Microsoft will slash the price of its Xbox video game console in Europe and Australia by as much as 38.5 per cent, bringing the price down to the level of competing consoles.
Effective from April 26, the suggested retail price for the Xbox in Australia will be cut by 38.5 per cent to $399 from $649, the company announced.
The cut is a competitive strike, hitting especially Nintendo, which plans to launch its GameCube on May 17 at the same price point. Its closest competitor, Sony's PlayStation2, is currently outselling Microsoft's new console. However, the price changes will bring the Xbox well below the retail price of its rival.
"We are very keen to be competitive in this industry. Nintendo entering the market is a catalyst for what we are doing," said Sandy Duncan, the Microsoft vice president responsible for Xbox in Europe.
Microsoft has been criticised by gamers, game vendors and analysts because of the high price tag on the Xbox when it was launched in Europe and Australia on March 14. Insiders say Xbox sales have been lagging, but Microsoft says it is "happy" with the sales level and that the price cut is not a response to criticism.
"This is a competitive statement and not a direct response [to criticism]. Consoles come down in price regularly and it is just part of the business cycle. We were selling at a premium price, but we were not unhappy with sales," said Duncan, adding that the price cut was originally planned for September, but that Microsoft decided to push it forward to "underline its commitment to the market".
After the price cuts, Europe and Australia will have the world's best Xbox prices, Duncan said, adding that he is "not aware of any other planned changes to pricing plans" elsewhere in the world.
Users who bought, or buy, the Xbox at the higher price before April 26 will be compensated. Microsoft is offering them a choice of two games and a free controller. The value of the compensation package is roughly the same as the difference in street price, an unprecedented gesture, according to Microsoft.
"No-one in the industry has ever done that at this scale. People have been roughly treated in the past when other manufacturers cut their prices," Duncan said.
The cuts in Europe and Australia coincide because the areas share the same TV technology, namely PAL, Duncan said. The US and Japan, the other major game console markets, use NTSC and NTSCJ, respectively, for which other Xbox versions are made.
Microsoft won't provide details on Xbox sales, but says its "attach rate", an indication of how the games are selling, is good. In the US, an average of 4.1 games was sold for each console, while in the UK that number is 3.2, according to Microsoft.
The number of game sales per console could have encouraged Microsoft to cut the price on the console, as it might make up for the loss with game sales.
"The profit is not in selling the console and probably never will be. The business model is in selling many games," said Duncan.
Indications that Microsoft is struggling with Xbox sales abound in Japan, the first international market for the console. Sales in the country began on February 22. Microsoft shipped 250,000 consoles to Japan in preparation for the launch, one-fifth of which were limited edition versions with semi-transparent cases and numbered key chains. However, according to the most recent independent estimates, the company has yet to sell all of the original shipment.
More embarrassing for the company is the limited edition, which at ¥5,000 ($A72) above the regular console price of ¥34,800 has seen poor demand. At the Tsutaya entertainment store in Tokyo's Shibuya district -- the very store where Microsoft chairman and chief software architect Bill Gates kicked off Japanese Xbox sales with a launch event -- special edition consoles were still available on Thursday.
The price of the console is working against Microsoft in Japan, where Sony's PlayStation 2 retails for ¥29,800 and Nintendo's GameCube sells for ¥24,800, but some early bad publicity also hit the console when reports surfaced of optical discs being scratched by some units.
In the US, Microsoft said it "has momentum" and sold 1.5 million units through to the end of 2001.