Microsoft’s latest European Xbox 360 price cut has put Sony under renewed pressure to slash the cost of its PlayStation 3 console, according to Strategy Analytics.
The company’s principal analyst, David Mercer, said Microsoft’s move to cut the RRP of its entire family of Xbox 360 consoles in Europe could force Sony to follow suit with a PS3 price cut sooner than it had planned.
"Sony will be nervous that the PS3's recent sales surge may fizzle out now that the premium Xbox 360 undercuts the PS3 by £40, and the cheapest Xbox model is almost half the price of a PS3," said Mercer.
"Sony will be scrutinizing the daily sales reports, but will probably try to hold out until later in the year before making its next price move."
Microsoft has slashed the price of its Xbox 360 video game console in Europe in an effort to attract more gamers to the platform and boost sales of Xbox-compatible titles.
Starting Friday, the price for the basic version of the Xbox 360 -- which includes a 20-GB hard drive and one wireless controller -- will drop 20% from the equivalent of about $500 to $400. The price for the Xbox 360 Elite, which features a 120-GB drive, falls 13% from $600 to $520.
Microsoft also slashed the price of its entry-level Xbox Arcade Console from $400 to $360.
Microsoft in a statement said the reductions would help position the Xbox as "a mass market entertainment proposition" in Europe. The company is hoping that the debut this spring of hot game titles like Grand Theft Auto IV and Rock Band will further boost demand for the system.
The cuts bring Xbox 360 prices in Europe closer to what the console sells for in America -- though it's still cheaper to buy an Xbox in the United States. The basic U.S. version retails for $350. The Elite version costs about $450.
Microsoft is in a pitched battle with Sony and Nintendo for dominance of the video game console market.
Microsoft sold 230,000 Xbox 360 units in January, while Nintendo sold 274,000 Wii consoles. Sony sold 251,000 PlayStation 3 units, according to market watcher NPD.
Microsoft claims it owns 42% of the video game console market in Europe, the Middle East, and Asia. It also claims to sell more games-per-console than its rivals.
Still, the Xbox 360 franchise faces some challenges. Microsoft was recently forced to pull from the market an external HD DVD drive for the console after Toshiba dropped its high-definition format. Microsoft is now reportedly in talks with Sony with an eye to adding Blu-ray support to the Xbox.
Alternately, Microsoft might instead focus on selling more HD content through its Xbox Live online service
Mercer also noted that "Microsoft must continue to drive costs out of console manufacturing” in order to sustain its Entertainment and Devices division’s drive to achieve its first profitable year.
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