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Researchers at GfK is forecasting that the Xbox360 will get a lift from the announcement earlier today that the price of the Xbox 360 will be slashed in Australia by up to 11%. But the biggest lift, it says, will come from the launch in a few weeks time of the new Microsoft game Halo 3.

GfK Analyst Daniel Morse claims that to date the Xbox360 has only sold 56,000 units compared to the Sony PS2 which has sold 133,000 this year. This is followed by 69,500 units for the PS3 Sony games console and 90,000 units for the Nintendo Wii. Also popular has been the Nintendo DS which to date has this year sold over 210,000 units.

However Morse admits that the jury is still out on whether Microsoft will suffer from the massive failure rate of the Xbox 360 console both here in Australia and overseas due to what is being described as the “Red Ring Of Death”. “It is too early to tell whether there is any retail fallout from the issue,” said Morse.

He added: “There is a problem, and the discounting of the Xbox 360 units, and the upcoming launch of Halo3 will help them”. He said the launch of this new Xbox 360 game exclusive to the Microsoft platform is critical as it may sweep away the stygma associated with the Red Ring Of Death failures.

Microsoft won’t discuss what went wrong with its Xbox 360 resulting in over 30 percent being returned, but to put the issue into perspective, just imagine your new TV breaking down twice in the first six months of ownership. The vacuum cleaner giving up the ghost three times. The microwave repeatedly going kaput. Then imagine replacing the item with the same model over and over while being asked by Microsoft to stay loyal to the company.

 

For Microsoft, the Xbox is a massive financial drain. Last month it was forced to allow over $1.3 billion for extended warranty claims, and where the Sony PS3 has a failure rate of less than 0.1 percent, the Xbox 360 is failing on average by over 25 percent.

When Microsoft entered the gaming market it had witnessed firsthand the success of the Sony PS2, as well as the success of consoles from the likes of Nintendo and Sega, and it greedily wanted a share of the action. Now three years on, Microsoft is bleeding gaming losses which are estimated at over $18 billion dollars.

This week and only a few days after Microsoft cut the price of the Xbox 360 gaming console by 15 percent in the USA, the premium device was languishing at #21 in the Amazon.com sales charts. Competitors such as the Sony PS3 came in at 6th and the Nintendo Wii took up the third slot.

With many telling SmartHouse that it was not the failure of the unit that upset them most but the reaction of Microsoft when they complained about the problem. To date we have had over 200 emails from Microsoft customers affected by the Xbox 360 failure.

Stephano Nevarez has had to repair his Xbox 360 three times. Since he first bought his $400 Microsoft Xbox 360 in 2006, it has failed three times. Each time, he sent the game machine back to the company and waited weeks for a repair or a replacement.

 

“There’s nothing in the house that breaks down as much,” said Stephano, a 15-year-old high school student.
Yet he remains a devotee of his 360 console, the more so because he wants to play Halo 3, the latest iteration of a violent space epic due in stores on Sept. 25; it is available only for that game machine.

The game, published by Microsoft, could redeem the company going into the Xmas selling season. Untold numbers of 360 owners have watched their machines break down, and then, in many cases, watched the replacement consoles do the exact same thing because of a severe and widespread manufacturing flaw.

But if the Xbox players keep coming back because of Halo 3, and if other gamers buy the console just for the game, then Microsoft could markedly improve its standing in its battle against rivals Sony and Nintendo.

“Halo 3 is Microsoft’s most important game,” said Dan Hsu, editor in chief of Electronic Gaming Monthly, a magazine for enthusiasts. Mr. Hsu, who has seen the game, said it delivers in spades, with one caveat: “Assuming your machine does work, it does what it sets out to do.”

The bar is high. Combined, Halo and Halo 2 have sold around 15 million units, making the series one of the most successful game franchises of all time. The game has spawned novels, comic books and a possible movie.

 

The $12.5 billion console and video game business is up for grabs this year. On the console side, Nintendo is off to an unexpectedly strong start with its Wii, a game system that makes its players get up off the couch and move their bodies to direct action.

It has well over 28 percent of the American console market, according to NPD Group, a market analysis firm. The Wii is currently selling at a faster pace than the 360, and the company is releasing its big games this fall, Super Mario Galaxy and Super Smash Bros. Brawl, though neither is as popular as Halo.

Sony, with about 14 percent of the market, was hurt when the release date of Grand Theft Auto IV, a game it was counting on to increase console sales, was pushed back from October into the second quarter of next year.

Microsoft, which has 57 percent of the market, has declined to say what is causing some of its Xbox 360 to stop working, or how many machines have been affected. It has set aside $1.1 billion for repairs, a figure that suggests to industry analysts that the problem could affect a third of the 11.6 million 360s already in the hands of consumers.

Microsoft has said that it will fix any faulty Xbox 360 free of charge.

The most likely explanation of where the engineers went wrong is that the 360s are poorly designed to deal with the intense heat generated by game play and those computer chips and other electronics may be popping off the motherboard, said Richard Doherty, an analyst with the Envisioneering Group, a technology assessment and market research firm.

Mr. Doherty said he thinks that Microsoft, in an effort to put is machine into the market a year ahead of the Sony PlayStation 3, had skimped on product testing. He said that the failure rate among 360s is almost unheard-of among consumer electronics, where having even 1 percent or 2 percent of machines fail is considered a major problem.

 

He has been doing surveys of video game consumers, and results suggest that their patience is waning and that news of the problems is dissuading some potential buyers, he said.

Even die-hard users, he said, are wondering why they cannot take their machine to a store to have it checked out, rather than wait for it to break.

“It’s dissipating a tremendous amount of momentum they built up prior to July,” Mr. Doherty said, referring to when Microsoft first publicly discussed its $1.1 billion repair fund. “This is going to get worse before it gets better.”

But some financial analysts said that the eventual damage to reputation and revenue may not be so profound. Evan Wilson, an equity analyst with Pacific Crest Securities, said he thought that Microsoft’s fix-it-free policy had mollified many avid game players who have been among the first to purchase the 360.

Aaron Greenberg, group product manager for Xbox 360, said the repair campaign is aggressive and that the company, while it is not discussing what has gone wrong, is not taking the failures lightly.

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