Microsoft Slashes Price of Xbox 360 Elite

Microsoft plans on cutting the prices of its Xbox 360 Elite and Xbox 360 Pro gaming systems, following Sony's decision to cut the price of its own PlayStation 3. Despite Microsoft's renewed focus on its traditional lines of business in the midst of a global recession, including the release of Windows 7 in October, the company's Xbox 360 division has continued to be profitable. The Xbox 360 line has sold 31.4 million units since its release.

Microsoft plans to slash the price of its Xbox 360 Elite gaming system from $399 to $299 on Aug. 28, as part of a product-line restructuring that will see the Xbox 360 Pro discontinued once those units sell out.

In order to rapidly reduce their stock of Xbox 360 Pro consoles, Microsoft has lowered the unit price to $249. Eventually, Microsoft will offer only the Xbox 360 Pro and the Xbox 360 Arcade, which retails for $199 and lacks a hard drive.

The Xbox 360 price cuts follow its arch-rival Sony's decision to drop the price of its own PlayStation 3 console to $299 for the 120GB edition. A 160GB edition will sell for $399. Analysts have generally concurred that Sony made that pricing move in order to make its pricey console more competitive with both the Xbox 360 and the Wii, which sell for less.

Microsoft's own price drop may initially appear to be an answer to Sony's move. But Microsoft's director of product management for Xbox 360 and Xbox Live, Aaron Greenberg, has told Don Reisinger that the price reduction had been in the works for months, and was intended to position the Xbox 360 line for the holiday season.

Video-game sales have suffered in the recessionary environment, with sales in July falling 24 percent year-over-year, to $848.8 million. Sales of gaming systems and consoles dropped to $280.9 million, a 37 percent drop over the same quarter in 2008. Microsoft's Xbox 360 has managed to outsell Sony's PlayStation 3, but continues to lag behind Nintendo's Wii gaming platform. Overall, Microsoft has sold 31.4 million Xbox 360 units since the device's release.

Despite declining overall revenues for the company, Microsoft's Xbox division continues to be profitable. More unprofitable applications and services have been given the merciless axe by Microsoft throughout the course of 2009, as Redmond retrenches and refocuses on core products such as the upcoming Windows 7 operating system and Office 2010.

The Xbox line represents one of Microsoft's more successful experiments outside of those main lines of business. Others have traditionally not fared so well; in the late 1990s, Microsoft invested billions in cable television companies, with the hope of integrating software and applications into digital programming, only to see those efforts crash and burn.

Revenues from video games, whose prices have only increased in recent years, may also help Microsoft at least marginally offset potential future losses from traditionally profitable platforms such as Microsoft Office, whose latest iteration will be offered as a stripped-down free service to Microsoft Live subscribers.