Microsoft (NASDAQ:MSFT) was hoping that Electronic Arts' (NASDAQ:EA) latest first-person shooter, the critically acclaimed Titanfall, would help move its newest video game console, the Xbox One. Rival Sony's (NYSE:SONY) PlayStation 4 has outsold Microsoft's competing machine so far, with Sony seeing unprecedented demand. Microsoft, meanwhile, hasn't released sales figures since early January.
Titanfall may have given Microsoft's console a much-needed boost, but perhaps not as much as the company had been anticipating. Less than two weeks after Titanfall's release, retailers are already discounting Microsoft's Xbox One/Titanfall bundle, suggesting that sales are weaker than expected.
A discount on top a discount
Microsoft's decision to bundle Titanfall with its Xbox One console was already a sort of discount -- by including a free copy of a game Electronic Arts normally sells for $60, Microsoft was effectively cutting the Xbox One's price by more than 10%. The Xbox One would still retail for $500, but by including a game most Xbox One buyers were going to purchase anyway, Microsoft was making its console far more attractive.
But evidently, not attractive enough.
Last week, both Wal-Mart and Best Buy -- two of the nation's largest retailers -- cut the Xbox One's price by $50. Buyers shopping at these stores can now get Microsoft's console and Electronic Arts' latest game for just $450. Comparatively speaking, this makes Microsoft's console less expensive than Sony's, as the combined cost of a PlayStation 4 and a new video game would total $460 -- $10 more than Microsoft's discounted bundle.
A weak quarter for Electronic Arts?
Electronic Arts' is likely more exposed to the Xbox One's struggles than Microsoft itself, as the Xbox remains a relatively small part of Microsoft's larger business. Electronic Arts has released Titanfall on the PC and plans to release it on the older (and much more popular) Xbox 360, but the decision to back Microsoft's platform at the expense of Sony's may have ultimately cost Electronic Arts sales.
Microsoft's decision to bundle Titanfall with the Xbox One was no doubt a great development for Electronic Arts -- although I contend most Xbox One buyers would have otherwise purchased the game anyway, the decision to bundle it assures that any U.S. buyer who bought the console in the month of March purchased Electronic Arts' game -- exposing them to the franchise and making them potential customers for Electronic Arts' forthcoming digital-content add-ons.
But given that retailers are discounting the Titanfall bundle, it's possible that the game may have sold worse than anticipated. Electronic Arts recently reaffirmed its guidance for the current quarter, but investors may want to temper their expectations heading into Electronic Arts' next earnings report. Shares of Electronic Arts have already run up significantly in the last three months, likely on elevated expectations for Titanfall.
In need of a price cut
Earlier this month, research firm NPD reported that Sony's PlayStation 4 outsold Microsoft's Xbox One in the U.S. during the month of February -- but just barely. Worldwide, the market is much more lopsided in Sony's favor. Microsoft plans to release the Xbox One in 26 more countries later this year, but many markets, including Japan and much of Europe, have historically favored Sony's consoles.
To close the gap, it seems Microsoft will have to slash the Xbox One's price -- indeed, retailers are already doing it.