Where they stand: Xbox One and PS4 launch prices

Gamasutra contributor Matt Matthews looks at a few figures and analyst forecasts to see how the Xbox One's $499 and PlayStation 4's $399 launch prices fare against consoles past. Today Microsoft announced that the new Xbox One console would launch in the U.S. at $500, a price that puts it higher than the launch price of the Sega Saturn, below the price of the NeoGeo, and right at the base-model price of last generation's PlayStation 3. Microsoft has placed it squarely in the company of consoles which found a cold reception from consumers in part because because of its price. With its presentation of a slew of exclusive games today and the television and telecommunications features shown at last month's introduction, the company clearly wants to justify the console's challenging price up front. That strategy is risky, but not without precedent. In the initial years of the PlayStation 3's life, it was one of the more robust Blu-ray players available, and consumers could justify its hefty price tag in part based on those features. Last month Wedbush analyst Michael Pachter told me in email that he expected Microsoft's costs for the Xbox One to run around $350, leaving the company some room for profit if it priced the console at $400. Given his breakdown, along with historical precedent and what I believe is an increased sensitivity to hardware pricing, I thought that price sounded both plausible and appropriate for the Xbox One. Clearly I came out wrong on the price, but I believe that the market's sensitivity to price will still have an effect on the Xbox One's sales. Given the price announced, I think that we may be seeing either the failure of part of Microsoft's strategy, or simply that part of that plan is yet to be announced. Specifically, I think the company intended for the system to be subsidized by cable companies, who would then use its interactive television features for service-specific integration and targeted advertising. If that part of the plan didn't pan out, then Microsoft is now left with an unsubsidized system at an uncomfortably higher price. The company could still try to subsidize the system by tying it to the Xbox Live service. Last May Microsoft began experimenting with a service-subsidized hardware program for the Xbox 360. Under this program, consumers could buy a 4GB Xbox 360 for $99 after agreeing to pay for the Xbox Live Gold service for two years at a price of $15 per month. The program later expanded to GameStop and ultimately to big box stores like Best Buy, Walmart, and Target. Update: Sony has now announced that it will launch the PlayStation 4 at $400, a price that is $100 below the entry-level price for the PlayStation 3 last generation. However, that price is also well above the launch prices for the Xbox 360 and Wii, both of which outsold the PlayStation 3 in the U.S. Combined with the announcement of a $300 PlayStation 3 bundle with Grand Theft Auto V this fall, the $400 price suggests to me that Sony will announce a new pricing for the PS3 soon, probably at GameCom in August of this year. Otherwise, Sony's own older system would look too competitive against the new PS4. To put the new prices into some historical context, I've put two graphs below. The first shows the launch prices of the systems available in the U.S. in the past 36 years, in absolute terms. The second shows what the prices would be for those systems if adjusted for inflation according to the Bureau for Labor Statistic (bls.gov). This is more for a sense of scale than a real meaningful comparison; electronic devices in general do not follow the same economic pressures that affect the rate of inflation. Given the $100 advantage, it seems quite likely that the PlayStation 4 will have an edge at retail in the fall. However, those launches are still several months away, and I suspect that Microsoft will work hard to emphasize the broader value of its integrated living room system.