Video Game Price War May Be Looming

Video game systems could be significantly cheaper this holiday season.

A new analyst’s report from MKM Partners predicts Sony and Microsoft will both cut prices on the PlayStation 3 and Xbox 360, respectively – and Nintendo may still surprise customers by reducing the price of the Wii.

Sony has long been expected to cut the price of the PS3. At $499 for the top-line model, it is

Source: Sony

the most expensive gaming system on the market and sales have declined on a year-over-year basis for seven consecutive months.

The company has continually denied plans for a price reduction, though. MKM analyst Eric Handler says that may be technically true, as he does not expect an across the board price cut on all models – but some lower prices are a certainty.

“We believe Sony could cut the price for its 160GB system by $100 to $399 and then introduce a new, and cheaper, PS3 Slim (despite the company’s insistence it has no plans for a redesigned PS3), while discontinuing the 80GB system,” he writes.

Handler also notes “the 160GB system could be bundled with software, possibly even Electronic Arts’ Madden NFL 2010.” If this proves true, it could significantly boost PS3 sales. The “Madden” series is typically one of the industry’s top selling games every year.

Microsoft, which cut the price of its low-end Xbox 360 model last year to $199, may be forced to react if Sony’s cuts are aggressive enough. Handler says the company will not be the first to initiate cuts, as its larger installed base, lower price and relatively steady sales put it in a position of strength.

If it decides to react, Handler writes, “a $50 price cut for the Xbox systems should serve as a sufficient measure to maintain its market share lead versus the PS3.”

The risk is that by playing follow-the-leader, Microsoft might appear desperate to some observers. In the last console cycle, Microsoft regularly followed Sony in price cuts, making it seem reactive, rather than proactive.

Handler, though, disagrees that Microsoft would appear weak by cutting prices twice in a roughly one year period.

“If Sony is going to have the 160GB PS3 at $399 (and assuming they bundle a game with it) which is the same price at the Xbox 360 Elite machine with 120GB I think a $50 price cut makes sense,” he says. “I think Microsoft wants to sustain its momentum and continue to give consumers a reason not to buy the PS3.”

Nintendo, as always, remains the wild card. The company has not adjusted the Wii’s retail price since the system launched. The days of being unable to find a Wii are long gone, though, and sales have dropped off noticeably in the past few months.

Retailers, including the CEO of GameStop, have called for a price cut, but Nintendo has resisted so far. Instead, it is presently pinning its hopes on its software line-up for the back half of the year, particularly “Wii Sports Resort” – which comes bundled with a new peripheral that will make the Wii controller more accurate.

That title will hit U.S. shelves on July 26,but if early numbers from Japan are any indication, Nintendo could have another mega-hit on its hands. Over 350,000 copies were sold in the first week.

If that success is matched here, it doesn’t bode well for a price cut. If, though, U.S. consumers don’t embrace the game and new peripheral, Nintendo could change its strategy.

At least one analyst thinks a Nintendo price cut is a sure thing regardless. Michael Pachter of Wedbush Morgan Securities issued a note to investors on June 12, saying: “In order to hit its full-year Wii shipment forecast, we expect Nintendo to cut the price of the Wii before [the] holiday, likely to $199.99.”

Beyond the benefit for consumers, video game console price cuts are good news for third party publishers. As system sales increase, game software sales follow suit. Both Activision and Ubisoft have key titles launching late in the year that would undoubtedly perform much better with higher Xbox 360 and PS3 installed customer bases.

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