Microsoft adopts smartphone subsidy model for Xbox

Microsoft is reportedly planning to offer the Xbox on the same financial model as smartphones: a heavily reduced up-front price in return for a commitment to a monthly service charge.

The plan, reported by The Verge, would be to sell a 4GB Xbox with the Kinect kit for $99. That’s a $200 reduction, much the same level of subsidy that cellphone networks apply to most smartphones.

In return, the buyer would have to commit to a two-year subscription to X-Box Live Gold at $15 a month, though they may get some exclusive content as well, such as streaming services from cable channels that aren’t available to ordinary Gold subscribers. As with smartphones, there’d be an early termination fee.

Overall, the package doesn’t offer any immediate savings: over the course of two years you would shell out $459, compared to $420 if you bought at full price and then got the $5 a month Gold subscription. That said, the extra $39 could prove worthwhile if you made the most of any extra free streaming content.

While Microsoft may be trying to pick up a few extra customers who aren’t too hot at arithmetic, the chances are their main target is people who are feeling the pinch a little right now and would prefer to spread the cost.

Crunching the numbers very crudely, you’d effectively be paying the equivalent of 4.5% in “interest” by taking this deal. That means if you’ve got the cash, there’s little reason to go for it. The only real financial benefit would be if you don’t have the cash available, you’re absolutely determined to buy an Xbox and play online despite your lack of funds, and you’d otherwise be sticking the cost on a credit card,

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