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Xbox 360 at $99: How It Could Change The Industry, Or Fail Miserably

Veteran journalist Chris Morris takes a hard look at Microsoft subsidizing its Xbox

It's hard to keep a secret in the video game world.

Microsoft's confirmation this week that it will offer the Xbox 360 for just $99 (with a $15 per month Xbox Live subscription) was a bit anti-climatic after the news leaked last week. But spoiled surprises don't necessarily negate a move's impact.

The model Microsoft chose is a groundbreaking one. And while we won't know whether it's a bona fide success or not for some time, it's one that could potentially have a big impact on the gaming space.

The days of being able to buy a console outright for a higher amount aren't in any danger of going away - so Microsoft's decision to go this route will never impact the core gamer. But for the mainstream/casual audience, Microsoft's new approach has the potential to shake things up.

That got us to thinking… Exactly what sort of impact could Microsoft's big move have? And how might it fall on its face? Here's what we came up with…

Positive Changes the move could have

Generating a consistent revenue stream - The Holy Grail among publishers isn't a smash hit. It's a smash hit that keeps money coming in for them at a somewhat predictable rate. That's why EA invested in Star Wars: The Old Republic and why Activision is pushing Call of Duty: Elite so aggressively.

By convincing consumers to fork over $15 per month, Microsoft's Entertainment division could be setting itself up to supplement falling revenue from decreased software sales. (The company pockets a royalty with every new game sold.) That makes investors happy - and that keeps the bosses happy.

A boost to software revenues - Consoles live and die by tie-ratios. If people buy your game system, but don't have money to buy games, everybody loses. By cutting the consumer's initial investment in the system, that could dislodge the mental block that stops people from buying several titles at the same time.

For Microsoft - and its publishing partners - that's a win-win.

"If [MS] finds people are willing to pay more for additional features (as PlayStation Plus owners are), it could launch a new service tier - likely one that focuses more on home entertainment"

Eliminate the fence sitters - It has been two years since the Xbox 360 has seen a price cut. That's an eternity for people who are interested in the brand, but not interested enough to cough up $300. A low price of $99 is the sweet spot for consumers when it comes to gaming consoles - and some people won't look far beyond that big number in the advertisements, despite the asterisk attached to it.

$15 doesn't sound like a lot of money. It's not much more than you spend for two people at a drive-through window. And it's an easy amount for most people to justify to themselves, prompting them to pull out their wallets.

Could create a higher "platinum" service tier - Rumors of an enhanced version of Xbox Live for customers who signed up for the subscription plan didn't pan out. But Microsoft's classification of this as a "pilot program" raises all sorts of possibilities for the future.

Microsoft is essentially sending up a test balloon with this - and seeing what works and what doesn't. And if it finds people are willing to pay more for additional features (as PlayStation Plus owners are), it could launch a new service tier - likely one that focuses more on home entertainment, given how this move targets Roku and Apple TV more so than other consoles.

Could jump-start sales in the next generation - There are already worries aplenty about the new consoles. Will they be able to lure back audiences who are playing more and more mobile games? Will the price be too high?

For core gamers, it's less of an issue. But core gamers alone can't keep the industry afloat anymore. If Microsoft can convince the mass audience to get in early with its next generation system, by offering it at a rock bottom price with a monthly fee, it could build an installed base that is on par with or greater than what it has with the Xbox 360. And that sales methodology would truly be revolutionary.

Ways it could be a miserable failure

People can do math - Put simply: The $99 Xbox is a bad deal. It's about on par with renting a couch. If people simply save for it, they can get a better deal - at least $40 (possibly more if they shop smart and buy one-year gift cards for Xbox Live on sale).

"The American public is nearing a breaking point. People are stretched thin and while $15 isn't a lot, it's one more bill that makes their monthly debt a bit higher"

Some people will jump at the instant gratification, but others will stop, do the math and realize Microsoft is just trying to take more out of their pockets.

Limited distribution - Yes, this is a pilot program, so perhaps Microsoft didn't want too many people to take advantage of it. But if that's not the case, it made a ridiculous move by making this a Microsoft store exclusive.

With only 21 locations, the Microsoft store is hardly ubiquitous. And it's not as cool as Apple's retail stores. Even with giant "$99 Xbox 360" signs in the window, foot traffic is going to be a lot lighter than it could have been. Let's hope that if the program is expanded into the next generation, Microsoft can convince other retailers to get on board.

Who wants another monthly bill? - Between cable bills, cell phone bills, rent/mortgage payments, utility bills and car payments, the American public is nearing a breaking point. People are stretched thin and while $15 isn't a lot, it's one more bill that makes their monthly debt a bit higher.

And these days, no one is rushing to add to that.

It incentivizes competition to cut prices - A PlayStation 3 price cut is coming this year. It's a virtual certainty, given the system's age, sales and the looming launch of the company's next generation system, rumored to be coming by the end of next year.

A $99 price tag on the Xbox 360 is like waving a red flag in front of a bull. Sony won't cut prices reactively (that's a characteristic that's more Microsoft's), but when it does cut, you can bet they'll make it clear that their price is a much, much better deal than what people are paying for with the subscription 360. And given the choice between, say, $200 free and clear and $99 with strings, a lot of people may choose to dig a little deeper and go with Sony.

About the Author

Chris Morris avatar

Chris Morris


Chris Morris has covered the video game industry since 1996, offering analysis of news and trends and breaking several major stories. He was the author of CNNMoney’s 'Game Over' and has also written for Yahoo!, Variety, CNBC.com, Forbes.com and other publications.


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