Aggressive PS3 Price Drops Could Catch Microsoft Napping

The Xbox 360 has been the top-selling game console in the US over the past twelve months,” read a Microsoft investor statement posted in July. The corporation wasn’t wrong, with NPD figures posted in August confirming that the Xbox 360 was not only the best-selling console in the US for the month of July for the fourth month on the trot, but also the best-selling console in the territory for 13 of the previous 14 months. A snapshot of July’s US sales data tells the story: while Sony shifted 148,000 PS3s, followed by the Wii with sales of 190,000, Microsoft managed to sell 277,000 360s – amounting to a whopping 45 per cent of the console market for the month.

The bigger the 360’s market-share, the more revenue Microsoft generates to spend on services, peripherals and, of course, exclusive games and content. As recently as 18 months ago Nintendo’s Wii was still the dominant home console as far as North America was concerned. Indeed, the last year has been something of a success for the 360 – but does it need to keep hold of that number one spot, and could a price cut to the hardware or its much-debated motion control peripheral Kinect represent a key step to achieving that?

Ever since Sony confirmed the price reduction rumours, which had been swirling around the PlayStation 3 for months, similar speculation began to spring up regarding Microsoft’s console. After all, the 360 is in its sixth year on the market – the PlayStation 2 was in its sixth year when the PlayStation 3 was released in Japan and the US. Will Microsoft retaliate with the sort of shift that came into effect when it introduced the Xbox 360 Slim and dropped the recommended retail price of a 250GB console by £50? Don’t bank on it.

“We don’t talk about our pricing plans in advance, and we’ve made no announcements about price drops,” Microsoft told us, also citing the 360’s US record for the past year. The console “is showing record growth,” the platform holder added. “With an incredible line-up of games and entertainment, we’re expecting the biggest year in Xbox history as the best- selling console worldwide.”

Microsoft might not be quite as successful on that last point. Away from the US, worldwide sales of the PS3 are actually ahead of the 360 for 2011, with Sony selling ten per cent more consoles than Microsoft thanks to strong showings in Japan and Europe. The Xbox 360 does retain a five per cent lead over its rival worldwide, but it’s an increasingly negligible margin according to analyst Jesse Divnich.

“The PlayStation 3 is still incredibly successful and outselling its rivals overseas. In terms of the PlayStation 3’s performance in North America, it is selling quite well and outperforming last year’s sales,” he told IndustryGamers recently. “The problem is the Xbox 360, which has increased its velocity without the aid of any price cuts or redesigns over the last year. The Xbox 360’s success is simply incredible.” Divnich, a respected games industry forecaster, added that the Xbox 360’s sales have defied his predictions for months. “The only reasoning that seems plausible is the Kinect or the strength of its software library has reached some sort of tipping point making the Xbox 360 an incredible value to consumers at its current price point,” he concluded.

The frequency of those calling for a 360 price-drop may be, in part, a reaction to the strategy of industry rivals, while others may sense an opportunity for what is an ageing console ahead of the lucrative calendar fourth quarter. Either way, Microsoft appears to have made its mind up about any changes in pricing policy, but it’s worth bearing in mind that prior to each, it has serially denied every single price drop since launch.
Amazon.co.uk temporarily dropped the price of all iterations of the Xbox 360, including Kinect, during Gamescom. The retailer was unavailable for comment, but at the time of writing it’s reverted to pre-Gamescom prices for Microsoft hardware – RRPs of £299.99 for the 250GB Xbox 360 Kinect bundle and £204 for the same console standalone, instead being offered for £269.99 and £179.98 respectively.

Meanwhile, we spotted that US retailer Gamestop, in its first month trading in the UK as an online retailer, is offering the 250GB Xbox 360 for as little as £159.97 – £44 below the recommended price. Just before we went to press, US retail giant Walmart also self-initiated a reduction on the price of a 4GB Xbox 360 Kinect bundle, knocking $50 off of the $299 asking price, and causing Microsoft to deflect it as an “independent decision” to implement a “temporary price cut”. Temporary or not, those in the market for a new Xbox will no doubt be mindful of such deals, which begs the question – who is still buying the 360?

As hinted at by Divnich and Walmart, it could well be the Kinect audience so heavily targeted by Microsoft that’s buoying 360 sales, which begs a further question: should Kinect, a £100 peripheral, be the product to undergo a price drop? In the twilight of its days, the current Xbox is enduring long past the expectations of past videogame hardware and Microsoft’s motion control gamble appears to be paying off. It claimed to have sold 10 million Kinect units worldwide as of March (to retailers – the number installed in homes is still widely disputed), leaving at least 40 million Xbox 360 owners to target. “What we’ve achieved with Kinect has given us growth that I think others would aspire to at this point in the lifecycle,” European Xbox boss Chris Lewis said recently.

To get where the Xbox 360 is today is undoubtedly no mean feat, but for the console to remain competitive and avoid the fate of so many unused Nintendo Wiis when the next generation comes around, or even worse – before then – Kinect appears to be the key to the 360’s current lease of life.