As was expected, Microsoft today confirmed the existence of the Xbox 360 Elite system. Albert Penello, director of global platform marketing for Xbox, admitted to GameDaily BIZ that it was the "worst kept secret in gaming."

When this third Xbox 360 SKU goes on sale across North America on April 29 for $479.99, it'll come in an all black finish and will include a 120GB hard drive, a high-definition multimedia interface (HDMI) port, an HDMI cable (as well as component and composite cables), a matching black wireless controller and Xbox Live headset, and a one-month Xbox Live Gold subscription (Silver level is free, of course).

For current 360 owners who would like to have the 120GB storage capacity for Video Marketplace items, demos, Arcade games and more, Microsoft will be selling the larger HDD separately for $179.99. Gamers will also get a cable that will enable them to transfer game saves and other data from their old 20GB hard drive to the new model. Other black-colored accessories will be available for purchase separately as well, including wireless controllers, Play & Charge kits, rechargeable batteries, and Live headsets.

"Today's games and entertainment enthusiast has an insatiable appetite for digital high-definition content," said Peter Moore, corporate vice president for the Interactive Entertainment Business at Microsoft. "Xbox 360 Elite's larger hard drive and premium accessories will allow our community to enjoy all that the next generation of entertainment has to offer."

Although it had been rumored that this new Elite hardware would feature the cheaper to produce and more effective 65-nanometer chips, or that it might sport other upgraded components to allow for a cooler, quieter system, Penello told us that this is not the case. With the exception of the new HDD, the HDMI port and the black finish, the hardware is identical to the Core and Premium SKUs.

Penello added, "This isn't going to be a limited edition SKU. It's a permanent member of the lineup, and it's not going to replace any of the other SKUs. We have no intention of dropping the $299 Core or $399 Xbox 360. We think [the Elite] is a great value for people. The analogy I've been using is the BMW 3 series, 5 series and 7 series, in that they're all 4-door sedans but you're going to make your purchase decision based on how much money you want to spend and how much space you need."

Some would argue that introducing a third SKU will only split the user base and potentially confuse customers. Penello doesn't view it that way, however. "There was a lot of concern about that but I think we've proven that that really hasn't come to bear. I think people understand the value difference between the two consoles (Core and Pro). And the games don't require a hard drive; you can play Gears of War on the Core system. So we're not really segmenting the market from that standpoint," he said. "We've done really well with the Core, we're happy with how it's performed, we're still selling them, and we're still selling lots of games. As for the Elite SKU, part of releasing the new hard drive is we've seen a lot of success in Marketplace and a lot of users have been asking, 'When am I going to get a bigger hard drive?' So if we're going to release a bigger hard drive and a new customer comes along wants a 360 but also wants the bigger HDD, in the existing SKU configuration they would have been forced to make a weird decision... so just from the standpoint of new customers coming in who want more storage the Elite SKU makes a lot of sense."

Addressing the current 360 owners who might feel frustrated by the introduction of a new SKU with a much bigger HDD, Penello said, "We're not going to start doing things that require people to have the 120GB HDD; this is really an optional storage thing. And the thing I've been saying to people for a long time is that we have a gigantic hard drive that's called Xbox Live. When you buy things on Live, once you own it you can download it again anytime. So we're going to continue to make sure the experiences we offer are optimized for the 20GB model. That's still going to be the bulk of our market... the primary volume driver."

Penello also downplayed the suggestion that perhaps Microsoft would drop the price of the other SKUs some time after introducing the Elite model. "With the $80 premium it's a great value. It's really important that we have the three SKUs. And I feel real good about where we are in terms of our sell-through, run rates and stuff like that, so if a price discussion is going to happen, it has nothing to do with [the introduction of] the Elite," he said.

Next page: Sony reaction and details on the latest Xbox Live Video Marketplace partners