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July 9, 2007

Sony cuts PS3 price, Microsoft to respond?

Posted by David Hunter at 8:41 PM ET.

Sony today announced a $100 price cut on the PlayStation 3 game console in hopes of revitalizing the PS3′s lagging sales and immediately raising the question of what Microsoft’s response might be:

The price cut, effective today, brings the 60-GB PlayStation 3 to $499, which puts it more in the range of the Xbox 360, which sells for $399 for a 20-GB version or $479 for a 120-GB model. Sony is also introducing an 80-GB PlayStation 3 console in August that will sell for $599 with a free copy of the racing game MotorStorm.

How that actually compares to the Xbox 360 depends on how you value the built-in (and not necessarily game related) PS3 features like the Blu-ray drive, but the expectation is that Microsoft will have to respond with its own price decrease.

The difficulty, of course, is that while Microsoft may have shuffled its $1 billion Xbox 360 defect repair bill into the last fiscal year, it still has been touting 2008 as the (fiscal) year that the Xbox 360 would finally make money and the current Xbox 360 already sells at a loss. Therefore, any Microsoft price cut may well wait until Microsoft can introduce a cost-reduced design (Dean Takahashi suggests Project Falcon in the fall).

A more fundamental problem, though, is that while the PS3 has been getting its derriere kicked by the Xbox 360 in the high-end console segment, both of them have been left in the dust by the Nintendo Wii and there’s no expectation that either can ever compete with the low-end Nintendo on price in the overall game console market. Therefore, when Sony relays its high hopes for the $100 discount the target has to be Microsoft share:

“Our initial expectation is that sales should double at a minimum,” Jack Tretton, chief executive of Sony Computer Entertainment America, said in an interview. “We’ve gotten our production issues behind us on the PlayStation 3, reaching a position to pass on the savings to consumers, and our attitude is the sooner the better.”

Wedbush Morgan analyst Michael Pachter said Sony’s price reduction would not double sales but may boost them by 50 percent to about 120,000 units a month.

Whatever the number actually turns out to be, it’s going to hit Microsoft unless they respond.

Update: Rumors are already flying:

Wedbush Morgan Securities analyst Michael Pachter stated in a note to investors today that Microsoft will announce an Xbox 360 price cut tomorrow at the start of the revamped E3 Media & Business Summit, which takes place all week.

He said that the price cut will affect all three Xbox 360 models. The $299 Core pack will drop to $249; the $399 Premium pack will drop to $349; and the recently released $479 Elite model will drop to $399.

Filed under Coopetition, Microsoft, Nintendo, Sony, Xbox

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3 Responses to “Sony cuts PS3 price, Microsoft to respond?”

  1. Xbox 360 gets a paint job, not a price cut -- Microsoft News Tracker Says:

    [...] Confounding the rumors that Microsoft would cut the Xbox 360 price after Sony’s PS3 price cut earlier this week, Microsoft’s big E3 announcements yesterday were for a Halo 3 paint job and some miscellaneous games and movies. One can understand the desire not to appear to be in reaction mode, but these barely kept the fans awake. [...]

  2. Microsoft cuts Xbox 360 prices -- Microsoft News Tracker Says:

    [...] Following Sony’s PS3 price cut by a month, Microsoft today announced that the suggested retail prices of all the Xbox 360 models starting August 8. The biggest cut was $50 on the primary 20 GB version with $20 off the Core system and $30 off the Elite. The full lineup now looks like: [...]

  3. Cost reduced Xbox 360 coming this month? -- Microsoft News Tracker Says:

    [...] Rumors of a new technology release of the Xbox have been around for a while (e.g. Project Falcon, Zephyr), but whatever new features can be worked in, the big prize is cost reduction on the money-losing game console (and expensive faults eliminated), particularly in view of the recent price cut. Ben Kuchera reports at Ars Technica that a source tells him that the Xbox 360 midlife kicker is on the way perhaps as soon as this month. [...]

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