Analysts predict $75 launch subsidy on Xbox 360 hardware

Microsoft's Xbox 360 will be priced at $299 when it hits shelves later this year, according to analysts at major investment bank UBS, with Microsoft subsidising each console to the tune of $75 in order to meet that price point.

Predictions by the analysts, reported last week in the Toronto Globe and Mail, suggest that Microsoft will pay $375 per unit to its manufacturing partners, with the final retail price of the console pegged at $299.

That's in line with comments from Microsoft boss J Allard, who told the media at E3 that the Xbox 360 would launch "in the neighbourhood" of the $300 price point at which the original Xbox launched in late 2001 in North America.

The $75 subsidy reportedly required to hit the launch price is quite high, but not unusual for a new console. Platform holders routinely subsidise their consoles at launch in order to build an installed base, and then make back the money from software sales and the rapidly falling price of hardware manufacture late in the lifespan of the console.

However, Microsoft found it more difficult to do this with the original Xbox, since it had to continue buying components from partners such as NVIDIA and Intel at high prices - unlike Sony, which has been able to hugely reduce the manufacturing cost of the PS2 as it builds most of the core components itself.

For Xbox 360, Microsoft has moved to a more Sony-like model, and expects to be able to realise similar economies as the scale of manufacturing ramps up and the component costs fall.