Microsoft Tries To Gag SmartHouse Over Xbox Claims


Xbox Australia director David McLean is attempting to gag SmartHouse which earlier this exposed a 30% failure rate of the Xbox 360. Only weeks after we exposed this story Microsoft made a $1.3 billion dollar allowance for defective Xbox 360s.

In reaction to Sony’s price drop of the PS3 last week, Microsoft yesterday announced a price drop and new bundles for the Xbox 360. They also said that they would phase out Xbox 360 Core version in favour of a new bundle aimed at casual gamers, the Xbox 360 Arcade, which will go on sale from November 15.

They also announced that the Xbox 360 Pro, which was recently slashed in price to $579.95, will be sold from November 1 as a package with two free games – Forza Motorsport 2 and Viva Pinata. The only problem was that they failed to issue the press release to SmartHouse but instead chose to talk exclusively to Fairfax. Also denied access to the information was News Ltd publications as well as several leading gaming sites.

When we initally broke the failure rate story Mclean who is normally hungry for publicity denied any serious problems with the Xbox 360.


Weeks later when Microsoft Corporate announced the $1.3 billion dollar warranty allowance, SmartHouse got hold of Mclean in Singapore. Within 30 minutes of posting the story with quotes from Mclean,  the Managing Director of Microsoft’s gaming division PR Company Pulse, was on the phone demanding that we pull the Mclean quotes.

Apparently Microsoft Corporate had issued a Corporate edict that no local executives were allowed to comment on the issue.

Pulse at the time admitted that their was nothing wrong with the quote however it was put to me bluntly that there would be consequences if we did not pull Mclean’s quotes down from our web site. As an inducement we were offered exclusive interviews on other Microsoft subjects.

Earlier this month we revealed that the launch of Halo 3 and the intoduction of a new graphics rendering engine was again crashing Xbox’s resulting in a red ring of death problem.

In the Australian market GfK figures show that  Xbox 360 sales have topped 230,000, but Wii is rapidly catching up, with sales of over 155,000. Sony has sold 90,000 PS3 consoles, and aims to reach around 150,000 by Christmas following the price drop to $699. The Sony PS2 has sold over 250,000 units. GFK say that a contributor to the high Xbox 360 figures is the fact that the Xbox has been on sales for a lot longer than both the PS3 and the Nintendo Wii.


Leading games market analysts say that the Xbox could be waning, particularly in international markets like Australia. DFC Intelligence analyst David Cole said that the PS3, with a growing arsenal of games to draw on, should be outselling the Xbox 360 in the Asia Pacific region soon. “Unless the Xbox 360 can kick it into gear in the fourth quarter and through 2008, the system will probably finish in a fairly distant third,” Cole says.

During the past few we have seen both Microsoft and Sony resort to slashing prices on their game consoles to entice consumers. Microsoft launched its XBox 360 in late 2005; Sony started selling its PlayStation 3 10 months ago in Australia. Happily for consumers, prices for both are going down.

Much of this price war can be attributed to the sleeper success of the Wii from Nintendo. Though it lacks the powerful graphics hardware of either the PS3 or Xbox 360, the fun-to-waggle Wii has managed to outsell the other two systems nearly every month since its launch a year ago.

One exception: September 2007, when the launch of Halo 3 gave Xbox 360 sales a big boost. Don’t expect a price cut from Nintendo. “We are still selling everything we can make,” Nintendo senior vice president of marketing George Harrison said this week.

But Xbox 360s and PS3s are all too easy to find on store shelves.


Sony by all accounts is currently in last place with the PS3 however one cannot rule ouut the sales success of the PS2 when it comes to worldwide market share for the new generation of game machines.

The company is doing everything it can to lower its manufacturing costs. The PS3 comes with a lot of pricey innards, including a BluRay DVD player, and an advanced microprocessor called the Cell. But Sony has apparently had enough of the costs of developing and manufacturing such a sophisticated chip.

The same day that Sony announced the PS3 price drop, it also came clean about its intentions to sell its Cell factories in Nagasaki and Oita to Toshiba, which partnered with Sony and IBM in the development of the Cell chip. The move should cut Sony’s production costs. Toshiba will invest in developing a more advanced version of the Cell and will use the chip in a wider array of products, so production volumes should increase and its price should fall.

At the same time, some of Sony’s other manufacturing costs should shrink soon, too. A few of Sony’s manufacturing contractors, including Taiwanese Foxconn and Hon Hai Precision, said in April that they’d begin to ramp up “volume production” of PS3 parts by the upcoming holiday season.

When a manufacturer reaches the ability to make high-end parts faster, the process has become sufficiently streamlined so that costs start inching downward. For all gadget makers, as time goes on, manufacturing gets smoother and parts get cheaper.

Sony and Microsoft have chosen to pass some of the savings they’ve achieved through volume production on to the consumer rather than keep more profits. So far, neither has claimed to make any profits from their new consoles. To put it bluntly, they’re willing to sacrifice profits now for market share. When a veritable army of gamers have invested in their platforms, the console-makers will be able to reap profits from all the games each buys.

In the long run, most analysts believe Nintendo’s Wii will win over the largest number of users. That should be a boon for Nintendo’s bottom line because the machine is relatively cheap to make, and Wii games are close in price to those of Microsoft and Sony.

But who’s got the best shot at second place?

Over the next year, Microsoft may stand a good chance of wooing new users. Sony’s price cuts aren’t deep enough to turn consumers’ heads at least for the rest of this year, predicts Jesse Divnich, an analyst at video game market predictions firm SimExchange.



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