NEWS - Monday, May 13, 2002

More on Xbox Price Drop

Microsoft Corp. has told major U.S. retailers it plans to announce a price cut for its Xbox video game console within days, sources familiar with those discussions said on Friday. A Microsoft spokesman declined to comment, saying the company talks to its partner companies on a regular basis and that "conversations we have with them are confidential." A price cut for the Xbox has been widely expected in recent weeks by industry analysts who have said the cut could jump-start sales ahead of the traditionally slow summer months. Microsoft has a press conference scheduled for May 20, the first night of the Electronic Entertainment Expo in Los Angeles, the game industry’s most important event of the year. The price cut will be announced then, the sources said. Microsoft released the $299 Xbox on Nov. 15, and industry analysts and executives have estimated it had sold about two million units in the U.S. through March 31. While that was considered a relatively strong debut, the console has not fared as well in Japan and Europe. Microsoft also still trails Sony Corp. by 10-to-1 in terms of the total number of its game consoles in the market. That’s a key measure since Microsoft’s strategy has been to take a loss on the Xbox machine but make money on related game sales and a bigger "installed base" of game consoles means a bigger potential market for games. Microsoft has conceded it is struggling in Japan, and it cut the price of the console by as much as 38 percent in Europe and Australia six weeks after its launch in those markets. The Xbox competes in the United States against Nintendo Co. Ltd.’s (7974.OS) GameCube, which was released three days after the Xbox; and Sony Corp.’s (Tokyo:6758.T - News) PlayStation 2, which came out in Nov. 2000 and has sold more than 11 million units in North America and more than 30 million globally. The PS2 also retails for $299, while the GameCube sells for $199. Sony has repeatedly denied it has plans for a price cut, though the major game publishers have all said their financial models assume a PS2 price cut sometime this year. Nintendo has said it would reexamine its pricing if Sony cut its price, but that any decision would have to be made by August to have full effect for the year-end holiday season. Sales of video game hardware and software topped $9 billion in the United States in 2001, and the industry is expected to post record revenues and growth in the next few years on the strength of the new consoles.


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