Has the Xbox 360 hit the "downside" of its lifecycle?

Posted by Aharon Etengoff

DFC Intelligence believes the Xbox 360 may have "some" good years left, but estimates the console is on the "downside" of its lifecycle - despite the advent of Microsoft's Kinect platform.

"Kinect [for the Xbox 360] is definitely an interesting product. At the end of the day, we see Kinect having some appeal to a well-heeled fitness audience. [But] in terms of changing the overall video game hardware platform market share we see it having a negligible impact," DFC said in a note obtained by Industry Gamers.

"The Xbox 360 clearly needs to diversify beyond the core first-person shooter audience, [yet] Kinect is not designed for the hard-core game consumer. [Nevertheless], Microsoft is putting almost all its eggs into  Kinect as a way to appeal to the 'casual' consumer and expand its user base. Unfortunately, MS is going to struggle to expand beyond its core audience."

However, Ted Pollak, a senior analyst at Jon Peddie Research, told TG Daily  the Xbox 360 was currently entering "a year and a half" of its peak market opportunity.

"The number of online services, games and peripherals, together with the pricing and styling changes have set the machine up for some solid sales in the coming years.

"Another thing to consider, which is a recurring theme in my analysis of the current console market, and was a cornerstone of my prediction for Wii's success, is the worldwide HDTV penetration landscape.

"People often forget that the vast majority of worldwide households are still using SDTV. Never before has a console generation had to deal with a new television technology and I think this could cause both Microsoft and Sony to extend their lifecycles as much as possible."

Nintendo WiiAccording to Pollak, the Wii was designed for SDTV - which provided the console with a definite advantage, in addition to obvious factors such as motion control. 

"So what has hurt the HD consoles (360 and PS3's) penetration opportunity in the past years should start to help. HDTV's have become very affordable and I had forecasted a tipping point in household penetration to come this holiday season," he explained.

"Unfortunately, the economy is hindering this a bit, but home based nesting entertainment investments can also be justified by consumers as a long term money saver. So, I think we will see a significant spike in HDTV household penetration over the next year. And as a result, a great opportunity for the Xbox 360 and Playstation 3."

EEDAR analyst Jesse Divnich expressed similar sentiments.

"The Xbox 360 has had consistent sales levels for the last 3 years whilst maintaining a hardware price point in excess of $250. I don't believe the Xbox 360 is on a downward slide for the next three years. 



Halo Reach"I believe Microsoft has a goal of maintaining their current sales momentum through 2013, and for the last 3 years they've maintained that by packaging additional hardware features, such as a bigger hard-drives and Wi-Fi, without sacrificing top-line pricing.

"Still the best tried and true strategy for driving hardware sales is pricing, a strategy Microsoft has not often used this cycle, which gives them plenty of additional means to drive hardware sales in the future if sales begin to dip."