Xbox One Price Cut Appears to Be Working

Though the new $399 Xbox One package is not available until June 9, a leading video game retailer's CEO says the price cut appears to have increased interest in the console.

May 28, 2014 at 10:12AM

In the nine days since Microsoft (NASDAQ:MSFT) began selling a $399 version of its Xbox One console, demand for the gaming system appears to have increased, according to one major video game retailer.

"I definitely think we're already seeing in our stores with our reservation program as well as dialogue with PowerUp Rewards [members that] there's a stronger demand as a result of the price drop," GameStop (NYSE:GME) President Tony Bartel said on a phone call last week. "The good news for us is ... we'll sell a lot more units."

The newly announced $399 Xbox One package does not include the Kinect motion sensor controller, which was bundled with the previous $499 version of the console. That configuration is still available. The new $399 version can be pre-ordered at GameStop, directly from Microsoft, or from a number of the company's other retail partners for a June 9 release. Microsoft also plans to sell Kinect as an add-on, though its product page on the Xbox website shows it as "coming soon." 

The unbundling of Kinect allows Microsoft to offer its base console at the same price as rival Sony's (NYSE:SNE) PlayStation 4. Sony has an early lead in the console war with the company reporting in April that 7 million PS4's have been sold. Microsoft has not released sales numbers for Xbox One but the company posted -- also in April -- on a company blog that the console had shipped 5 million units to retail.

Hardware sales are climbing in general

Spending on video game hardware grew 47% to $983 million during the first quarter of 2014, but total industry consumer spending on video gaming fell 1% to $4.6 billion compared to the same period in 2013, according to NPD. The research firm attributes the rising hardware sales to the launch of Xbox One and PlayStation 4. NPD believes that this trend should continue through "most of 2014," according to NPD analyst Liam Callahan.

While hardware sales have risen and will likely stay high, Microsoft may have won itself more customers with the $100 price cut. So far neither company has released a game that pushes fence-sitters into choosing one platform over the other -- there haven't been any massive hits for either console. Even Titanfall, a heavily hyped exclusive on Xbox One that was bundled with the original $499 Xbox One package for no additional charge, did not appear to move the needle on console sales. 

That's not to say Titanfall is not a hit. The game was the top-selling title in April, according to IGN, but it hasn't become the mass-market cross-over megahit (like Halo for the first Xbox in 2001) that convinces casual gamers and families to spend an extra $100 buying a console. With the base unit of both new consoles now costing $399, software releases may play a bigger role in people unsure of which to buy. 

Both Sony and Microsoft have made exclusive deals for various titles, but Microsoft has deeper pockets. Offering exclusivity gives game companies a smaller universe of potential buyers, but the added publicity and promotion is often worth it. Though details of the deal between Microsoft and Titanfall publisher Electronic Arts (NASDAQ: EA) have been kept secret, you can assume the arrangement compensates the publisher for all the PlayStation sales it won't be making. 

More good news for consoles

While Xbox One has not sold as well as PS4 it has gotten off to a strong start on a historical basis. The One has outsold the Xbox 360 by 76% for both of those systems' first six months in market, according to Microsoft. To date sales of PS4 and Xbox One hardware are more than double the sum total of PS3 and Xbox 360 hardware sales in their respective first six months, according to NPD.

So while the media often makes it seem like one or both consoles are struggling to find users, neither company has reason to be alarmed. Most people do not buy a new $399 (or $499) console on the night it gets released. Instead people either wait until a game they want is only offered on one platform or some life occasion (a holiday or a birthday) helps justify the purchase. And while the new consoles are exceptional, the previous generation was pretty damn good. For casual players or those with younger kids (of which I am both), there's simply not a pressing need to upgrade. I'll buy one eventually, but my Xbox 360 still meets my console needs. 

The sales battle is just beginning

The Xbox price cut needed to happen to make sure Sony didn't run off to an insurmountable lead. With that no longer an issue it's possible that neither console becomes the clear winner. In the previous generation there were three winners -- Xbox 360, PS3, and Nintendo's (NASDAQOTH:NTDOY) Wii were all hits with many people owning more than one. The same could be true in the next-generation battle, as both Xbox One and PS4 could reach the approximately 70 million consoles their predecessors each sold.  

There's no guarantee of that, and it's still early enough that either side could develop (or stumble upon) the so-called killer app that tips the scales in their favor. But for now, the decision to buy one console over the other is personal preference, and neither side has a clear advantage. Without the Xbox price cut, that was not the case -- even people comfortable with the Xbox controller (like me) because they own a 360 had to give PS4 consideration. Now, I am much more likely to stay in the Microsoft fold. 

Microsoft does not need to eliminate Sony. Both companies are successful if they hold serve and continue battling for first place versus a close second.

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Daniel Kline is long Microsoft. He is considering justifying the purchase of an Xbox One by telling his wife he "needs one for work." The Motley Fool owns shares of GameStop and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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