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SWORDF1SH on 11 October 2015
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Shadow1980 said:

Whether or not they announce a price cut for this year depends on a couple of factors. For one, will the XBO remain profitable at $300? If not, then will MS value profitability over potentially winning just months in a single market? And let's not forget that the PS4's price cut will have a stimulative effect on sales, plus there's aggressive bundling and marketing exclusives with perhaps the two biggest multiplatform titles of the quarter (Black Ops 3 and Battlefront). The PS4 had nothing really to stimulate sales in Q4 last year, which gave the cheaper XBO an opening to exploit. But that's not the case this time around. PS4 sales are almost certainly going to see a big YoY increase. If my projections are right, then the XBO will need to see November & December up YoY, but let's not also forget considering that the same period last year was abnormally huge for the XBO relative to its performance earlier in the year. Despite a very average performance over the first ten months of its first full year, it actually had one of the best second holidays (or first holiday of the first full year) of any system released in the past 20 years. In fact, why don't I just illustrate it with a chart?



There's no reason to expect such a huge jump yet again, especially with Sony actually putting in some effort this holiday season. If either A) the XBO would be profitable at $300 or B) MS is really desperate to win this holiday season in the U.S. at all costs, then we might see a $50 price cut within the next month. Otherwise, I think they'll take their chances at price parity, because winning the holidays last year was ultimately a largely Pyrrhic victory that did not guarantee victory or even great success in the longer run.

As the past year has shown us, while having a $50 price advantage helped during the holidays, after the holidays the XBO struggled to narrow the gap between itself and the PS4. Despite being the more expensive system, the PS4 still managed to sell 18.8% more units in the U.S. in 2014 as of August. Compared to it's own performance in 2014, the XBO has had mixed results. Q1 this year was down YoY, and while Q2 was up that was against a rather mediocre Q2 '14. Q3 may be up only 10-15% at most. Overall, we're going to see very modest YoY growth through the first three quarters. Also, just to stay flat YoY for the whole year it'd have to sell at least 2.4M units in Q4 alone, which is only about 300k less than what it pulled in Q4 last year. Without a price cut this holiday the XBO is almost certainly going to be down for the current quarter and perhaps also down overall for the year, but even with a price cut it may see only modest YoY growth and still fail to beat the PS4 since Sony is actually trying this time, and then end up in the same spot in the new year, trailing the PS4 despite having a lower cost.

Personally, I think MS will probably launch a cheaper-to-make XBO Slim some time in the latter half of next year and retail it for $250 to $300. The 360 saw its only substantial period of growth after the "S" model came out in 2010, so they may take a slight loss in unit sales this holiday but make it up next year and into 2017 with an XBO Slim. That would probably make better financial sense than getting a decent two-month boost and only a marginal increase after that while potentially losing money, all for the sake of possibly being #1 for the holidays.

There will be some number crunching going on. All the US gamers are one big pie, the bigger the slice MS can get, the more gamers they have spending money on their platform on software and Xbox Live Gold. If they let Sony gobble up all the pie, the less gamers they have spending money on their platform.

If they want to make the most profit out of the X1 then they have to be competitive against they PS4. It might mean losing money per unit but if that means they have more gamers spending money on them, it could be worth it. Basically they have to find the balance on money lost with a price drop versus the extra install base that will bring them in more money. Then you have to factor in the sooner they bring in the gamers, the more years they will have of them spending money on games and XBLG.