Microsoft Moves Xbox 360 Price Point, Deck Chairs on Titanic

360-keyboard.jpgIf you glance at game industry news every now and again, you might have noticed that Microsoft (MSFT) is lowering the price of its Xbox 360 line by $50, starting today. But unless you’re a hardcore gamer who’s already planning to buy a 360, it’s too little, too late. It won’t significantly extend the 360’s waning lead in the market, or bolster Microsoft’s dreams of owning the PC living room space, let alone stop the juggernaut that is the Nintendo Wii.

Why? Neither the original Xbox or its follow-up have built up much of an install base outside of the hardcore gamer demographic, which typically buys next-generation consoles in the first few years of their cycle. By one estimate, these “power gamers” comprise just 6 million U.S. households; the remaining 47 million who play games but aren’t so eager to pay $350-plus for a new gaming system are likely to remain unmoved by such a paltry price cut. With 10.3 million units sold worldwide, this market is pretty much tapped out, leaving Microsoft to struggle against 360’s branding as a hardcore gamer system (which the company itself fostered) while competing with a console that entirely owns the “game system for everybody” niche.

Consider this handy chart of the current install base: at the moment, the Wii (U.S. retail price: $250) is primed to surpass the 360, and it did so in less than half the time it took for Microsoft to get that far.

Then again, the 360’s entry-level Core now retails at $279, within striking distance of the Wii’s suggested retail price — that should make a difference, right? Maybe, but then there are unconfirmed rumors swirling that the Core is quietly being discontinued by major retailers. Microsoft insists that’s not the case, but true or not, the gossip isn’t bound to inspire excitement for a crippled model. (The Core comes without a hard drive.)

And regardless the 360’s price, the industry is moving away from the system in the area that matters most: exclusive titles and development budgets. Here the Wii has already claimed victory; it has the most exclusives currently in production, while top publishers like Electronic Arts and Activision are shifting their budgets in Nintendo’s direction. (It’s doubtful that the sequel to the 360’s upcoming lead exclusive, Halo 3, will bring in any new customers.)

So in the end, it doesn’t matter if the 360 is $50 or even $100 less. Ultimately, the price cut will just reveal how niche the system has become.

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