Analysts bet on 360 price cut
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.
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