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Sony, Microsoft: Game On With Nintendo's Wii But What's Ahead?

Last week it was Microsoftmaking all the headlines with its Xbox mess: the $1 billion charge connected to the extended warranty; missed sales targets; another multi-hundred-million dollar loss for the entertainment and devices division.

PlayStation 3
AP
PlayStation 3

And in the background, Sony was grabbing headlines of its own: disavowing any connection to an impending price-cut to make its slumping, $600 Playstation 3 console more competitive. Sony's top brass told the world that there would be no price-cut, that a drop in price didn't make sense.

Flash-forward a whole two days and Sony today announces $100 off its console, along with a new 80 gig version. All of this jockeying comes just hours before the Electronic Entertainment Expo kicks off in Santa Monica, California on Wednesday.

So what gives?

The bottom-line is this: Sony and Microsoft are doing whatever they can to take on Nintendo and the company's Wii juggernaut. The inexpensive console that was supposed to run a distant third to Microsoft and Sony instead is having its way with the industry. NPD reports that Nintendo sold 1.73 million Wii's in the U.S. during the first five months of this year. Microsoft sold only 1 million. And Sony sits in the cellar with 665,000 PS3's.

I talked about this to Microsoft's President of Entertainment and Devices last Friday. He told me quite candidly: "I think certainly for the casual gaming audience and the audience that's traditionally Nintendo audience, it's a great product. They look at a younger audience, a casual audience, and they'll do very well with them particularly at that price point. Our audiences aren't actually the same, they overlap some but they aren't actually the same. So we compete with them, but we probably compete more directly with PS3. Now, over time, as prices come down, and the market broadens, we'll probably compete more with Nintendo, and you'll see things at e3 and beyond that we're gonna do to position ourselves well to compete with them. But they're a great company and they've done good things and they have some great properties."

There's an understatement.

The Nintendo question is also one I directed to Sony's CEO of Computer Entertainment of America Jack Tretton when I spoke to him earlier this morning (see CNBC video below of Tretton on "Power Lunch). His answer was a little more complex. He says Sony is about technology AND games and pointed to the number of titles coming for PS3: "You have to have that long-term perspective that ten-year product roadmap; we have the luxury of that perspective because of the dominance of the Playstation 2, and we're able to look at things in ten year product lifecycles. We don't go for the quick hit, we go for the long-term win. And we have the technology that's gonna carry us. The Playstation 3 is future-proof and I really believe this will be the machine that people will still be talking about ten years from now."

That's fine. Ten years from now. Investors want to know about today; tomorrow; next quarter; even next year. Nintendo's got everybody's attention. Sony tried to steal thunder today with a price cut and bigger drive. Microsoft's trying to mollify its customers. Soon, Nintendo will find that holding the lead is more difficult than trying to wrest it away from its competitors. And that makes what was supposed to be a sleepy E3 absolutely critical for all three.

I'm flying down to LA tonight. In an upcoming post, I'll focus on the games-makers themselves with exclusive access to Electronic Arts and Activision.

Questions? Comments? TechCheck@cnbc.com

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