Microsoft Follows Sony’s Lead, Cuts Xbox Prices

The video game price wars are getting fiercer. Microsoft on Thursday announced plans to lower the price of its top-line Xbox 360 model from $399 to $299.

The move comes nine days after Sony

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[SNE  Loading...      ()   ] lowered the price of the PlayStation 3 to $299 and introduced a new, slimmer model of the video game console. The price cut will go into effect Friday morning.

The move, which was widely expected, puts the Xbox 360 Elite (which comes with a 120 GB hard drive) on even footing with the PS3. Microsoft

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[MSFT  Loading...      ()   ] will continue to sell its low-end Xbox 360 Arcade unit for $199, the lowest price of any current generation console.

Going away is the mid-range Xbox 360 Pro. Microsoft opted to discontinue the third version of the Xbox 360 and will be selling remaining models for $249 (a $50 discount from the current price) until the inventory is depleted.

While Microsoft representatives insisted the timing of this announcement was planned long ago, the move conveniently comes just days before the redesigned PlayStation 3 is officially set to hit store shelves. But many retailers have already begun selling the new PS3, which could lessen the impact of the news.

Microsoft cut prices last September and has since reaped the benefits of that move. Xbox 360 sales are up 17 percent in 2009, the only console hardware to see a sales increase.

CNBC.com Xbox 360

“What we wanted to do was extend that [increase] to our higher-end lineup,” Aaron Greenberg, group product manager for Xbox 360, said. “To be able to take that price down by a full $100 is a significant move and we think it will get more people involved.”

The move comes less than a month before Microsoft launches what is likely to be its biggest self-published title of the holiday season: “Halo 3 ODST” — a prequel, of sorts, to the top-selling “Halo 3”.

The action is also likely to benefit the company’s third-party publishing partners, especially Activision (ATVI), whose “Call of Duty: Modern Warfare 2” is expected to be the year’s best-selling game.

With two-thirds of the current generation consoles now sporting lower prices, the industry’s attention now turns to Nintendo.

The Wii has not adjusted its price since it launched. Until recently, there hasn’t been much reason for Nintendo to make any changes, as demand for the system greatly outstripped supply.

Through 2009, though, the company has lost much of its momentum. It is regaining some of that on the software side. “Wii Sports Resort” has already sold 1 million copies in the U.S. in less than a month. (It has also topped the 1 million mark in Japan and Europe.)

There’s no indication yet, though, that the game is moving a significant amount of hardware, which could force Nintendo’s hand. Analysts are split on whether the company will join the price-slashing trend, but many publishers have indicated they anticipate a cut this year.

Price reductions, predictably, do tend to excite consumers. The NPD Group, which tracks game and gaming hardware sales, says historically price cuts result in a month-over-month sales increase of anywhere from 40 to 60 percent.

Last September’s cut by Microsoft saw a sales increase of 78 percent, though it’s highly unlikely the company will see the same increase this year.

• Slideshow: 2009's Top-Selling Video Games