High Cost of Reserving an Xbox

Consumers expecting to pay the $299 suggested retail price for Microsoft Corp.'s Xbox video game console may be in for some sticker shock.

Beginning next month, many retailers will be requiring customers to pay from $499 to as much as $1,200 to reserve an Xbox console that, like it or not, will come bundled with games, peripherals and warranties.

The reason: Microsoft will provide additional marketing money to merchants that agree to include the software giant's games in their bundles. That's because Microsoft's games carry higher profit margins for the Redmond, Wash., company than those published by third-party companies such as Activision Inc. and Electronic Arts Inc. The plan is angering consumers.

"Loyal Xbox fans will have to dole out hundreds of dollars more than they expected to secure an Xbox," said Geoff Keighley, editor of Gameslice, an online game site. "That's just not right. It feels like bait-and-switch."

Microsoft officials said they are simply responding to retailers' wishes.

"When we came up with the program, we wanted it to be what's best for retailers," Microsoft spokesman James Bernard said. "This is based on what retailers told us they wanted."

Not only is Microsoft encouraging retailers to sell the higher-priced Xbox packages, Microsoft also is specifying how much shelf space stores must dedicate to the new product. To ensure retailers' cooperation, Microsoft is tying allocations of Xbox units and extra marketing dollars to its requests, retailers confirmed.

The console is not due in stores until Nov. 8, but many merchants--including Amazon.com, K-B Toys, Electronics Boutique, Babbage's, GameStop, Software Etc. and FuncoLand--let consumers pre-order Xbox.

That practice backfired for Sony Corp. when it cut back the number of PlayStation 2 consoles available on launch day last year because of manufacturing problems. That left consumers who had pre-ordered a console empty-handed and angry. Sony, anticipating such problems, had discouraged pre-orders.

Microsoft's strategy, intended to maximize revenue from so-called early adopters eager to lay their hands on the new console, is risky, analysts said. If pre-orders don't catch on, consumers could view Xbox as a dud, dampening enthusiasm before the console debuts.

"They're overestimating demand," said P.J. NcNealy, senior analyst at Gartner Group Inc. in San Jose. "That could result in a near-fatal first step."

Sean McGowan, director of research for Gerard Klauer Mattison in New York, said it is surprising that a newcomer to the console business, even if it's Microsoft, would take such an aggressive stance. "This is above and beyond the other deals in the industry," he said.

The program also runs the risk of alienating hard-core gamers, whom Microsoft relies on to generate buzz about Xbox.

Glenn Young, an avid gamer in Cheviot Hills, said he dislikes the terms of the pre-order program.

"It's not cool if they try to dictate which games you get," Young said.

In contrast to Microsoft, Nintendo Corp. is not attaching incentives for retailers to bundle its upcoming GameCube console with software or accessories.

"I'm not sure what these programs get you, except a lot of marketing frenzy," said Perrin Kaplan, a Nintendo spokeswoman.