Xbox 360 : Pricier than it's Name

Microsoft is planning to start selling a more expensive version of its Xbox game console this autumn. Microsoft is counting on the release of its new console to make its home entertainment division profitable by 2007, according to Robert Bach, senior Vice President for Microsoft's home and entertainment division.

This introduction of various versions of a gaming console has been seen for the first time in the industry, something common with other electronic gadgets. Newer generation gaming consoles are making their foray into the market starting with the Xbox 360 from Microsoft. Sony Playstation 3 and Nintendo Revolution will be released next year. This new crop of consoles will feature faster, more powerful processors, leading to a new generation of more realistic games.

Sony is the market leader, with a 43 percent share in 2004, while Microsoft has a 19 percent share. New game consoles sprout about every five years, and they generate a lot of buzz--and money.

Microsoft introduced the Xbox 360 in May, and gamers have been waiting for news on the price ever since. The premium Xbox 360 console will sell for $ 399.99 in the United States, nearly three times the price of the current Xbox, according to an announcement made by Microsoft, while its scaled-back version, called "Xbox 360 Core System," will sell for $ 299.99 in the United States.

The game unit of Microsoft, based in Redmond, Washington, has lost $ 2.8 billion in the last three years, while Sony's rival console, the PlayStation, is profitable. Analysts said it is a good strategy by Microsoft in its battle against Sony Corp., the reigning champion of home video game systems.

The major differences among the two versions are primarily, a 20-gigabyte detachable hard drive and wireless controllers that will be delivered with the better version of the console. In addition to these there are certain features that make it amenable to play online in communities. These however will also be available for purchase as accessories for the cheaper stripped down "core" console.

Microsoft is also planning to sell other Xbox accessories, like a wireless controller and TV remote, a headset for the Xbox Live online service and an Ethernet cable for high-speed Internet connections.

The console business alone--not including games--is roughly a $ 9 billion annual industry in the United States, according to Jupiter Research. Overall, the gaming business is closing on the music industry as the second-highest-grossing entertainment sector, behind movies.

The company said that it remained on target to ship the new Xbox to stores in North America, Europe and Japan in time for the upcoming holiday season, ahead of Sony's PlayStation 3, which is slated to replace the PlayStation 2 in the spring. Bach predicted that the Xbox 360 would outsell Sony's PlayStation 3, which is scheduled for release next year, even though the PlayStation 2 has outsold the Xbox by nearly 4 to 1.

Bach noted that both new versions of the Xbox would support high-definition visuals and play music and movies. These features were not part of the original Xbox release, which cost $ 299 four years ago but now sells for $ 150. Microsoft lost a lot of money on the first-generation Xbox, but at $ 399 for the Xbox 360, the company should make money or at least break even.

Analysts at the independent research firm Directions on Microsoft said that they doubted that enthusiasts would balk at the price increase for the new releases. Hard-core gamers will be on board, and the sticker shock might be in the larger audience Microsoft is trying to reach, like casual game players and neophytes. Early adopters are willing to pay top dollar, instead of waiting for prices to drop as they usually do as console makers broaden their market. David Cole, an analyst at San Diego-based game-industry watcher DFC Intelligence, agreed. "Anything that gives a consumer more choice is a good thing," he said.

Microsoft sells its current Xbox console at a loss because its primary goal was to break into the lucrative game market. It makes money selling games, but does not expect its home and entertainment division to post profits regularly until 2007.

The core console will not be able to play games designed for the original older Xbox unless a consumer spends $ 99.99 to add a hard drive to make it essentially equal to the premium version of the console. Microsoft has asked developers working on future games to make them in such a way that they could be played on both the fully loaded and basic versions of the console.

Pricing for the new Xbox in Japan, where Microsoft sales are not very high, will not be announced until the Tokyo Game Show in September.