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Microsoft pitches Xbox deal for holidays

The company announces a new Xbox bundle that includes games and a trial subscription to the Xbox Live online service, dimming expectations for another price cut this year.

Microsoft on Monday announced a new holiday package for its Xbox video game console, dimming expectations for another price cut this year.

The new bundle packages an Xbox console with two games--LucasArt's "Star Wars: The Clone Wars" and THQ's "Tetris Worlds Live"--and a two-month trial subscription to Xbox Live, the online service for the console. The package will sell for $180, the Xbox price Microsoft set in May to match price moves by competitor Sony for its PlayStation 2 console.

Many analysts had expected another round of price cuts late this year, in the wake of slowing overall sales for the video game market.

But console makers generally prefer bundling deals to straight price cuts, said Billy Pidgeon, an analyst for research firm Zelos Group. Packages help stimulate sales by providing more value to the consumer, he said, but they also serve other functions such as improving relationships with third-party software publishers and retailers. The Xbox Live trial should also help funnel new customers into the subscription-based service.

"They get to maintain their margins on the hardware and promote software," Pidgeon said. "Bundles give them an opportunity to reward third-party publishers...and strengthen ties with retailers."

Pidgeon said it's now up to Sony to decide if there will be any hardware price cuts this year, as any Sony moves will be matched by Microsoft and Nintendo.

"The retailers and the publishers would really like to see a price cut," he said. "That would create a huge surge in fourth-quarter revenue...and it would be great for the industry. But if you do that, you take a bigger hit on your hardware margins."

Microsoft said it expects some retailers to offer the new Xbox bundle starting this week, with a packaged version of the combination set for widespread release in mid-October.