Microsoft's release of the Xbox 360 Elite validates Sony's focus on capturing the early market for high-definition entertainment, according to Wedbush Morgan analyst Michael Pachter.
As the format holder continues to sign up more providers of downloadable content to Xbox Live Marketplace, the support for HDMI output is Microsoft's acknowledgement that the hi-def consumer is more important that it initially believed.
"Microsoft's move is an endorsement of high-definition output, and its inclusion of HDMI validates that Sony's initial strategy was correct," said Pachter, speaking exclusively to GamesIndustry.biz.
"The 120 GB hard-drive is focused on helping the roll-out of IPTV, and I expect a progression of HDTV broadcast from the current 720p to the 1080p standard over the next few years, so the HDMI output will be relevant."
"On balance, this is a very smart move by Microsoft, but it appears to validate Sony's strategy, and serves as an acknowledgement that HD content matters," he commented.
For Pachter, the Xbox 360 Elite is stepping closer to the functionality of the PlayStation 3, but instead of offering an all-in-one package, Microsoft is giving the consumers a choice to upgrade their current console or buy the individual components relevant to their needs.
"Microsoft has made a bold move here in order to capture additional market share. They have essentially offered consumers the opportunity to replicate the performance of a PS3 by purchasing the 360 Elite plus an external HD-DVD drive," he offered.
"The value proposition is fair, and it places the two companies on similar footing."
The fact that Microsoft is not offering the external HD-DVD drive as part of the new Elite bundle may be an indication that it believes Blu-ray will eventually win the hi-definition format wars.
"It appears to me that Microsoft sees the writing on the wall — Blu-ray is going to win the format wars," he said.
"Ultimately, Microsoft will likely offer a Blu-ray drive with the 360 Elite, and I think consumers will be able to select based solely upon other drivers."
Pachter also believes that although the Xbox 360 Elite will register with early adopters of hi-def content, the current 20GB model will still be sufficient for many consumers.
"I'm hopeful that Microsoft does not phase out the 20GB model," he said.
"I continue to believe that most consumers will be perfectly happy with that SKU, and those with 720p TVs should be very happy with the performance of the current 360."
A price drop of the Premium console would also not be out of the question, said Pachter, giving Microsoft an advantage over Sony at retail.
"Microsoft is in a good position to lower the price of the USD 399 version, and it would give them a big competitive advantage to do so."
"In the final analysis, I would be surprised if they eliminated this SKU, and would consider it a mistake if they were to do so," he concluded.