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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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July 24, 2008 10:52 AM

FAM: Will Microsoft set Xbox 360 pricing for market share or profit?

Posted by Benjamin J. Romano

Microsoft Entertainment and Devices Division President Robbie Bach was just asked about pricing for the Xbox 360 at Microsoft's Financial Analyst Meeting.

How does he evaluate the need to drive share this year and maybe lower prices versus your profitability goals, and do you want to increase your share as the cycle progresses or are you more intent on profitability?

Bach said Xbox 360 pricing is a function of the cost management and demand. He said he feels good about cost management.

"[W]e try to gauge our pricing structure based on what's selling, because in the gaming space, [you] work through a tier of customers, then you want to reach the next set of customers and that typically means [you reach them through a different price point]. Right now, as you saw in third and fourth quarter, demand is very strong. We feel very good about where we are in the demand front," Bach said.

His Entertainment and Devices Division just turned in its first full year of profitability, $426 million, even though in the fiscal fourth quarter, it posted a loss of $188 million, largely because of higher Xbox 360 sales. The profit margin on the game consoles is slim or possibly negative, so even when the company sells more, less revenue shows up on the bottom line. But it benefits because over the long term, more consoles drives more software, accessory and online services sales, which have higher profit margins.

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