Analyst: Xbox One policy reversal a "good first step"

Sterne Agee analyst says revised strategy "more consumer-friendly," but Microsoft still needs to focus on pricing messaging.

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Microsoft's revised Xbox One policy is a "good first step," but the company must now focus on communicating to consumers why they should pay $500 for the system instead of $400 for a PlayStation 4, according to Sterne Agee analyst Arvind Bhatia.

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"Microsoft's revised Xbox One strategy is more consumer-friendly and bodes well for potential sales of the console over time," Bhatia said in a note to investors today regarding the impact the news has on retailer GameStop.

"The elimination of all restrictions related to DRM and trade-ins, etc., strengthens GameStop's positioning in the space and eliminates risk to used games," he added. "Still, we believe Microsoft's messaging on Xbox One pricing ($499) needs to improve relative to Sony's PS4, which is priced at $399."

GameStop yesterday applauded Microsoft's policy reversal, saying the move was "great news" for gamers and is a testament to Microsoft's understanding of the importance of the used-game market.

Microsoft may be pacing ahead of the PS4 on Amazon's best-seller charts, but Bhatia believes the company must now focus on pricing messaging to win over consumers who may be attracted to the PS4's lower price point.

Bhatia pointed out that the primary difference between the Xbox One and PS4 is that Microsoft's system comes bundled with a Kinect camera, while Sony faithful will need to pay $60 to buy a PlayStation Eye peripheral. Communicating to gamers why the Kinect will add value to the system will be the difference-maker, Bhatia said.

"The primary difference is the Xbox One comes with a Kinect camera/controller bundled while PS4 does not," Bhatia said. "We believe Microsoft wants to bundle Kinect so developers can take advantage of its features without worrying if the end-user will have the Kinect controller or not. As such, the messaging likely needs to focus on the value and potentially differentiated game play provided by Xbox One."

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