NEWS - Thursday, April 18, 2002

Aussie Xbox Price Cut

U.S. Game Industry Cheers Xbox European Price Cut LOS ANGELES - U.S. video game industry executives collectively cheered on Thursday as Microsoft Corp., bowing to mounting pressure to shore up sagging sales of its Xbox game console, slashed the price of the machine in Great Britain and continental Europe. Views were mixed, however, on whether the move signaled the start of a U.S. price war among the three major game consoles. "We couldn’t be happier," said Jeff Lapin, vice chairman of THQ Inc., which was the first game publisher to publicly urge Microsoft to cut prices. ``Hopefully, this’ll give the Xbox a shot in the arm and they’ll sell more boxes." Redmond, Washington-based Microsoft said it would cut the price of the Xbox as of April 26 by 38 percent in Europe, to 299 euros ($266), and by 34 percent in Britain to 199 pounds ($288). The cut takes effect just six weeks after the console’s March 14 European launch. "Finally, a good pricing move," said Jeetil Patel, an analyst at Deutsche Banc Alex. Brown who covers the industry. "Are they just playing catch-up with the market now? Yes," he added. The new prices mean the Xbox will now be cheaper in Europe than in the United States, as is the case with Sony Corp.’s (6758.T) PlayStation 2, which costs $299 here. "We think it’s great news. We think this is exactly what they needed to do," said Jeff Brown, a spokesman for Electronic Arts Inc., the No. 1 U.S. publisher. However, the PS2, which debuted in November 2000, has a year’s head-start on the Xbox, which was launched in the United States on Nov. 15. Despite denials by the company, Sony is widely expected to cut the price of the PS2 to $199 in the United States. A CUT, BUT WHEN? Analysts and industry executives are divided, however, on whether cuts for both Sony and Microsoft will come sooner, say, at the industry’s Electronic Entertainment Expo, or E3, trade show in late May; or later, perhaps during the back-to-school season in September. "I would almost view a near-term price cut as a slight negative," Patel said. "I would assume that the second half is probably a better choice for them." The third player in the U.S. market is Nintendo Co. Ltd. (7974.OS), whose GameCube console debuted in the United States three days after the Xbox at a price of $199. In early April, George Harrison, Nintendo of America’s vice president for marketing, told Reuters any GameCube price cut would only happen after a move by Sony, but that a Nintendo cut would have to happen by August to take effect for the holidays. "If there is (a price war) it won’t be started by Sony," said John Davison, editorial director of the Ziff Davis Media Game Group, which publishes a number of video game magazines. Davison said he believes Microsoft will make the first move, probably at E3, with any Sony cut likely to come in September. In fact, Davison suggested Sony may not even need to cut prices. After years of slashing overheads "now they’re making money on units and demand hasn’t dropped," he said. Microsoft’s European cut comes amid speculation in recent weeks from analysts who cover the Xbox’s manufacturer, International Ltd. that sales have been slow, leading to slower production at Flextronics and possibly building inventories. However, the chief executive of chip maker Conexant Systems Inc. (NasdaqNM:CNXT - news), which makes a video encoder chip for the console, said he had seen no such evidence.

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