Sony and Microsoft "financially exhausted" from price wars

A three year battle to own the home console market has left both Microsoft and Sony financially exhausted, with both company's likely to leave hardware prices at USD 299 for the foreseeable future.

According to industry analysts and following Sony slashing the price of the PlayStation 3 yesterday, a price cut from Microsoft is imminent on its Xbox 360 Elite SKU, as well as the expected phase out of the 60GB Premium console, leaving both format-holders evenly matched.

"Both Sony and Microsoft are acting like 12th round boxers, so exhausted - in this case, financially exhausted - over the three year battle for next-generation supremacy, that neither are likely to deviate from the USD 299 price point for some time," commented Jesse Divnich, director of analyst services at EEDAR.

"The USD 299 price point will likely become the new standard for the next-generation consoles for the next year. It is possible that both consoles may reach a USD 249 price point 12 months from now, but that will likely be the lowest prices will get in the next two years.

"Going forward, both console manufacturers will focus more on delivering differentiating products and services to increase the value of their consoles," he added.

Colin Sebastian, of Lazard Capital Markets, said the firm expects Microsoft to now cut hardware prices, possibly in time for the release of the next title in the Halo series.

"In addition to Sony’s PS3 pricing action, we continue to believe Xbox 360 price reductions are under consideration this summer, which would be well timed with the September 22 launch of Halo ODST," he noted.

Sony's decision to lower the price on its hardware is long overdue, added Sebastian, and essential for the company to claw back sales of the once luxury-priced machine.

"We believe this is an important - and overdue - step for Sony to limit further market share losses this console cycle, and help stimulate demand in the interactive entertainment industry ahead of the Holiday period.

He also noted that promotions for Sony hardware are likely to be announced shortly, finally making the console a viable purchase for price conscious consumers.

"Given the weaker consumer spending environment, the PS3 should also now be in closer reach of more price-sensitive consumers. We expect Sony to announce more details on PS3 promotions as early as next week."

Cowan and Company's Doug Creutz said that although the price drop will benefit Sony, it's not expected to have a wider effect on the videogame market in the US due to Microsoft's Xbox 360 already catering to the hardcore gaming consumer.

"Although we think the PS3 price cut could help resuscitate demand for the platform and drive some additional software sales, we note that there is already a USD 299 core gamer focused platform on the market: Microsoft's Xbox 360 Pro.

"As such, we do not expect the impact of Sony's price cut on overall hardware and software sales to be as significant as the impacts from price cuts on the PS2 in the last cycle."

With price points for both machines neck and neck, Sony and Microsoft may try to differentiate their hardware with bigger hard drives, such as the rumoured 250GB PlayStation 3.

However, this will only have a marginal effect, said Divnich, with consumer unlikely to consider the difference. More likely is a bundling of the new motion technology both firms are currently developing for release next year.

"EEDAR does not believe any disparity in hard drive size will make a noticeable difference in how consumers value each product. Both will continue to increase the size of their hard-drives and likely add additional hardware and software features to appeal to consumers.

"It would not be out of the realm of possibility for Microsoft to include Project Natal as a standard attachment with all Xbox 360 systems in 2011. The same goes for Sony’s new motion controller that is currently in development," he added.