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August 10th, 2005, 05:08 Posted By: wraggster
Is the Xbox 360 going to launch with two SKUs? Piper Jaffray analyst Anthony Gikas believes it is. GameDAILY BIZ spoke with Gikas about his predictions for launch, 360 Live, and Microsoft subsidizing third party content.
Xbox 360 rumor and speculation has reached an all-time high this week, as reports of a leaked UK launch date continue to spread, supposed US pricing strategy resurfaced, and most recently, Piper Jaffray analyst Anthony Gikas released a note detailing his Xbox 360 launch thoughts, based on "many conversations" with Microsoft executives.
GameDAILY BIZ spoke with Gikas about why he is so confident the system will lauch with multiple SKUs, his prediction for 360 live pricing, and why it's smart for MS to help subsidize third party 360 launch title development.
The Great SKU Debate
Whether or not Microsoft will launch the Xbox 360 at multiple price points has given message boards across the internet plenty of chatter about since E3. Xbox representatives has been unusually coy, even when asked directly whether the system would launch with two SKUs or not.
[ "Microsoft has been very, very aggressive. They're coming at Sony at 110 miles per hour," Anthony Gikas, Analyst, Piper Jaffray ]
Gikas told GameDAILY BIZ that he knew with a "high degree of certainty" that the 360 would indeed launch with two SKUs, although he refused to speculate on the all-important question of whether the low-end model would include a smaller hard drive (thereby making it standard) as opposed to not having one at all.
"Microsoft knows $299 is important," Gikas explained. "They know that historically that's been the launch sweet spot, but they also don't want to take such large hardware losses this time. Of the 1 million units Microsoft is expected to have available at launch, I expect 80% of them will probably be the more expensive SKU, because that's what early adopters are going to want."
As for the higher end model, Gikas conceded that it could come in as low as $350, but $399 seems like the most probably price point. He stressed that the model will likely include "all the additional peripherals gamers would want to buy anyway," as well.
360 Live Price Hike?
Gikas' initial note erroneously stated that he expected 360 Live's "Gold Level" price to be about $20 a month- confusingly said to be in line with current Xbox Live pricing. The current Xbox Live fee if $50 a year, or $6 a month.
Gikas quickly corrected the typo, stating "I do expect a small raise in the price of premium 'Live' service, but I expect it to fall in line with the $50 a year they are charging currently," he said. "I certainly do not expect a $20/month fee. That would be far too prohibitive for too many prospective owners."
The biggest innovation the 360 brings to Microsoft's Live system is the addition of a free "Silver" package to download free (or otherwise) content for their games, and to have access to a friends list. Gikas noted that Microsoft's goal for 360 Live is to have an impressive 50% of owners connected via the system. The hope is that offering a stripped-down free online service will go a long way towards realizing that goal.
Eating Developer Cost
Perhaps the most interesting aspect of Gikas' research note was news of Microsoft's heavy use of incentives for third parties to support the 360 100%, and to secure exclusive titles for the system.
"Microsoft has set up a fund (of sorts) to be utilized for subsidizing game development and promotion for the XBX360. We think the Company will provide financial incentives in the form of development dollars, sales and promotions, and reduced royalty structures. At the end of the day, expensive third-party product development (on key IP) could be subsidized in part by Microsoft's balance sheet," Gikas stated.
Gikas explained to GameDAILY BIZ, why Microsoft would try to save money on hardware, only to turn around and spend to support some third party development efforts. "Microsoft has been very, very aggressive. They're coming at Sony at 110 miles per hour, and they feel it's very important for those key games to be there at launch," he said.
Gikas also pointed to the 360's lead-off position as another big reason why Microsoft felt it necessary to lend developers a helping (financial) hand. "Xbox 360 games will potentially cost upwards of 50% more than current-gen titles, and those 360 assets can't be reused in other versions to help spread that cost. The 360 version can't be ported" he said. "Microsoft wants to cushion that initial R&D blow as much as they can to ensure that publishers are behind the 360 100% right from the start."
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