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Microsoft’s New Mobile Phone-Style Xbox Live Contracts No Longer a Rumor

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xbox liveOver the years, especially in electronics, we’ve all seen changes in how companies charge users.  Fading are the days when a customer would by hard and tangible “things” and what’s showing up to take that’s place is the sale of services, either in replacement of or addition to these things we think we own.  Sure you paid for your smartphone, but how much convenience does it add to your life if you’re not paying per month for voice and data?  How many people do you know who don’t buy DVDs or Blu-rays anymore because of streaming services like Netflix and Hulu?  Do you still seeing high numbers of physical servers and hardware in your IT department’s closets or are they starting to move towards cloud-based SaaS subscriptions?  And after work you’re not taking your Xbox 360 out for a spin to play with your friends until you pony up for a LIVE subscription.  You see kids?  Subscriptions and contracts.  That’s how things roll these days.

In some ways it makes sense.  There are certain situations where there’s a lot of cost savings involved for both the supplier and the consumer with subscriptions for services.  For those in the gaming world I’m sure you’re extremely familiar with this system – Xbox LIVE memberships, subscription payments for World of Warcraft and a couple of other MMO games.  The upside is that there’s no contract that locks you in – so if someone wanted to cancel their World of Warcraft account for example, they could do it tomorrow and not pay a single red cent after their last payment went through.  Cell phones carriers are the other end of the spectrum – selling phones at a huge discount but locking you in for a two year contract, with an early termination fee ranging from $200 to $350 for a cancellation.  So why is this relevant?

There have been rumors floating around that Microsoft was going to adopt a similar model to the cell phone one for Xbox 360 units and LIVE gold subscriptions – selling a subsidized 4GB model then locking the customer in for two years on contract.  And those rumors have been solidified, complete with early termination fees.  Sure the fee isn’t as harsh as mobile carriers, but they are in the same spirit of a mobile contract.  The difference is, there’s pretty much a guarantee that I’ll be using cellular service for 2 years.  Xbox LIVE?  Maybe.

The contract is laid out like this – Microsoft will sell you an Xbox 360 4GB with a Kinect sensor unit for $99.  OK, so far so good.  The $99 price is contingent on the aforementioned two year contract of $14.99 per month.  Sounds reasonable on its face until you do the math.  Let’s have a look see.  Suppose I go out and buy a retail Xbox 360 4GB unit with a Kinect sensor.  That would cost me $299.  Then I buy a retail Xbox LIVE gold membership for two years.  12-month cards are $59.99 each, putting my 2 years of membership at retail cost at about $120.  My final price, after two years, is about $420.  Now let’s look at the subsidized bundle.  I pay $99 for the Xbox 360 unit.  I then pay $14.99 for 24 months.  My final price for my two year contract is $458.76, which is over $30 on top of retail. After crunching these numbers, there’s really no incentive.  And I’m not even counting sales on sites like Amazon and NewEgg, where I’ve seen 12-month gold cards go as low as $40.  I’ve done a little additional math of my own factoring in early termination fees and the users’ total cost for cancelling every month for each of the 24 months.  Simply put, there isn’t any short game play that would benefit the user financially to bring their total cost below the straight retail route.

I understand that this plan is structured for the “gotta have it now but don’t have the scratch” crowd.  It’s the exact same thing with smartphone users who wouldn’t be able to afford buying a smartphone flat out, or extending the number of years on a car loan to make smaller payments.  You’ll have the product now, but you’ll pay more in the long run.  If you watch the sales and scour the interwebs, you can find cheap subscription cards and like-new used or refurbished units and spend less than $400 now, saving yourself more than 50 bucks in the long run.

Plus, two years?  What happens if the Xbox 720 comes out and you’re still in year two of your contract?

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