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Xbox could be another UK rip-off

Consumer Association says Microsoft should learn from Sony's mistakes and resist the temptation to charge UK consumers too much for the Xbox

When Microsoft launches its Xbox games console in the UK, next spring, it is likely to be priced higher than the costs justify, according to the Consumer Association.

Xbox will hit the shelves in America on 8 November, this year, with an expected price tag of $299 -- the equivalent of around £210. But Consumer Association principal policy adviser, Phil Evans, said he expects Microsoft to charge £299 in the UK, some £50 more than the extra handling and import costs justify.

Details of the eagerly awaited console were released at the E3 trade show in Los Angeles on Wednesday. Evans said that by pricing the XBox at a more reasonable level, Microsoft would avoid the bad publicity that hit rival, Sony, last year with the PlayStation2 (PS2) launch.

Sony's PlayStation2 console also cost $299 when it went on sale in the US in April 2000, but there was a storm of protest when it was priced at £299 in the UK. Sony denied that it was ripping off UK consumers, but its critics claimed that its excuses -- VAT, import tariffs, and extra fuel and shipping costs -- did not justify the additional £100 cost.

For the Xbox European launch, Evans believes that Microsoft would be wise to avoid the public relations gaffe made by Sony. "If Microsoft was particularly intelligent, it could decide to price the Xbox at the same level in Britain as in the US," he said, adding that he was "hopeful, but not too optimistic" that Microsoft would resist the temptation to price the Xbox around the £300 mark.

As well as boosting sales of Xbox, which marks Microsoft's first entry into the console market, Evans believes that a £250 price tag could generate goodwill in the media, which could be invaluable if Microsoft hits any unexpected glitches in the months ahead. "Sony got huge amounts of stick in the run-up to last Christmas, over PS2 shortages, and I think a lot of that was because people were angry and frustrated over the pricing issues earlier in the year," Evans explained. Microsoft has already promised there will be no Xbox shortages, having pushed the European launch back to 2002.

Given the criticism Microsoft has faced in the past over its attitude to open source software and security holes in its own products, this gives it the opportunity to win friends. "Microsoft isn't the most popular company in the world, so it would be a storming idea if it could make a good news story out of the UK Xbox pricing," suggested Evans.

However, Microsoft is keeping quiet about how much British shoppers will be asked to pay for its console. "We've had no guidance yet about what Xbox will be priced at in the UK," said a spokeswoman, who said that she didn't even know on what date the UK pricing would be announced.

Industry insiders believe that Sony could drop the price of the PS2 in the UK by up to £100 early next year, in an attempt to pull the rug from under Microsoft's feet. "It's a bog-standard strategy in the games industry, to price a new device at a level that creams off the early adopters and then drop the price later to widen the appeal," explains Evans.

And while Microsoft is widely acknowledged to be throwing money at Xbox, analysts warn that it could lose up to $2bn (£1.4bn) by selling Xbox at $299 each. "Microsoft has yet to provide financial targets for Xbox, other than to say that gross margins will be negative," wrote Henry Blodget, an analyst at Merrill Lynch. "This means that the more units Microsoft sells, the more money the company will lose on Xbox."

At E3, Microsoft announced a series of deals with big-name companies, such as Electronic Arts, LucasArts Entertainment and Sega Entertainment. Early Xbox games will include Sega Sports' entire "2K3" lineup, "Tony Hawk's Pro Skater 3," "Unreal Championship" and "Tom Clancy's Ghost Recon."

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