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Is Price-Cutting What the Video-Gaming Industry Needs?

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Sony and Microsoft have slashed prices. What about Nintendo?

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In the wake of Sony's (SNE) PS3 price cut, Microsoft (MSFT) just slashed the price of its top-of-the-line Xbox 360 console by $100 to $299. It sounds like good news, but it's just not what the industry needs.

Before, Microsoft sold three versions of the Xbox 360 console -- Arcade at $199, Pro at $299, and Elite at $399. More money got you goodies like a hard drive and cooler accessories. Now, the Pro will be phased out at $249, while the Elite slides into the $299 slot.

Don't get me wrong -- cheaper products are better for consumers and two versions are much better than three. But the cost of entry into Xbox-land remains the same. Anyone who really wanted an Xbox 360 wasn't waiting for the Elite model to come down in price -- he or she would have already bought an Arcade or Pro model instead. So any positive impact on Xbox 360 sales will be temporary.

A $50 price cut for the Arcade model would have made infinitely more sense. It would be a full $100 cheaper than the Nintendo Wii and $150 cheaper than the new PS3 Slim -- something that would really get some attention heading into tough back-to-school and holiday shopping seasons.

And besides, what the video-game industry really needs is a Nintendo price cut.

The Wii's success since its 2006 launch stemmed from a low price and the novelty of its motion-control system. Fast-forward to 2009, and the Sony and Microsoft consoles are close in price, have vastly superior software libraries, and are set to receive motion-control systems of their own.

With its competitive advantages eliminated, the Wii is in dire need of a price cut of at least $50. A real console price war could get consumers shopping, elevating sales of third-party software sales and likely boosting stocks like Activision (ATVI) and Electronic Arts (ERTS). And besides, people may stop buying Wiis because they expect a price cut -- another reason Nintendo should go just ahead and do it.

Nintendo may be worried about the decline of the dollar against the yen, but at least it doesn't sell its console at a loss like Sony and Microsoft. And after three years on the market, the guts of the Wii have cheapened considerably.

From a big-picture perspective, this will be a dismal holiday season for retail. When the job market stinks, people's priorities come back down to food, clothing, and shelter -- not expensive video-game consoles.
Position in SNE.
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