Responding to Sony's unexpected PlayStation 2 price cut this week, Microsoft announced today that the company is cutting the price of the Xbox video-game system in the United States in a similar manner--from $299 to $199. The company will also cut the Xbox price in Japan, one market in which the console hasn't met expectations; Microsoft earlier cut Xbox prices in Europe as well. In a related move, Microsoft says that to save costs it will close an Xbox production facility in Hungary and use a facility near Hong Kong. Like all video-game makers, Microsoft loses money on each console it sells, hoping to make up the difference in sales of video games, which are more lucrative and have higher margins. But the Xbox costs more to make per box than other consoles because of its hard disk and other PC-like components.
"This new, lower price makes Xbox the best value among all competing video-game systems," said John O'Rourke, Microsoft's director of worldwide Xbox marketing. "The best box is now the best value. The traditional forum for making an announcement of this magnitude is the Electronic Entertainment Expo (E3) 2002 next week, but we've been ready to go for some time and can easily put this in place at retail now. We see no reason why eager gamers should have to wait a week to benefit from this tremendous value opportunity."
The Xbox became available in the United States in November 2001, and Microsoft says it expects to ship 3.5 million to 4 million Xboxes worldwide by the close of its fiscal year on June 30, 2002. This figure, however, falls short of the competition: Nintendo has already sold more than 4 million GameCube units, and Sony will have sold 10 million to 15 million PlayStation 2 units in that same time period. A more important factor in the Xbox's ultimate success is software sales, and Microsoft says that in North America it will sell an average of 4.1 titles per Xbox, the highest of any console.