Microsoft to slash price of Xbox 360

Microsoft is upping the pressure on its video-game rivals with a substantial price cut Friday designed to attract the masses to the Xbox 360.

Aaron Greenberg, director of product management for Xbox, said Microsoft reached hard-core gamers during the first two holiday seasons it was on the market.

"Now it's really about this third holiday broadening to reach the masses," he said.

The company's entry-level Xbox 360 Arcade will sell for $199.99, down from $279.99, undercutting the industry-leading Nintendo Wii by $50, assuming Nintendo doesn't counter Microsoft's move.

Microsoft's one-year head start on its rivals has allowed it to reach the all-important $200 price point sooner — historically, most game consoles in previous generations were sold after prices fell below $200 — and just in time for the fourth quarter, when the majority of games-industry sales happen.

Greenberg said the price cut was not in reaction to consumer unease about the economy. It's part of the company's long-term plan for the console.

Microsoft's games business, profitable in the 2008 fiscal year at long last, is looking to continue that success despite cutting prices.

"We have had a full year of profitability for the games business, and we actually continue to perform ahead of plan relative to that," Greenberg said, citing lower component costs.

Billy Pidgeon, analyst at market researcher IDC, said Microsoft has learned a lot about console manufacturing since it launched the original Xbox in 2001.

The company managed the bill of goods in each console and did not offer backward compatibility, which adds licensing and other costs, he said.

"They are smart about trying to get the cost of goods down so that they can move the hardware out," Pidgeon said.

That's important because "the barrier they face so far is really getting hardware into the hands of the mainstream consumer," he said.

With the price of its entry-level system cut to appeal to a mass audience, Microsoft plans to roll out an update to the game console's software designed to be easier to use and more social.

The update was announced in July and will arrive on machines before Christmas, Greenberg said.

Sony had no official statement on the price cuts. The company has previously made clear its intention to stick with its current pricing for the PlayStation 3 in the near term.

Pidgeon noted that Sony is limited in how far it can cut PS3 prices before it would run afoul of other manufacturers of Blu-ray Disc players.

An 80-gigabyte PS3 sells for $399.99. Sony owns the Blu-ray technology, which is built into the PS3. The format prevailed early this year over the HD DVD technology Microsoft was backing.

"The Blu-ray licensees would be threatened by pricing the PS3 below stand-alone Blu-ray players," Pidgeon said. "The PS3 is a bit challenged on that side."

On the other hand, the PlayStation 2 continues to sell well and, at as little as $129.99, it provides an entry-level competitor at the sub-$200 price point, he said.

Nintendo, which has sold more Wiis in the last five months than PS3 and Xbox 360 combined, also had no comment.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com