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Microsoft's muscle could remake the business model of console gaming

Aggressive pricing of a new console and a monthly installment plan for hardware and software, both enabled by deep pockets, could leave Sony in a tough spot.

The Xbox Series S

The new Xbox Series S will retail at $299, which puts significant pricing pressure on Sony.

Image: Microsoft

The traditional video game console business can now consider itself disrupted.

A bit after 3 a.m. ET on Tuesday, Microsoft revealed via a tweet that the low-cost edition of its new gaming machine will cost $299. On its own, that could seem like a run-of-the-mill pricing announcement.

But in the context of the technical and financial changes sweeping the $160 billion game industry, the relatively inexpensive Xbox Series S may prove a watershed. The announcement places significant pricing pressure on Sony, Microsoft's console archrival, and underlines how the global technology giants are flexing their muscles to reshape electronic entertainment.

In short: Microsoft is using its money and clout to try to turn gaming into a subscription business.

Sure, I'll go first

Sony and Microsoft, the two dominant makers of "mainstream" game consoles (Nintendo enjoys the luxury of a private niche, based on exclusive franchises and less-powerful hardware) confirmed long ago that they will each introduce new game machines this fall. It has also been clear that each company intends to release two versions of its new console: one with an optical drive (which costs more) and one without (which costs less).

Until Tuesday, neither company had announced a price or specific release date for either of their new devices. (Microsoft had not even officially confirmed the existence of its low-cost version.)

A series of leaks Monday night revealed the $299 pricing and a video trailer for the Series S. The leaks were followed overnight first by a perfect meme response from Microsoft's Xbox account and then the official confirmation at 3:13 a.m. A credible report from Windows Central said both the Series S and the more-expensive Series X will launch on Nov. 10 and also reaffirmed the crucial detail that the consoles will be sold with zero-interest monthly installment plans. That launch date and installment plan was confirmed by Microsoft on Wednesday.

As Protocol reported in July, Microsoft plans to allow at least some consumers to pay for Xbox hardware and access to hundreds of top-end games through Microsoft's Xbox Game Pass service, for either $24.99 or $34.99 a month over two years, Microsoft confirmed Wednesday.

Whether this was all a highly choreographed PR "leak" and confirmation by Microsoft, the news represents two big cannonballs flying toward the powerful ship that is Sony's PlayStation game business. They don't even have to land squarely to affect Sony's course.

First, the $299 price for the Xbox Series S is extremely aggressive (and attractive to gamers). Anything under $400 would have been low. At $299, it seems likely that Microsoft is barely breaking even or even losing money on each box sold. Microsoft can afford that, but can Sony come close to matching? Sony is far more dependent on game profits than is Microsoft, which could make matching $299 painful for the Japanese company.

Second, Microsoft is offering gamers a deal to avoid spending hundreds of dollars up front on hardware and $60 or more for each top-quality game, which is a fundamental disruption of decades of video game business models. And no company relies more heavily on that traditional model than Sony. Sony still hasn't announced the pricing of its new consoles.

Satya Nadella picks up the controller

The low Series S pricing, bankrolling a zero-interest monthly payment plan and the investment in the Xbox Game Pass subscription service (not to mention xCloud cloud gaming technology) indicate a substantial long-term strategic and financial commitment by Microsoft to reshaping the game business in its own image rather than engaging in yet another "console war" on traditional terms. This appears to represent Satya Nadella buying into a broader strategy developed by Phil Spencer, Microsoft's head of gaming, and his team.

It is an image of the game industry that raises significant strategic questions for Sony. The overall message that gamers are hearing from the company right now about the PlayStation 5 is: "Buy a PS5 so you can play a new Spider-Man game and a new Ratchet & Clank game."

That will certainly be enough for hardcore Sony fans. But now that more Xbox details have emerged, many gamers will be looking for more.

Update: This article was updated to include confirmation from Microsoft of the Xbox Series X and installment plan pricing. Updated September 9.

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