Xbox 360: Microsoft Plans to Cut 360 Price to Compete with Wii

Bloomberg is reporting that Microsoft is planning on cutting the price of the 360 in order to compete with the Nintendo Wii.

Going from a $399 console to competing at the $249 level the Wii is at, is going to be a tough call to make for MS. Consider that the games unit at Microsoft lost US$1.26 billion on sales of US$4.26 billion, and seeing as they now face repair costs of at least US$1 billion for the 360, the move is a risky one, albeit one that could put Sony dead in the water with the PS3.

More after the jump below

July 11 (Bloomberg) -- Microsoft Corp., the world's largest software maker, plans to cut the price of its Xbox 360 game console to compete with Nintendo Co.'s top-selling Wii.

The Redmond, Washington-based company needs to lower Xbox's $299 to $479 price to increase sales and lure customers who aren't interested in traditional combat and racing video games, Shane Kim, vice president of Microsoft Game Studios, said in an interview. He declined to say when a price cut may be announced. It won't happen at this week's E3 games conference, he said.

``We need to compete effectively for that customer and part of that is getting to the mass market price point for the console,'' said Kim. ``We definitely are working on that area.''

The Xbox 360 has trailed the $249 Wii in sales since Kyoto- based Nintendo introduced the player in November. This week, Sony Corp. lowered the price of the PlayStation 3 console, which has lagged behind both Xbox and Wii, by 17 percent to $499 from $599 in the U.S. Microsoft has vowed to make its video-game business profitable by next year.

``A price cut would give the Xbox 360 an advantage over its rivals, particularly in North America where you have a choice of consoles to play the same game,'' said Etsuko Tamura, an analyst at Mizuho Investors Securities Co. in Tokyo. ``There's a lack of Xbox titles in Japan so a price cut here would have no effect.''

In fiscal 2006, the games unit lost $1.26 billion on sales of $4.26 billion. David Hufford, a director of Xbox product management, said last month a price cut was needed to convince parents to buy the machine for their children.

Films Online

Kim made the comments yesterday as Microsoft prepared for the opening of the Electronic Entertainment Expo, or E3, in Santa Monica, California, where console makers and game publishers announce new products for the coming year.

Microsoft shares lost 54 cents to $29.33 in Nasdaq Stock Market trading yesterday and have fallen 1.8 percent this year.

In a briefing last night, the company said Walt Disney Co. will offer films for rent through Microsoft's Xbox Live online service. Time Warner Inc.'s Warner Bros. and Viacom Inc.'s Paramount studio already sell and rent movies on Xbox Live.

The Disney films to be available include ``The Queen,'' ``Bridge to Terabithia'' and ``Déjà vu,'' Microsoft said.

Xbox Live has more than 7 million members, surpassing the company's goal of 6 million members by the start of this year's E3 gathering, Kim said. The company anticipates having 10 million members by this time next year, he said.

Microsoft also announced that Osaka, Japan-based Capcom Co. is developing a version of its ``Resident Evil'' action game for the Xbox 360, a move that may help bolster console sales in Japan.

Versions of the Xbox 360 sell for $299, $399 and $479 in the U.S. Wii has the lowest price among the latest generation of consoles.

Sony Price Cut

In announcing Tokyo-based Sony's price cut, Jack Tretton, president of the company's U.S. video-game business, said he expected the move to double console sales. U.S. consumers have purchased 1.38 million PlayStation 3s since its introduction in November. That compares with 2.84 million Wii players, which went on sale the same month.

Microsoft has sold 5.5 million Xbox 360s in the U.S. since the console reached stores in November 2005, according to Port Washington, New York-based NPD Group Inc., which tracks sales.

The company put worldwide sales at 11.6 million units during the briefing last night and said it will introduce the top-end Xbox Elite in Europe in August, as well as a special edition ``Halo 3'' console in September.

For the present, the company will rely on new games to boost console sales. They include ``Rock Band,'' which allows players in different locations to connect online and play guitars and drums along with recordings of rock 'n' roll hits. The game is being developed by Electronic Arts Inc. and Viacom Inc.'s Harmonix studio in time for the holidays.

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net

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