MS introducing subsidized 360+Kinect bundle for $99 + 2yr, $15/month XBLG contract

Discussion in 'Console Industry' started by mrcorbo, May 2, 2012.

  1. mrcorbo

    mrcorbo Foo Fighter
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  2. liolio

    liolio Aquoiboniste
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    I wonder that could make sense with Charlie's report about a SoC being fabbed just now.

    Another interesting topic would the system embark an optical drive?
    WRT to margin it would make sense to pass not to mention that people subscribing to such an offer will have the ad-how internet access.

    I wonder how low the production of the 360 can go.
    Passing on the DVD-drive, with an HDD and a tiny SoC?
    Using this chart, I would not be surprised if the system as a whole ends up around the same price as a 5570. Let say between 45 and 50 $ (the hd 6570 price).
    Add the HDD. 30$?
    Case, psu, assembly, etc.
    I could see them not losing that much money.
    The main offender could prove to be kinect.

    In any case they should be in the grey really fast (after a couple of months of subscription).

    EDIT
    I read eurogamer report before noticing this post, other reports are more specific and speak about a 4GB 360 SKU which is a lot less tempting... the lack of HDD badly bite into the relevance of the subscription base model.
     
    #2 liolio, May 2, 2012
    Last edited by a moderator: May 2, 2012
  3. Gerry

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    Forget about them losing money. $99 + $15 x 24 months = $459. Given an 4GB Xbox + Kinect is $299 and Gold is $50 a year, you're actually paying MORE. You're just paying less up front.
     
  4. joker454

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    Well we already have subsidized tv boxes, subsidized phones, so I guess subsidized consoles is not out of this world. That stretegy seems to work well in the usa, definitely worth a shot on consoles.
     
  5. AlBran

    AlBran Ferro-Fibrous
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    Maybe next gen they'll have a 10 year plan.



    ............................... :p

    I suppose there's the extra year of warranty on both pieces of hardware there if you want to price out everything. Also, Gold RRP is $60/yr (clearly, the savvy ones will know where to go for the $25-$40 subs, but those may not really be the target audience, particularly at this point in the cycle).
     
  6. Rangers

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    It's amazing people think this is some kind of incredible new thing...when it's just the tired old subscription model.

    This will amount to nothing.
     
  7. AlBran

    AlBran Ferro-Fibrous
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    Maybe it's a diabolical plan to get the late adopters of this gen to jump on-board next gen at the very beginning by introducing a rather timely "upgrade plan/contract". ಠ_ಠ
     
  8. liolio

    liolio Aquoiboniste
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    Well I don't know if that is directed to me but I don't expect them to loose money :)

    I think this calculation should be a bit more relevant:
    Subscription is 15, standard gold fee is 10.
    So we are speaking of a 5$ difference.

    5x24=120$ extra dollars vs a box that would have been linked to gold account.

    Point is I don't know in US but overall only half the 360 are online (if I remember right, some data were given a long while ago). Out of the connected 360 it would be interesting to have the silver/gold ratio.

    What I'm up to is that I suspect that MS no matter their good sale acknowledge that is pricing for online gaming is failing. Economy has to make things worse.

    Like ISP or mobile operators MS is clever enough to understand the benefit of a subscription based model. the longer people own the device the more money you get, your costumers are stuck to you.
    Till while it makes money gold live subscription doesn't seem to offer enough advantage for mass subscription. MS search another mean to attract costumer to this business model.
    ------------------
    Gross calculations.

    Let consider 1 millions units.
    ! subscription model, they lose 100$ on hardware.
    1x10^6 x (10*24-100)=140 millions $ in 2 years.

    Usual business would be (assuming an average 299$ earn by system, that 100$ in profit):
    1x10^6 x (100)=100millions
    Let say 25% have a gold subscription that's:
    0.25x10^6 x (5x24)= 30 millions
    Overall they make 130 millions.

    If we push to 3 years we have (for the same 1million systems sold):
    210millions on one side and 145 millions on the other side.

    4 years gets us:
    280 M$ vs 160 M$

    The subscription model grows faster.

    Things get even more interesting if we account for extra sales.
    Say an extra million unit is sold during the second year of the deal (so only 12 months of subscription for the second million group of systems.

    We have 210 M$ vs 245 M$.
    It may look like the standard model wins.

    After 3 years we have on one side:
    210+140=350M$
    And on the other:
    145+130=275M$
    After three years subscription wins
    After 4 years:
    280+210=490M$
    vs
    145+160=305M$

    So the subscription model indeed wins and as we add more devices rate of the growth accelerate and its lead vs the std model accelerate. Would be obvious by writing the mathematical formula.

    I use the std gold fee because it show that the time line for subscription model to pull ahead has to be between the second and the third year..

    Interestingly with 15$, you get after two years 260millions dollars. So the breaking point is way earlier (before the end of the second year). I would say that MS is a bit too greedy as 9.99$ subscription would get them a lot more subscribers and do greater good to their brand and future benefits through Live. But there are timeline and the 360 is old already.

    In any case with a 15$ fee (so a short term profitability plan) if the offer meets success within two years the profits of MS ED division could improve significantly.

    If I were pushing it I could relate that the rumors of Sony possibly launching in 2013 and MS in 2014.
    If the offer takes off properly launching a new device within the first year (so 2013) of that offers could be counter productive. It would most likely translate in cost and decreased profitability before the subscription model (and higher profit scaling) really kicks in.

    EDIT

    Corrected thanks to MrCorbo :)
     
    #8 liolio, May 2, 2012
    Last edited by a moderator: May 2, 2012
  9. mrcorbo

    mrcorbo Foo Fighter
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    Standard Gold fee is $5/month ($60/yr/12). So a $10 difference.
     
  10. AlphaWolf

    AlphaWolf Specious Misanthrope
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    Biggest advantage for MS of this subscription program is that they would get all new customers into live gold. I'm surprised it's taken them this long to introduce one.
     
  11. liolio

    liolio Aquoiboniste
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    Wow I was completely off. It's even better for MS. 15$ is close too much in that case, really on the greedy side vs the catchy 9.99$
     
  12. joker454

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    I wonder if it could also help with the unnafordable console issue. People today can buy $600 phones only because they get them for $199 subsidized this same way. It's the same way I get my DirecTV receivers for$199, DirecTV pays for a chunk of it and I have to keep a 2 year deal with them. Maybe this can make a $600 console feasible, offer it for $199 just like with phones but you must keep a two year XBLive contract. Test the waters first at the lower $99 price point and see where that goes.
     
  13. Shifty Geezer

    Shifty Geezer uber-Troll!
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    It makes a lot of sense. I expect it to do well, although it may remain limited to the US/NA for logistic reasons. That might be why no-one's considered this approach before. Having said that, buying on credit through a company sales option or on credit card achieves the same thing (depending on the deal you can get), so maybe the consoles companies just thought they were taken care of with that regard?
     
  14. joker454

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    Buying on credit card still means a huge bill at the onset. The subsidized approach is like car leasing, it gives the illusion of affordability for those that can't afford it.

    They could do something like this, a $499 console priced at $199 to the consumer with a 24 month XBlive contract at $14.99/mt. That still nets them $560 total so they can offer hardware that will leapfrog what the others can do, and still make a profit. People are used to paying for XBLive because of what it offers and the good experience it provides, millions already do this. So this is something Microsoft can really leverage to put out hardware that their competition can't because their competition does not have a competitive paid online service and hence they have nothing to leverage. Many who pay for XBLive anwyays would jump at this. Net result is they are happy because they get the new console for $199 and are fine paying for XBLive anyways because of how much better it is than the competition, and they get a console that will be far more powerful than any other. Microsoft is happy because they lose no money, lock the customer in for 24 months, and have the best hardware out there. Could be cool. I still think they would need to offer an unsubsidized model at $499...but offer the $199 subsidized one as well.
     
  15. BoardBonobo

    BoardBonobo My hat is white!
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    Also with this model you get people tied in for at least 18 months, early termination fee for those that do try to get out, and suddenly a new box arrives which only costs an extra $100 to upgrade to. As long as you take out a 60 month contract.
     
  16. RobertR1

    RobertR1 Pro
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    This would be a brilliant move actually and really lock in next gen, in the US, for them.
     
  17. Silent_Buddha

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    Actually even more than that.

    They cut out most of the retailer margin for Live Gold cards. The retailer margin for the console itself likely stays the same or MS could increase retailer margins on that since they no longer have to build in retailer margins for 2 years worth of Live Gold cards.

    So instead of only X fraction of each Live Gold card purchases going to MS, in theory with a subscription the entire Live Gold subscription cost (minus any fee's going to the credit card companies) all of the money will now be going to MS.\\

    And once the 2 years are up if someone is going to stay on Xbox Live Gold, they'll likely keep the monthly charges to their credit card rather than cancelling that and doing the Live Gold Cards... So the revenue stream remains free of retailer margins.

    I wouldn't be surprised if Sony follows suit with something similar for PS3 and PSN+

    Regards,
    SB
     
  18. Silenti

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    I brought up this possibility what, 2 years ago and damn near got laughed off the board! Vindication!
     
  19. Brad Grenz

    Brad Grenz Philosopher & Poet
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    This model didn't make sense when Xbox Live fees were $50 a year. I think the biggest question is whether they have the value to add that can make a version of Live that costs three times as much seem reasonable, otherwise you're just buying an Xbox in a "rent to own" situation. They may very well ape PlayStation+'s model of giving away free games each month. I could also see Activision;s ailing CoD Elite service being included (in the same way the PS+ survey making the rounds suggest could occur in the Sony camp). Maybe it'll come with ESPN3 (and not just for people with the right ISP) and Epix subs as well, who knows?

    In any case, I think it's a gross move, especially since I assume it's in lieu of a real price cut. Making price sensitive people feel like they're getting a good deal only to lock them in to a long term contract they may not be able to pay for next year is exactly how the fucking housing market collapsed. And we're talking about a piece of hardware that has been on the market for 6.5 years and has only dropped in price by 33%. That's ridiculous for a machine that was build specifically for effective price reduction. In less time than the 360 has gone from 299 to 199 the PS3 went from 599 to 249, and blu-ray players have gone from 500+ to ~70.

    It's easy to see why MS would be all over this model. It's what has propelled Apple to stratospheric heights, and Xbox Live fees are like an unlimited supply of free money, but it remains to be seen how this will be taken by the gaming public at large.
     
  20. AlphaWolf

    AlphaWolf Specious Misanthrope
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    Oh FFS cut the drama, you're killing me. Trying to equate MS offering a pay to own plan for a total cost under $500 to the housing crisis? Absolutely ridiculous.
     
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