The Xbox 360 Core SKU was introduced at the launch of the Xbox 360. It was introduced at a relatively low price for a high definition next generation console at $299.99 USD. There was a catch, though: it didn't include a hard-drive and was void from essential features that enhance the Xbox experience.

So what's the mistake? Microsoft says the sweet spot in pricing is $199. This means that Microsoft isn't going to get rid of their Core SKU anytime soon. In fact, the Premium SKU has a better chance of being axed than the Core model. Why isn't Microsoft going to get rid of this SKU? Because they need to expand their demographic. The console is only appealing to hardcore gamers, and they need to expand like Nintendo is expanding with the Nintendo Wii and Nintendo DS.
Developers will continue to keep the Core model in mind, and without a hard drive, games are going to get downgraded. Microsoft even wants developers to, and I quote, "degrade" the game. Microsoft is asking developers to "degrade" textures in games in order to cater to the Core users and increase loading times. The only exception to this policy are MMOs. Now, you might counter this by saying that the mass market does not own a Core SKU--well that brings me back to my second point: Microsoft WILL bring down the Core's price to $199--and that is mass market pricing.
Thanks to the Xbox 360 being the best selling HD console, most games will have to be built around the Xbox 360. GTAIV will NOT have a HDD required sticker on it. You know why? Because GTAIV is a mass market game, the Core is a mass market system: if the two aren't compatible with eachother, then Microsoft has an even bigger problem on its hands.
To add to this, if some of you think that the majority of the mass market cares for things like the HDD: then you're wrong. Only 30% of 360 owners are aware of high definition capabilities in their console. I seriously doubt users care about HDDs if they aren't even aware of the major selling point of the Xbox 360.
The PS3, however, has a HDD in every single unit sold. This is a major incentive to developers and gamers alike since developers can use the PS3 as the lead SKU. Many developers have already done this with EA (Burnout Paradise and Army of Two) and Sega (Sega Rally) starting the new trend.
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