Microsoft Loses the Game

While gas prices and your cable bill keep inching higher, you've got to love home electronics. Everything from DVD players to plasma television sets get better and cheaper in time. The same goes for video game consoles.

Yesterday, the retail price for Microsoft's (Nasdaq: MSFT) Xbox system dropped to $149. That is half of its introductory price. However, folks who figured that this means Mr. Softy is serious about taking a hit on the hardware just to make it up on high-margin software may have been surprised to learn that the company will be discontinuing its proprietary pro football, basketball, and hockey titles.

Done right, these are enviable franchises with gamers buying every annual release to keep their rosters current. Yet, that means beating Electronic Arts (Nasdaq: ERTS) at its own game. That just wasn't a realistic goal. Everyone knows that NFL Fever never stood a Hail Mary of a shot against EA's Madden.

Microsoft will also be backing away from some of its extreme sporting titles. That too is another humbling admission that Microsoft wasn't worthy of riding Activision's (Nasdaq: ATVI) Tony Hawk coattails.

It is no coincidence that both Electronic Arts and Activision were singled out as stock recommendations in Motley Fool Stock Advisor last year. Once you have established a popular franchise, it's a license to print money. Now, they have proven that they can vanquish the world's largest software company -- but don't shed a tear for Microsoft.

Microsoft still gets a royalty from every game sold by a third-party publisher. By making the playing field more uncluttered, the thinking is that it will be able to improve its relationship with what had been its rivals on software. While Xbox has fared well against Nintendo's (Nasdaq: NTDOY) GameCube, it has a long way to go before it catches up to Sony's (NYSE: SNE) PlayStation 2.

Yes, having its own flagship line of sporting titles helped differentiate the platform, but if folks were buying the EA Sports games instead, all it created was distractive confusion. If Microsoft wants to unite its wired gamers through what it sees is the industry's eventual destiny -- online gaming -- this is the best way to assure that there is wider compatibility between its core users.

So, sure, Microsoft is conceding the battle but it's doing so in order to team up with its former software enemies to have a shot at winning the hardware war.

What do you think of Microsoft's move to disband some of its software titles? Will that and the lower console price help it in its fight against Sony, or is it the first step towards surrender? How would you have played the game? All this and more -- in the Video & PC Games discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz enjoys playing on all three leading consoles. Forced to choose, he'd probably be on the Xbox. He does not own shares in any company mentioned in this story.