Following Sony (SNE), Microsoft (MSFT) Likely To Lower Xbox Prices

Sales of the Sony (SNE) PS3 and Microsoft (MSFT) Xbox 360 run behind those of the Nintendo Wii most months and in most countries. Sony has attempted to remedy that by dropping the price of its game console. The could cut into sales and the market share of the Xbox.

As a response to Sony’s move and in a play to keep its sales competitive with its two rivals, Microsoft will probably lower the price of the Xbox as early as the end of August.

According to TG Daily, “EEDAR analyst Jesse Divnich has told TG Daily that Microsoft will lower the price of its Xbox 360 Elite to $299 this week.” Divnich told 24/7 Wall St., “I expect Microsoft to confirm the long talked about rumors that the Elite version will be lowered to $299. I am unaware of any official announcement, but retail circulars have made it clear that the Elite version will be $299 next week. It is pretty obvious that some type of official announcement will occur in the next three days.”

The critical holiday sales season is only two months away and consumer spending is likely to make it another rough one for retailers. Video games sales have dropped sharply so far in 2009, and the three console firms need to do whatever they reasonably can to make certain that the critical fourth quarter is not a bust. The economy may be so bad and consumer spending may be so compromised that the price cuts will have little effect.

No one outside Sony and Microsoft can be certain what the price cuts will do to profit margins. The cost of components has probably come down now that the Xbox and PS3 have been in the market for well over a year. The two firms may still be giving up profitability to try to catch the wildly popular Wii.

Sony and Microsoft may be damned if they do and damned if they don’t. Price cuts that do not improve sales are a tactical mistake that neither firm can afford.

Douglas A. McIntyre