Xbox 360 price cut: Is it enough to wound the Wii?

August 7, 2007: 8:54 AM ET

After weeks of dancing around the question of whether it would cut prices, Microsoft (MSFT) has trimmed the most affordable Xbox 360's price by $20 to $280, the mid-range version $50 to $350, and the most expensive $30 to $450. The move leaves Microsoft's cheapest console $30 more expensive than Nintendo's Wii, but more than $200 cheaper than Sony's (SNE) PlayStation 3.

The move seems calculated to improve Microsoft's position heading into the second half of the year, when console and game sales are heaviest. Some game industry analysts are saying that after the Xbox 360's weak showing so far this year, Microsoft will need a strong holiday season to avoid a last-place showing in this round of the console wars.

This wasn't how most people thought the gaming market would look a couple of years ago. As the gaming heavyweights were preparing to release this generation of consoles, it looked like a two-horse race between incumbent champion Sony and able challenger Microsoft. Microsoft, which brought the feel of PC gaming to consoles, sparked a beefcake competition with Sony over which company could deliver the most musclebound, graphics-crunching game box. Forgotten in the testosterone-fueled row was Nintendo, the graphics-challenged contender that seemed to underscore its wimpyness by naming its console the Wii.

Fast-forward to now, and no one's laughing at Nintendo anymore. The straightforward, affordable Wii is the darling of the gaming industry, thanks to its intuitive, motion-sensitive controller and its beginner-friendly games.

Nintendo appears poised to have another strong holiday season with the Wii. To quote a DFC Intelligence report:

The pressure is on Microsoft to really drive sales of the Xbox 360 this holiday season. If Halo 3 and other products fail to drive Xbox 360 sales, the system will soon flirt with numerous unsavory scenarios, the worst of which is the danger of becoming a distant third in the video game market share battle.

There has been a great deal of focus put on Sony's PlayStation3 launch woes. However, so far in 2007, the news

from the Xbox 360 front has not been encouraging. In the first six months of calendar 2007, Microsoft shipped slightly over 1 million units of the Xbox 360 compared with Nintendo shipments of over 6 million Wii systems and Sony shipments of over 4 million PS3 systems. The Xbox 360 had a one year lead, but the competition is catching up fast.

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