Game Console Price Cuts

E3 is the time of the season when a gamer’s mind turns to how cheap they’ll get their next console; that’s how ingrained summer price cuts are in the mind of the gaming consumer. Hot on the heels of the rumored denied confirmed $100 price cut on the Sony PlayStation 3 60GB (and launch of the 80GB version in its place) comes talk of Microsoft cutting prices across the board on the Xbox 360. The Elite model will drop to $399, an $80 price cut from the former $479 price. Both the Premium and Core units will receive $50 cuts as well, bringing the Premium down to $349 and the Core to $249. It’s worth noting that these are analyst predictions, coming from Michael Pachter at Wedbush Morgan. However, Microsoft would likely need to cut prices to maintain both price and value superiority over Sony.  But where does this leave Nintendo?  Exactly where they were; Nintendo would be foolish to cut prices when they can’t meet demand at the current price. That’s how strong Nintendo’s value proposition is.

If Microsoft does cut prices as Pachter suggests, it leaves the Elite as the only console worth buying. Ignoring the HDMI port, it would cost you an additional $28 to add the 120GB hard drive to a core unit, and that doesn’t include the spiffy black paint job. The premium becomes an even worse buy, since you incur the same cost to replace the 20GB drive with the $179 120GB unit. That right there suggests that Pachter’s numbers are far from where Microsoft will end up.

My Prediction: Microsoft will drop the Core from their lineup entirely, not wanting the perception that they’re trying to compete with Nintendo. The Premium will drop to $349, and the Elite will stay at $479 and will either pack-in or otherwise offer for free the HD-DVD drive . There needs to be at least a $100 gap in order for Microsoft to maintain the value proposition of the Elite compared to their own Premium unit, and they’ll want to stay price-competitive with Sony rather than look like a middle-of-the-road option. Further, this means every Xbox 360 will have a hard drive, which is important to developers trying to build games assuming that the drive may not be part of that gamer’s setup. Personally, I’d like to see some cuts to the exhorbitant accessory prices as well. The hard drive prices (and memory cards) are ridiculous.

Advice: If you’re planning to get an Xbox 360, wait until the "Falcon" 65nm CPU is confirmed to be shipping in the new units.  Then, you get the benefit of a cheaper console and a cooler (and hopefully, quieter) machine.  This new CPU is part of what will allow Microsoft to make the price cuts and not lose a bundle, but the cuts will come first, now that their hand has been forced by Sony, so don’t assume that a lower-priced Xbox 360 has the new CPU.  Conversely, those looking for a new PS3 should opt for the 60GB version, and do it now.  The 80GB version has removed the Emotion Engine chip that was used to offer backwards compatability (European PS3 units already had this change), but the 60GB units will retain the chip for the time being (likely until stock is depleted, at which point the new hardware revision will be slipped in).