Microsoft plans new console subsidization model with $99 Xbox 360 (report)

Microsoft plans new console subsidization model with $99 Xbox 360 (report)

Summary: With a $99 subscription-based Xbox 360 bundle, Microsoft may plan to drastically alter the game console retail model.

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Microsoft may be on the cusp of experimenting with a very new console subsidization model, if a report from The Verge is to be believed.

Citing unnamed sources, the site says that Microsoft plans to announce next week a $99 Xbox/Kindle bundle that comes equipped with a two-year Xbox Live subscription. Monthly costs will be pegged at $15, plus an early termination fee if it comes to that.

Does any of this sound familiar? It should because it sounds an awful lot like the current subsidization/subscription model in use by the cell phone carriers. The general framework of selling a device at a loss and gaining the cash back in monthly subscription fees has its faults, but the idea itself is sound. Likewise, it's in no small part responsible for the success of smartphones, many of which are multiple times more expensive than consumers actually pay for them. The idea is simple: Keep costs down and the consumers will come.

The cost of the rumored Xbox subscription totals $360 over two years, a number that seems too apt to not have been intentional. Add that to the cost of the bundle itself and you're paying $459 over two years, which is a bit higher than the $418 that customers would pay for a 4GB Xbox, Kinect, and two-years of Xbox Live.

So either there's some missing value somewhere (probably in a complimentary Netflix subscription) or Microsoft is expecting people to be comfortable with a $41 difference in price.

Of course, consoles themselves have for a long while had a subsidaton strategy of their own. Consoles get sold at a loss and manufacturers get the cash pack on game purchases. And it's worked, at least so far, to get lots of people invested in consoles. But this new model could just be a brave new step.

Topics: Microsoft, Hardware, Mobility

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29 comments
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  • Kindle

    Any chance that's supposed to say 'Kinect?'
    WebSiteManager
    • No kidding...

      I'm betting it doesn't come with a free Kindle. Too bad though. :-)
      sf.canuck
    • Yes, it is.

      The original article on verge.com says "Kinect", not "Kindle".
      spdragoo
  • this is probably more of a trial balloon for the xbox 720

    I see this as more of business-model discovery for the next Xbox console. Since it will likely be expensive to retail outright ($400-600) because of component costs, Microsoft is seeing whether it can use a subscription plan to get it to mass market prices of less than $300. The last thing they want to do is repeat Sony's PS3 pricing fail and lose more gaming market share to tablets and smartphones.
    nategator
  • Which xbox, the elcheapo one, or a normal one?

    If it's the cheap bundle, then it's not worth it. $399 is cheaper than $460. I'm including $100 for 2 years of xbox live. If there's a ridiculous ETF, that just makes it worse.Why pay an extra $60, when you don't need too. This goes for any company, not just Microsoft.
    Jumpin Jack Flash
    • not everyone can count

      this simple marketing trick worked, works and will work on plenty of people.
      nitekatt
    • $15/month is fine for some

      Some people would rather pay the $15/month and $99 up front than the entire cost up front. If it's the 250GB HDD version with Kinect it's actually a pretty good deal. You're actually saving money in that case.
      LiquidLearner
      • From the info available

        It's in fact the 4GB system. So they're taking off $100 up front, and adding $260 spread over 2 years. So you're in fact paying more than the original price, if you paid for it up front.
        Jumpin Jack Flash
    • And yet they do so with cell phones all the time.

      they pay a discounted rate for the phone, only to make those payments through their monthy service contracts afterwards.
      :|
      Tim Cook
      • One thing you failed to do

        Look at the situation logically. Microsoft is not offering anything at a discount, they are basically charging you 13% interest for financing the console. It would be like buying it from one of those "Rent-to-own" scam joints. they charge more than it's worth, just because you can't afford it upfront. When they're financing cars at less than 5%, 13% is highway robbery.
        Also, if I paid full price for the phone, my service would still cost the same. If you paid full price for the xbox 4GB w/Kinnet then you could get away without paying the extra $160 for xbox live...
        Jumpin Jack Flash
      • And you think you're saving money by buying on contract?

        Please excuse me while I have a good laugh.
        Michael Alan Goff
    • you're saving interest

      its very simple. Microsoft is effectively financing it for you. So you have to work out if $60 is more or less than what you would pay your credit card company over 2 years in interest
      mrwcjoughin
    • So how much does an XBox Live subscription cost for existing users?

      Because unless it's significantly less than $15/month, this would still end up being a decent deal.

      The only catch, to my mind, is that (just like with cell carriers) you're locking yourself into a 2-year contract. That's one of the reasons why I've shied away from smartphones: I don't like being locked in for that long of a time period.
      spdragoo
      • it's a factor of three difference

        A Gold Live membership costs ~$60 per year. That's one third the cost of $15 per month. As mentioned above, this is a financing scheme to slightly increase profits and increase the number of subscribers for a more regular revenue stream.
        David A. Pimentel
    • The same reason

      why people take out a 30 year mortgage where, when you add in the interest, you end up paying more than twice the cost of the loan....because when you can't afford the cost upfront it is often easier to pay in installments...
      Doctor Demento
  • Done with XBox myself

    After going though 2 Xbox 360 consoles and having over heating issues on both. My second console gave out a couple weeks ago. I just packed up any games with some value and sent them to Amazon for trade. I am done with console gaming. Too expensive too much bad hardware and games cost too much for the quality of the game. Sure they have become more realistic, but also the game is quickly played though and many lack staying power. I'll play a few titles on my PC and probably look at cheaper alternatives such as iPad or online services. XBox to me does not have enough value to afford its costs.
    jscott418-22447200638980614791982928182376
    • same here

      I don't buy PS3 games anymore, complete rip off! $60-$70 a game is a lot. i can get the same game on PC from steam or others for a lot less, steam has great promotions. I'm using PS3 to rent and watch blue ray movies.
      bApTizE
    • Ditto

      Well the last game i played was Gears 3. I enjoyed it, but I don't even see any console games on the horizon that look great.

      I play a lot of league of legends, which is free, and has infinite replayability since its all on-line, multi player.

      I am considering Diablo 3, but yeah, i pretty much just use my Xbox for dvds, netflix, HBO Go, and Last.fm music streaming.

      I did bust out some guitar hero a few weeks ago though.
      Bruce Banter
    • Ever considered renting games?

      Ever heard of gamefly? You can rent as many games as you'd like for as long as you'd like all for a flat fee per month. It's not too bad of a deal in my opinion. You may want to consider checking it out. It's like Netflix for games.
      G'Dammit!
  • no thanks

    still an expensive option for old hardware, i would rather get a PS3 for the built in blue ray, but to play games nothing will beat a PC :-)
    bApTizE