Microsoft's recent move to reduce Xbox 360 prices across the board may turn out to be especially significant for the console wars.
It means that for the key holiday season, the mass-market Xbox 360 Arcade SKU is less expensive than the Wii -- and Wii may see additional challenges from supply constraints.
And with both consoles now entering the $200 "inflection point" analysts say has historically helped spread console sales to new audiences, has Xbox 360 opened a competitive gulf over the PlayStation 3?
Wedbush Morgan analyst Michael Pachter tells Gamasutra that, with a little help from correct marketing, Xbox 360 sales stand to lift 20 percent in the Fall-Holiday season over the same period last year. The $199 Arcade SKU in particular is expected to attract more mainstream consumers who are primarily interested in major brand names like EA Sports titles and Tony Hawk.
"I'd guess that there will be some substitution of Xbox 360 Arcade for Wii as gifts," Pachter says.
"More important, I think, is the low price itself; I think that Wii owners may consider buying a 'next gen' console and look hard at the Xbox 360 at the $199 price point, and don't think Sony is particularly competitive at $399 for the cost-conscious crowd."
So is Sony concerned? Not so much, Julie Han of Sony's corporate communications department tells Gamasutra. "We'll obviously see the natural lift [in sales] with the price cut -- but how sustainable is that in the long term?"
"We're really confident that consumers are making choices driven by value," she says, "and we know PS3 offers that value across the board, with the built-in Blu-ray player the broadest and deepest software lineup in the industry, with LittleBigPlanet, Resistance 2, Motorstorm [Pacific Rift]... we're quite confident our holiday sales will be good."
Sony has stressed several times that they've no plans to reduce PS3 prices this year, and Pachter doesn't expect to see a reduction until early next year. "I think Sony is going to roll the dice on its game lineup... and hope that HDTV sales drive more PS3-as-Blu-ray-player sales," he says.
"The migration to an all-digital broadcast standard in the U.S. in February should cause a lot of consumers to look at HDTVs, and most people will consider a BDP along with an HDTV purchase, so I think that Sony is counting on some traction there."
Han confirms that Sony's pricing strategy hasn't changed in light of Microsoft's Xbox 360 cuts. "There are no plans to do any price cuts," she states.
"We try to stick to our strategy... we feel the PS3 offers the value at that price point. More than anything, you'll see with the 80-gigabyte announcement at E3 as well as with the recent 160 gig, consumers are telling you they want more storage for photos, music... new games are also getting quite a bit of pickup through PlayStation Network. There's also our new video download service that consumers are going to want to do. It's showing that we're moving in the right direction."
Offering larger hardware sizes has served Sony well in the past. According to the company's own data, from October to December in 2007, the 80 GB Motorstorm bundle outsold the 40 GB SKU by 22 percent, despite the $100 price premium. Additionally, Sony says 60 percent of its customers would rather buy videos via PlayStation network than rent them, and Han also points to year-to-date hardware growth up 99 percent for the console.
And in addition to banking on the game lineup and the increased storage options, Han claims one more advantage for the PS3 -- the ability to put PS3 downloadable content onto the PSP.
But Han admits the average consumer is less aware of the availability and breadth of that particular feature. "There's a lot we can do on the marketing front," she says. "Definitely, that's something we're interested in doing."
She also concedes "we don't talk enough" about Sony's "future-proofing" ten-year strategy, which receives a good deal of coverage in the games press, but might be unfamiliar to the average consumer comparing consoles for purchase at Christmas retail.
A difficult economy for U.S. consumers this holiday might mean shoppers seek less expensive options for holiday gifts, which could conceivably pose another challenge for the PS3 -- but Sony hopes the economic climate may actually make consumers more interested in making an investment they believe has long-term value.
"With the recession, as people are... on tighter budgets, they're going to be much more conscious of how they spend their money," says Han.