Janco Partners analyst Mike Hickey has weighed in on recent rumors of an Xbox 360 price, suggesting that such a move would be in Microsoft's best interests despite the company's existing price advantage over Sony.
The reports are based on an alleged scan of a K-Mart weekly circular ad showing a $50 reduction on the standard 20GB Xbox 360 console, which debuted at $399 before dropping to $349, bringing the revised price to $299.
This would put that model only $20 higher than the Arcade SKU, which does not include a hard drive, and a full $150 below the 120GB Elite, suggesting price cuts across the board if the ad is to be believed.
Hickey believes the veracity of the scan itself is irrelevant in the face of current market conditions. "Regardless of the circular’s validity, we believe Microsoft will lower the price of the Xbox 360, after market demand for the console has seemingly stalled," he said, adding:
"There seems to be a limited amount of natural near-term catalysts on the horizon sufficient to accelerate hardware growth beyond holiday seasonality, whose ultimate consumer spend could be dampened from a hostile gas pump and general economic deterioration."
Similar sentiments about a plateau in sales growth were expressed by EEDAR analyst Jesse Divnich in a recent Gamasutra column
Hickey also suggests that Sony's current profit targets leave the door open for an even more pronounced pricing differentiation: "We continue to believe the Xbox 360 has a distinguished value proposition from the PS3, but Microsoft could use price as a competitive weapon, particularly after Sony reiterates focus on profitability."
The proposed cut would put the standard Xbox 360 only $50 away from the price of a Wii, and a $20 cut to the Arcade model would reach price parity with Nintendo's system, but Hickey does not believe it would spur Nintendo to take similar action.
Said the analyst, "We do not see any waterfall competitive pricing pressure on the Wii console from Nintendo, where we expect additional supply over the holiday period will meet demand, a market equation that has been out of balance since the console’s release."