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

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

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.