Microsoft confirms $99 Xbox 360 + Kinect subscription deal

The rumors are true. Microsoft confirmed today that it will offer a $99 Xbox 360 console and Kinect bundle (with a $15 monthly subscription fee) in its retail stores.

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The deal will be available via the above online coupon, which Microsoft’s Xbox spokesman Major Nelson tweeted this morning. As we reported last week, the deal includes an Xbox 360 with four gigabytes of storage, and the $15 subscription fee includes Xbox Live Gold service (typically a $40-$60 annual cost).

The news is a fundamental change in the way the console market works. Typically, companies debut expensive new consoles that are heavily subsidized, with the hopes of making back money with game sales. As the years pass, consoles become cheaper to make, and companies are able to make a profit from the hardware itself. Given that the Xbox 360 is now almost seven-years-old, Microsoft can afford to be creative with its pricing model.

To purchase the same Xbox 360 + Kinect bundle now, you’d have to shell out $299, plus another $120 for a two-year Xbox Live Gold contract, for a total of $420. With the new bundle, you’d be paying $459 over two years — a difference many consumers likely wouldn’t mind.

In comparison, Sony’s cheapest PlayStation 3 model is $250, and its cheapest bundle with its Move motion controller is $350. With the confirmation of this deal, Sony will likely offer some sort of discount on the PlayStation 3 (a $199 price announcement at E3 doesn’t sound too unlikely). But that doesn’t include Sony’s pricy Move controller.

Given that the PS3 is much more expensive to produce than the Xbox 360 (thanks to the Cell processor), it’s unlikely Sony will ever be able to match Microsoft’s $99 + subscription pricing. But with the conversation quickly shifting towards next-generation consoles, Sony could just try to downplay Microsoft’s news by teasing the next PlayStation in the coming months.