After Sony increased the price of its PlayStation 5 game console earlier this year, Microsoft said it had no plans to hike the price of its Xbox Series X|S systems. But apparently, the company only meant that it did not have such plans for this holiday season. However, due to inflation and rising costs, Microsoft may ‘have to’ raise the prices of its consoles in the future.
Microsoft’s Xbox Series S and Xbox Series X consoles will continue to carry a $299 and a $499 price tag this holiday season, respectively. The software giant will also continue to charge $59 per standard video game and will not increase the price of its games, unlike some of its industry peers. But as we advance, the company might not be able to sell the systems and games at these prices, said Phil Spencer, Microsoft’s gaming chief, at the Wall Street Journal’s WSJ Tech Live (opens in new tab) conference earlier this week (via CNET News (opens in new tab)).
“Going into this holiday, we thought it was really important that we maintain the prices that we have,” said Spencer. “[…] We have to look at the return on our business the cost of the business. We have held price on our console, we have held price on games for us and our subscription. I do not think we will be able to do that forever.”
Platform holders like Microsoft and Sony usually reduce the costs of their consoles over time as they optimize bill-of-materials and demand their partners to lower their prices. But with the latest PlayStation 5 and Xbox Series X|S. In 2020 – 2021 demand for chips was unprecedently high, which is why their BOM costs were higher than expected. By now, prices like 3D NAND, DRAMs, and various commodity chips like power management ICs (PMICs) have dropped, but logistics costs have increased. As a result, Microsoft’s and Sony’s costs might remain unchanged from the 2020 – 2021 period.
But the problem is that they have rarely retailed at MSRP due to shortages of the latest Xbox Series X|S consoles. Even now, almost two years after its launch, Newegg sells Microsoft’s Xbox Series X either bundled with a game and accessories or at a higher price than MSRP. Right now, this console sells for $577.40 (opens in new tab). If Microsoft hikes MSRP, it will likely get more expensive, or retailers will have to lower their profit margins to keep selling the systems at current volumes.
What remains to be seen is what Microsoft and Sony plan to do next year. Typically, console suppliers cut the prices of their machines in their third year to increase demand. But if Microsoft hikes the Xbox price in Q1 2023, all it will have to do next holiday season is to return current MSRPs. But will it boost demand from consumers that could not or did not want to afford these consoles at their current prices?