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Will Anyone Buy It? — The Motley Fool

Microsoft (NASDAQ:MSFT) finally took the wraps off what had been known as Project Scorpio, unveiling the Xbox One X.

The new console, which is the company’s most powerful ever, costs $499 and is aimed at high-end customers. On this episode of Industry Focus: Consumer Goods, host Vincent Shen is joined by Motley Fool contributor Daniel Kline to discuss the audience for the high-priced console. In addition to going over the specs for the new console, the two also talk about why Microsoft released it and how it fits into the company’s plans for the future.

A full transcript follows the video.

This podcast was recorded on June 13, 2017.

Vincent Shen: Back in March, I covered major developments in the video game industry. One of those was the expected launch of a console update from Microsoft, which at the time was just called Project Scorpio. I want to circle back on that story since the Electronic Entertainment Expo has officially started this week, and Microsoft made its big announcement, giving Project Scorpio an official product name, the Xbox One X. A lot of the rumors and projections for the new console have borne out. It touts 4K graphics, backwards compatibility, so your One X will play many of your old Xbox, Xbox 360, and Xbox One titles, while also working with your Xbox One accessories. Microsoft claims on its product page that the Xbox One X is “the world’s most powerful console, with 40% more power than any other console.” Dan, what are your first impressions here?

Daniel Kline: It’s really expensive, and nobody is going to buy it. [laughs] But I don’t think that’s what Microsoft is going after. It’s $499. And Microsoft has already shown that people will buy a cheaper console rather than spend $499. They tried that last time when they introduced Xbox One, or the Xbox, and it had the motion detector, I don’t even remember what it was called —

Shen: The Kinect.

Kline: The Kinect. And basically, people waited until they sold an unbundled version, and that gave Sony (NYSE:SNE) a little bit of a lead. But, Microsoft still has those products. This is a lot like what Apple does with the iPad Pro. They don’t think a huge percentage of their audience is going to go buy the iPad Pro, but they want to capture the small percentage that want that, and have a building block for the future. So, this is the next Xbox that only a very small percentage of people are going to buy, and then, if the prices come down, they will eventually be the $399 Xbox or the $349, and it will be the one that ties in really well with HoloLens and all the other things that require processing power that Microsoft is building, and will become norms, maybe not this year but over the next few years.

Shen: Yeah. I think that’s a very good point. I was thinking about who this console is really targeted for with the release, the price tag, the specs. Obviously, you have your die-hard Xbox fans out there. But, ultimately, this is still just an improved rehash of the Xbox One S that came out last August. So it’s not a true next generation release.

Kline: Yeah. And we’re probably seven or eight years from a true next generation. So this is really an answer to Sony having a similar high-end console, although I believe it’s a little cheaper, and it’s really building the platform so they can start to build out virtual and augmented reality. It doesn’t add very much new, except a faster processor and 4K support. The previous Xbox One had the backwards capability, as well. So it’s meant to be exciting, but the reason you announce this at E3 is because it’s for hardcore gamers. It’s not, right now, a mainstream product.

Shen: And the thing is, you have the Xbox One X, but I think the big thing this console lacks is these new titles that are coming out along with it that are exclusive and will gen up a lot of interest in the product. You have these Xbox One X Enhanced titles that will be able to take advantage of the more powerful hardware and specs in this release. Otherwise, the technology in the One X is supposed to make existing titles look better, and there might be updates to existing titles to help bolster their graphics with the 4K support.

Kline: Do you have an Xbox One?

Shen: I do not.

Kline: I do. And I’ve never looked at any game and thought, “Wow, this isn’t really awesome.” And I’m older than you, I remember playing Pac-Man on an Atari 2600, where it was amazing because it kind of looked like an arcade, so admittedly I’m somewhat easy to amaze when it comes to games, given when I started. But I don’t think there’s any person who’s going to spend an extra $150 just for those enhancements, especially because you have to have a 4K TV to take advantage of them. This is really for the people who have that, they bought the 4K TV, they understand the difference, they watched the little bit of programming that’s available. It’s really just a niche audience, but eventually it will be a bigger audience.

Shen: I will add that 4K televisions are expected to make up about one in four TVs shipped worldwide in 2017. So the penetration is still limited, but a lot of the forecasts out there do say that 4K TVs are expected to grow in popularity, and become a bigger portion over time.

Kline: Sure. Shipped is not sold, though. They shipped a lot of 3D TVs as well.

Shen: Fair enough. Final takeaways for me, at least, I think the point you made about how this feels a little bit like history repeating itself. So you go back to 2013, a little bit of context, Sony and Microsoft unveiled their actual next generation consoles — being the PlayStation 4 and the Xbox One — and Sony priced the PS4 at $399, Microsoft charged $500 paired with that Kinect that you mentioned, Dan. And that ended up hurting the company, I think, with a little bit slower momentum in the beginning. And four years later, the divide in terms of sales performance between these two consoles has widened. Sony has led this generation with about 60 million units sold, and while Microsoft does not report numbers for the Xbox One, estimates put sales at approximately 25 to 30 million.

So today, we have this similar situation, the PlayStation 4 Pro, which is the closest competitor, released last year by Sony to this Xbox One X, runs $399. Then, the Xbox One X, you mentioned, it’s $500, $100 more expensive. It might have stronger specs, but really, are they enough to get most consumers to buy in? And based on the experience so far, Sony hasn’t released any specific sales numbers for their PlayStation 4 Pro but said it made up about 20% of PlayStation 4 sales since the release, so estimates of around 2.5 to 3 million. So not a blockbuster seller by any means. It will be interesting to see how they compete, $500 for the Xbox One X versus $400 for the Pro. The console is being officially released on November 7th.

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