Microsoft (Nasdaq: MSFT ) is finally slashing prices on its Xbox 360 systems. In a long-anticipated move, the software giant is reducing console selling prices across the board. The original 360 -- complete with its 20-gig hard drive, wireless adapter, and headset -- that has sold for $399.99 since its introduction nearly two years ago, will go for just $349.99 starting tomorrow. The only surprise is that it didn't go with just a $40 cut to market the 360 at the $360 price point.
The bare-boned $299.99 "Core" model is being marked down by just $20 to $279.99. The new Elite systems that come with beefy 120-gig drives will now be $449.99.
It's no surprise to see the Xbox 360 come with a deeper price cut than the stripped Core model -- the company wants to move more units of the former console. Microsoft's plans for the digital delivery of software, flicks, and music require a hard drive.
A price cut was expected after Sony's (NYSE: SNE ) $100 price cut on its PS3 systems four weeks ago. With both systems losing market share to the cheaper Nintendo Wii, a price war was inevitable.
Mr. Softy probably thought that it could get away without taking a bigger hit on the hardware side this year. Its own Halo 3 is coming out next month. The company also offered Take-Two (Nasdaq: TTWO ) $50 million for a pair of exclusive digital Grand Theft Auto IV episodic installments. It was a great one-two punch that would have had the 360 sitting pretty heading into the critical holiday shopping season with a pair of exclusive blockbusters. Halo 3 is still coming, but Take-Two is bumping the release of its marquee title until as late as next April.
Even with the price cuts, the Wii availability is still scarce. The $250 system doesn't come with the tantalizing specs of its pricier peers, but the addictive nature of its casual games and motion-based controllers are a hit. Nintendo's surprising success will make for a great business school case study in the years to come, but right now, it's Sony and Microsoft who are smarting.
With deep price cuts on the hardware, the pressure is even greater for the companies to make it up elsewhere. However, for that chain reaction to get started, folks need to start snapping up Xbox and PS3 systems. Keep an eye on monthly sales trends to see if the slashing will pay off.
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Longtime Fool contributor Rick Munarriz has been a fan of video games dating back to Pong. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.