Simple... XBL still costs $50 per year.

Most early adopters are hardcore gamers, and they will be paying for LIVE for atleast 6 years into the generation.

$50 x 6 years = $300 + $300 Reatil price = $600 overall

Customers essentially pay half upfront, and the other half over the next 6 years. 

$299 Launch Price is very possible. With customers paying an extra $300 over the next 6 years. Overall the price is really $599. 

Uh... I'm not sure Microsoft is going to view it that same way...

I could see them going with a phone type plan though, like the current 360 "experiment".

Ofcourse they are.

They can undercut the PS4. They can compete with Wii U for the casual/budget gamer. 

while still making up the loss they will have at Launch. 

Why? It basically detracts from what XBL is for them now, which is EXTRA money. Plus, they don't want to have red-ink splattering over their first 3 years of EED reports again.

They can undercut the PS4 anyway if they so desire.

Won't happen. They don't see it that way. Their money from XBL maintains the servers and only comes good in the long-run; they won't take a huge loss at launch simply to undercut the PS4 which may or may not be more expensive on the hope they'll make the money back later, because investors will jump ship, and that leaves you in all sorts of trouble.

299 but with a cellphone esque payment plan.

Standalone with no contracts your looking at $499 easy.

And OP....you act like MS reaps the full $50 of every user.

For one thing, theres always deals on Live....and when you got a year to look for the right one, you tend to find it.

Nevermind the upkeep costs to maintain it. Just saying the money that MS actually pockets is less then you think. Certainly not the full price of a Live subscription.

I seriously doubt it launchs at $299 without a plan and/or something missing. That's too good to be true, unless MS is really gunning for the Wii U market and wants to beat Nintendo in terms of pricing. I thought with all the losses they had over the years they would try to break even and/or profit right out the gate.

Also, it's key to remember that very few people would buy a games console with a contract payment. It's not how it 'goes', really, and the newly released 360 with such a plan will prove this. So launching a contract model would be a mistake.

$400 I reckon, if rumoured specs are true.

Actually here's how I see it happening.

They will most likely launch 2 versions (unless Kinect 2.0 is separate which will mean it would have 4 version)

I can see their base 360 be between $99-149 with a 3 year contract of $15-25 for different tiers of live every month (cheap end would be normal Gold and high end would be Platinum XBL). Or if it's a 2 year contract only I can see it being $199. The next version up would be $199 with a 3 year contract or $299 with a 2 year contract.

Of course you can get them without a subscription between $399 and $599.