MS’s strategy has been pretty sound so far. Cheaper consoles and over priced add-ons to offset costs. XBOX Live is a money maker and they keep making it better. They are putting serious effort into the future with Natal. I am curious to see what move they make this holiday season. I am not sure we will see a 360 cheaper than $199 but we will probably see a different Sku priced at $199.

With all due respect I find the argument that claims Xbox360 is profitable baseless. How you can figure that out when others can't is remarkable.

If you happen to have had a good look at MS's ledger and was able to break down the money generated on each product in their entertainment division then I humbly apologize. Else it's just speculation.

I read a recent report from the WS journal that was the exact opposite to these claims but as I can't be bothered to look for a link to this story so I'll just leave it at  that.

Everyone that purchases an xbox doesn't sign up to live or buy accessories.

The xbox360 is a superior console to the wii. If Nintendo can sell a souped up 10 yr old gamecube for more money than a hardware superior (and obviously more expensive to produce) x360 and MS still make a profit..wow. Nintendo must be raking it in. Well, they are.

No matter how many billions you have in the bank operating on a loss is frown upon.

I cannot speak for MS as I don't work there neither am I friends with anyone on their board.

I trust they will do what is right, afterall they pay people a lot of money to make these decisons who are far more qualified than I am, but maybe not as qualified as some here.

But that's why we are here, to speculate about such things.  Just don't turn speculation into facts. 

No, the nightmare scenario would be:

November 1st: Sony drop price

November 2nd: Massive hardware boost, but software remains the same.

Of course, that won't happen.

There is a lot of innuendo in this thread that implies that Microsoft is not in a position to offer a real price reduction, but on the flip side somehow Sony is in a perfect position to do so, and that friends flies in the face of logic. Microsoft is farther in its development cycle, they have better secondary revenue streams, they have a stronger attach rate, and they have a higher install base. All these things married together mean they can more then easily afford a small price reduction. They simply have more ways to realistically make it up. While Sony not enjoying these advantages recently said that they weren't even breaking even on their hardware.

Frankly I do not believe that Sony or Microsoft are going to offer price reductions in the latter part of this year. Though I doubt any side would shy away from a pricing war. The important thing to remember is that Microsoft has Sony on the ropes in North America. It would be foolish for them to allow Sony to work itself back into the fight. To me as far as Microsoft goes is can they maximize the potential if it comes to a price war.

Were they to cut the price of the arcade by fifty dollars they would probably need to have a few million more consoles in the channel to meet demand. A further drop could probably edge Sony out of the North American market as long as Nintendo holds firm, but can Microsoft get that many consoles to market. Remember Sony is only seventeen percent of that market so a great holiday for Microsoft could push them terrifyingly close to single digits.

I think Microsoft would answer a price cut if they could meet demand. The possibility of dealing a death blow to Sony in that one market alone is worth the loss of some profit in the short term.

They could just not include games and drop the pirce.

But we already knew since 2006 when the BOM analysis was released that the 360 would *always* be cheaper than the ps3. No surprises there. 

Well,Sony can afford a price cut reducing the manufacturing costs with a Slim Model(what's will announced at TGS for sure,), MS can do the same, release a slim 360 and just repass the shorter costs to consumers.

One thing no one here remembers is, what about retailes profit? If Sony or Ms drop the price 50 $ retailers should buy it 50$ cheaper and have the same profit margin they had with higher prices? They could drop the price just by suggesting an lower price and selling consoles for the same price for the stores, sure stores won't like it, though.

 the ps2 and psp makes sony lots of money.. and the new psp will make sony a lot more.

Second sony has not had a price drop in 2 years... theres a rumored slim (which we cost less money to make but of course they might not drop the price) and sony NEEDS  this price drop this year. Sony is willing to take loses because at one point the PS brand was about 40% of sonys total profits. M$ has had 2 price drops in others and 1 big one WW over this same time frame. M$ dos not want to drop the price every year like eveyone thinks it does.

its just about time for sony and thier price drop and with activison talking shit i think SOny knows this.

Lastly if M$ drops the price of the arcade (which it will not intill late 2010) it will be losing money on each system sold. Quote me on this there will be NO price drop for the arcade this year. $150 bucks is just not possible yet. only one i see is it dropping 20 bucks to 179.99 USD but i think they know there is no point in doing that.

Actually I did look at the Xbox 360 results.

Cost of revenue = 4.3B (Incl Xbox 360 + peripherals + Zune + live payments to content owners + keyboard/mice)

Revenue = 5.6B

Now R+D is 1.8B and that includes Xbox 360 game development and overall console development. But for comparison EA had 1.3B R+D expenses for the year and they have a much larger game development effort. So most of that is related to Windows mobile etc.

Oh yeah Live membership scaled up almost exactly 1:1 with console shipments.

Oh yeah they also said they broke even on the Arcade with accessories last year.

@Dno

You cannot seriously expect the previous console to cover a loss leading model yet again. The old console is running on fumes, and with a price drop of the newer console its sales would drop much quicker, and if Microsoft also offers a price reduction of its own then you can kiss last generations console goodbye. Most consumers will pony up fifty more dollars for a system seven years younger. Your talking up a large gamble.

The same holds true of their portable gaming device. Nobody can say how profitable it is exactly, but given the propensity of Sony to loss lead it probably isn't bringing a hundred dollars in net profit home with every sale. The licensing fees for it haven't exactly been gang buster either. To much piracy.

A new model isn't necessarily a upfront improvement in manufacturing costs. That improvement comes later once volume can be developed. The first million units probably cost more then the last million units of the previous model.

Loss leading and leveraging are bad financial practice. They are too heavy with risk, and based upon only the most ideal results. What happens if the PS2 falls through entirely. What happens if Microsoft responds with a price reduction of their own. What happens if the PSP suffers from new piracy issues. There are so many things that can go wrong, and cause Sony to eat more billion dollar losses.

Simply put its entirely reckless, and even though that hasn't ever stopped Sony before. This idea being put into practice yet again could result in an unmitigated disaster. Sony needs to keep its line as long as possible. Every dollar earned is a step in the right direction towards long term success.