Some WebTV set-tops slashed to $50

As pressure mounts from the "free PC" craze and other market forces, some sellers of the WebTV set-top boxes are slashing prices to as low as $50.

The TV set-top boxes, which offer Web viewing and enhanced television programming, were first introduced two years ago at $199--a relative bargain compared to the price of a full desktop PC.

But during the last two years, PC prices have plummeted, with major retailers offering the equivalent of free PCs through rebate and subsidy programs. In the meantime, WebTV pricing has stayed static. Now it appears that a basic WebTV box may be one of the cheapest ways to get online.

The original WebTV Classic set-top boxes have dropped to as low as $49 at some retailers, with another version, WebTV Plus, priced from $99 to $229. The price drops reflect the conflicting strategies of the manufacturers and retailers, analysts say; WebTV says it has no control over the hardware prices.

Updated versions of both the Classic and Plus TV set-tops are expected to hit stores by the holiday buying season, offering faster connections to the Internet and more powerful processors. It's expected that existing boxes will be discounted to make room for the new products, but analysts say the current cuts also reflect ongoing efforts to determine the pricing "sweet spot" that will help WebTV build its subscriber base.

Retailers such as Fry's, CompUSA, The Good Guys, and Target are all offering heavy discounts on WebTV set-tops from Philips, Sony, and Mitsubushi, sources say. These stores may be clearing out older inventory, said Sean Kaldor, an analyst with International Data Corporation, or experimenting with prices in an effort to drive sales.

"We saw the exact same thing two years ago when they came out with the Plus. We thought they would try to clear out the Classic," he said. "Today, 50 percent of all sales are still Classic."

"It's a test to see whether there's another level of consumer at that price point."

Even though WebTV may be targeted at a different audience than that of free or subsidized PCs, the trend toward giving away computers still looms large on the minds of manufacturers of information appliances, according to Kevin Hause, another IDC analyst.

"These are new product categories, and whether or not they're intended to compete with the PC, in many cases they just do," he said.

However, WebTV discounts may not translate into a larger subscriber base, some say. WebTV has steadily added subscribers, although the growth has not been spectacular, and currently counts about 800,000 users, according to IDC. But Kaldor questions whether a consumer who would not buy a $99 device will really be swayed by a $49 product.

"They won't increase sales tenfold by taking $10 off," he said. "This is not an impulse buy. This is not something people will put together and just ignore--and those are probably not the kind of customers you want anyway."

Instead of focusing on pricing, WebTV should concentrate on returning to offering simple Internet browsing through the television, Kaldor recommends.

"One of the things that people enjoyed was the speed and simplicity of use," he said. Since being purchased by Microsoft, WebTV has experimented with downloadable commercials and other features which lengthen the boot-up and download time.

"A lot of the things where you find the opportunity to generate revenue, those are things that fatten the experience. People like the simple WebTV," he said.