Microsoft slashes Xbox price to boost flagging sales

3.00pm - By CHARLES ARTHUR

Microsoft has slashed the price of its Xbox video games console by a third in Europe and Australia just a month after its launch in a move that the industry has taken as a sign of disastrously bad sales.

From April 26 the Xbox will cost £199 in the UK, down from £299, a 34 per cent cut. In Europe the price will fall to €299 from €479, a 38 per cent cut. People who have already bought and registered the machine will receive a "thank you" package of two games and a video controller worth about £115.

The price cut puts the Xbox at the same price as Sony's Playstation 2, but industry figures suggest that Sony's machine is now outselling the Xbox more than fivefold, despite being 15 months old. The Xbox was launched in Europe last month and had a multi-million pound marketing push from the Seattle company, better known for its Windows software.

It is the first price cut for the games console, which launched in the US last November and in Japan in February. However, the company has not made any price cuts in those regions.

Retailers and analysts welcomed the move, saying it should stoke sales for the Xbox just as demand was waning. The suddenness of the move, industry observers said, indicates that Microsoft badly miscalculated the launch price.

"I would say it is the quickest price drop of any major console launch," said Stuart Dinsey, managing editor of Games Trade Weekly MCV, a trade publication covering the video game industry. "It's very brave to do this now," he added. "If they hadn't made the movement on price soon it would have become a disappointing launch."

Industry statistics suggest that while the Xbox sold about 45,000 units in its first week in the UK, that fell to just 7,000 the following week, and is now half that. Microsoft has refused to give European sales figures. Microsoft has said only that it sold a world total of 1.5 million units by the end of 2001 and that it is generally pleased with sales since then.

Lisa Morgan, commercial director of video game retailer Games Group Plc, said: "They are falling in line with consumer demand. No doubt the price drop will stimulate sell-through."

Sandy Duncan, vice president of Xbox Europe, said that Microsoft was "happy" with European launch sales. "We want to make it very clear to the industry that we're here to compete," he said.

He added a series of factors were considered in making the decision, including the strength of Xbox video games sales and the impending launch of Nintendo's GameCube, which hits stores May 3 at a price of £169 pounds in the UK and €249 in Europe.

Microsoft has made a huge bet on Xbox. It has invested billions of dollars in its development and committed £300m to promote it to grab a stake of the £15 billion global game industry and cement Microsoft's place as a dominant consumer brand.

When Sony launched its first Playstation in 1995, the market was dominated by Sega and Nintendo. But the Playstation proved such a hit that it forced the incumbents to drop their prices rapidly.

This time though Microsoft has not been able to force a similar scenario – and instead has been pushed into retreat itself. Sources at Sony sounded confident about the PS2's prospects, as it still has a larger catalogue of games as well as price equity.

The European market is considered the third largest video game market, but has grown in importance over the past decade.

Analysts in the US have expressed concerns over Xbox's overseas sales, saying that signs of slowing demand could weigh on fiscal third quarter sales, which it will report later on Thursday.

- INDEPENDENT