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The $99 Xbox 360 is Microsoft’s devious test bed for a subscription-based Xbox Lite, Xbox 720

It’s not the Xbox Lite, but the $99 Xbox 360 is all too real. As rumored, Microsoft is running a promotion through its line of Microsoft Stores that will offer the 4GB Xbox 360 for $99, but a hefty catch attached to that discount.

Here’s how it works: You can take this coupon from Microsoft’s website to a Microsoft store and plop down $99 for a 4GB Xbox 360. Taking a page from mobile phone providers like Verizon, the console can only be purchased at that price with a two-year contract to Xbox Live Gold, the premium version of Microsoft’s online network for multiplayer gaming and streaming entertainment services like Netflix. (Unlike on other platforms like the iPad and PlayStation 3, Netflix Instant is only available on Xbox for Xbox Live Gold subscribers.) The contract is for $14.99 per month, or $180 per year. That is $10 more than the regular monthly fee of $5 and a whopping $60 more per year over two years than the regular $60 annual fee.

It gets worse! The Terms and Conditions agreement states that any early cancellation of the contract comes with a steep termination fee of $250 if cancelled in the first three months, $240 at four months, and decreasing by $12 each month over the next twenty months.

Considering that promotions through retailers like Amazon, Best Buy and GameStop can net you a 250GB Xbox 360 for far less than the $299 sticker price, this new promotion feels far more like a scam than a bargain. Look deeper though and you can see hints of the Xbox brand’s future evolution.

This promotion is less a way to get more Xboxes into peoples’ homes than a cunning test to see if Microsoft can transform the game console market into something similar to the cable television or mobile phone businesses. As video game retail has started bringing in fewer dollars per year, console makers and publishers have needed to find new business models. If Microsoft finds that people are lured in by the low price of a game console that’s subsidized by hefty subscription fees—much like mobile phone users are lured to a $99 iPhone 4 subsidized by a two year contract through AT&T or Verizon—then the rumored Xbox Lite or even the Xbox 720 could release under the same model.

The unfortunate part of this is that you may be able to buy a Durango for just $200 or even $99 when it first comes out, but you’ll be locked into a contract that has you paying for services that should be free. This business model will keep an outdated pay service like Xbox Live Gold alive into the future. Online multiplayer is free on everything from PCs to the iPad. Microsoft may have found a way to keep multiplayer a for-pay feature on Xbox for years to come.