit. $100 price drop will help Microsoft sell consoles, but they're trying to make money. I don't care how much money microsoft has, they aren't planning to throw away possibly billions to win a console race."

    Then you don't know Microsoft. They'll do whatever it takes to get into the home and then make their money on the back end. That's why they have so much money when they basically GIVE away their #1 product Windows. Why can they make windows available free when you buy a PC? Because they will make assloads of money on the compatible software. Those of you who work in the business world know how prevalent the MS Office Suite is. And the original Xbox lost millions upon millions but Gates was thrilled because it made MS a player. So if you don't think MS will take that $25 loss to drop the price $100 and kick Sony in the head, you're sadly mistaken.

  • trd_matrix000

    Posted Jan 14, 2007 9:28 pm PT

    wow enough to cover the wireless dongle.... i guess thats a start...

  • funkybar88

    Posted Jan 14, 2007 6:24 pm PT

    Leading the console war is one thing, but these companies are here to make a profit. $100 price drop will help Microsoft sell consoles, but they're trying to make money. I don't care how much money microsoft has, they aren't planning to throw away possibly billions to win a console race. Money is money. Would you rather sell 100 systems and make $10000 or sell 200 and make less? Bragging doesn't come down to how many consoles you sold, but rather how much money you made

  • ricsuave

    Posted Jan 14, 2007 1:33 pm PT

    "snakenamedjoe
    If they'd started at $!80 like some analysts predicted they would be in bad position. They wouldn't be making any money on the system and next year if Sony and Microsoft lowered prices Nintendo would be obligated to do the same, lest their system seem to bo out valued by the price cuts on their competitors."

    Why? the 360 price would have to be dropped by 50% to reach $200 and the PS3 by TWO-THIRDS. And they still would be more expensive than the Wii at 180 so why would Nintendo have to cut the price? Dude, it was cheap to make and they sold it cheap, don't make it out to be this genius move. If the PS3, 360, and Wii all had cost the same we'd be eulogizing the Wii right about now.

  • ricsuave

    Posted Jan 14, 2007 1:24 pm PT

    "ckmlb
    A price drop isn't gonna raise sales significantly, and Microsoft is finally making a profit, why drop the price now?"


    I'd like to introduce you to Bill Gates, by far the most vicious and aggressive closer in business history. You really think that now that he has his boot on Sony's throat that he isn't going to stomp on it? He has spent more time with the 360 than he has with Windows Vista, and if taking a $25 hit per console is what it takes to drop the price $100, then that's what he'll do.

  • snakenamedjoe

    Posted Jan 14, 2007 3:57 am PT

    Ah, now the Wii price makes sence to me. Initial consumers are more than happy to shell out $250 for the product. They are selling as many units now at $250 as they would be at $180. All of them. Nintendo is making money on the system to begin with, so they don't have to worry about making back lost cash later. When the competition chooses to lower prices, Nintendo will be in a position to follow suit without going down into the red.

    If they'd started at $!80 like some analysts predicted they would be in bad position. They wouldn't be making any money on the system and next year if Sony and Microsoft lowered prices Nintendo would be obligated to do the same, lest their system seem to bo out valued by the price cuts on their competitors. They would have to move into the red and they would have no money from initial sales to cover the losses.

    Ironic that Nintendo will sell more units because they charged more money than they would if they had cut the price right from the beginning.

    Genius.

  • GANGSTA287

    Posted Jan 13, 2007 9:06 pm PT

    stepping on the throat of Sony why they are already down MS???

    you evil monopoly you...

  • ckmlb

    Posted Jan 13, 2007 8:42 pm PT

    A price drop isn't gonna raise sales significantly, and Microsoft is finally making a profit, why drop the price now?

  • D_slayer5000

    Posted Jan 13, 2007 7:50 pm PT

    shoot if they drop it down 100 dollars id buy 50 of em

  • nesto423

    Posted Jan 13, 2007 3:58 pm PT

    actually walmart sells the premium for 380 and u get call of duty 2... and the core for 293.00 w/no games .

  • Dryker

    Posted Jan 13, 2007 1:07 pm PT

    If Microsoft dropped the price $100, it would definitely have a major positive affect on sales.

    I believe the Wii is $250. If this price drop occurs, the Core System would be $200, making it less than the Wii. Personal buyers may balk at the lack of a Hard Drive, but gift buyers do not.

    Imagine this.

    XBox360 Premium$299+HD DVD$150=$449.

    PS3 ( with Bluray playback ) = $599. For a gaming machine that is widely believed to be more affective as a gaming platform and have HD movie playback, a $150 price reduction would be devestating to any chances PS3 would have to regain its lead over XBox 360. Nintendo on the other hand is a wild card. They captivate the imagination of gamers across the globe, it's hard to say how far they may go with the Wii.

  • LessThanMike

    Posted Jan 13, 2007 11:49 am PT

    but of course, why not

  • rome_tx

    Posted Jan 13, 2007 11:00 am PT

    I doubt the Microsoft will drop the price until a few months after Halo 3 comes out and I seriously doubt that Sony will even think about a drop seeing that they lose so much money from making PS3s.

  • bgres077

    Posted Jan 13, 2007 10:50 am PT

    Don't see it happening, it's already significantly cheaper than the PS3 and even a $100 price cut the Wii would still be cheaper.

  • berzerker92

    Posted Jan 13, 2007 7:11 am PT

    Sir dashing wrote
    yo. ct-link

    "if there is ANY price drop i'll buy it"- you

    http://www.walmart.com/catalog/product.do?product_id=4103873

    walmart dropped it 17 cents.

    oh...and threw a cheap game in there. walmart dropped it 18 cents...lol i wanted a psp but if for the same price i can get a 360... sweet

  • datniccah187

    Posted Jan 13, 2007 2:29 am PT

    Nice lets cut the price, i'll buy a second machine for no appearent reason if the price is cut.

  • BIGboss600

    Posted Jan 12, 2007 10:18 pm PT

    THERE COULD BE A PRICE DROP I THINK LOGICALLY IT SHOULD BUT WITH A 600$ PS3 MONEYSOFT WILL NOT DO IT WE WOULD ONLY BENEFIT. XBOX360 SALES WOULD GO UP AND THE PS3 WOULD BE IN EVEN BIGGER SHT BUT THAT LOOKS LIKE ITS GONNA GO THAT WAY ANYWAY WITH OUT A PRICE CUT

  • dudeperson2006

    Posted Jan 12, 2007 9:15 pm PT

    thats cool theres gonna be a price cut

  • peeweeshift

    Posted Jan 12, 2007 5:33 pm PT

    i doubt a price drop. people want 360's and wil buy one even if it stays at this price. until more shipments for wii, ps3 come in MS will lay low

  • barnold81

    Posted Jan 12, 2007 4:14 pm PT

    I would buy a 360 if the price dropped by at least $50.

  • racerx737

    Posted Jan 12, 2007 4:04 pm PT

    a price drop would be awesome! but since it's all still speculation at this point and I already own a 360, it wouldnt do me much good.

  • SirDashing

    Posted Jan 12, 2007 3:30 pm PT

    yo. ct-link

    "if there is ANY price drop i'll buy it"- you

    http://www.walmart.com/catalog/product.do?product_id=4103873

    walmart dropped it 17 cents.

    oh...and threw a cheap game in there.

  • weaponx178

    Posted Jan 12, 2007 9:32 am PT

    I've been really going back and forth whether I should get a 360 and although a hundred dollars less would raise my willingness of getting one but I really have my heart set until the xbox zephyr comes out with hdmi port...but by the looks of it its only in the experimental phase so it looks like I'm still undecided about getting one.

  • KarlZoneX

    Posted Jan 11, 2007 2:34 pm PT

    Yeah, I'm not that big on xbox, but it does somewhat interest me.. enough so that a $299 price would probably make me break down and buy one just for the heck of it.

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