June 10, 2015 • The Xbox One is officially receiving a new model with a 1TB storage drive. The updated console will arrive on June 16 for $399 in time for the Electronic Entertainment Expo. The only other change to existing Xbox One specifications disclosed is the addition of a matte finish. Effective immediately, the 500GB SKU without Kinect on sale now is officially priced at $349. This model has been “temporarily” at that price point since the holidays. In addition to the U.S., permanent lower pricing on the 500GB system is effective in Hong Kong, India, Singapore, South Korea, Taiwan and the U.K. The move follows reports that Sony Computer Entertainment has similarly registered a similar 1TB PlayStation 4 with U.S. regulators. The 1TB Xbox One will ship with a redesigned wireless controller that includes a 3.5mm audio jack, improved bumpers, and the ability to receive firmware updates without needing to be connected to the console via a USB cable. The new controller will be available separately for $59.99. The gamepad will useable on Windows PCs by plugging in a $24.99 Xbox Wireless Adapter into the computer’s USB port.

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Impact: As with the PS4 we expected Microsoft Corp. would be upgrading the Xbox One with a 1TB drive. The latest DFC Intelligence reports have covered the rapid growth of digital delivery on console systems. With the progressive shift to digital game delivery and cloud content interaction the added storage space is necessary. The new model also gives the company the perfect reason to lock in the $349 on the 500GB version. From our perspective that MSRP was already locked in since the Xbox One is reliant on price reductions and software bundles to keep consumers buying the system. Now that $349 is official, we don’t see how Sony can avoid matching prices on its 1TB and 500GB PS4s. The only real question is whether Sony will announce its new SKU at E3 and when it will ship to retailers. Even so, Microsoft is not off the hook yet. Too many gamers are still grumbling about the same games not performing as well on the Xbox One compared to the PlayStation 4. Microsoft’s console is in need of a performance boost, an upgrade that preferably won’t cost the consumer extra. Two years on since launch and economies of scale plus engineering advancements should make such an increase in raw power possible without cost impediments. The reality is price parity with the PS4 won’t sell sufficient Xbox Ones alone. But a performance edge at the same price point can change the value dynamic.