Margins are tightening in the video-game industry. Sony (NYSE:SNE) is slashing prices on its PS3 consoles, in hopes of winning over thrifty gamers in light of plunging hardware sales.

The price cuts are good for consumers, but not so much for the console manufacturers. Sony would be comfortable with big markdowns if it could make up the difference in high-margin games. Unfortunately, even the software side is soft.

GameStop (NYSE:GME) stepped up with disappointing quarterly results on Thursday. When comps are off by 14% and earnings fall even harder, the carnage can get pretty ugly. The video-game retailer is also dramatically lowering its guidance for the rest of the year. It's now forecasting negative comps in each of the fiscal period's final two quarters.

Lower prices may be just the ticket to attract diehard gamers straddling the fence, but this industry is transforming before our very eyes. Our appetite for consoles and physical software is waning. There are a few big titles due to come out before the critical holiday season, but gamers are apparently spending more time consuming online videos or playing cheaper online games.

Sony had better hope it knows what it's doing with a price cut that it may not be able to make up for on the software side.

Briefly in the news
And now let's take a quick look at some of the other stories that shaped our week.

  • Google (NASDAQ:GOOG) celebrated its fifth anniversary since going public in the summer of 2004. It's had an impressive run. In fact, there are only a few S&P 500 companies that have performed better. Its biggest rival -- Yahoo! (NASDAQ:YHOO) -- has gone the other way, shedding nearly half of its value in that time.
  • Hewlett-Packard (NYSE:HPQ) may be feeling pretty good about its latest quarter, but investors may want to panic, since the growth's not organic. The company's results would have shown serious declines if not for the $14 billion acquisition of EDS late last year.
  • Discount brokers have been posting a slowdown in trading activity lately, but the downturn isn't as problematic as it may seem. E*TRADE (NASDAQ:ETFC) still closed out July with more brokerage accounts than it started. As a result of the market's healthy gains, assets are also up nicely. If customers begin closing those accounts, then investors can begin to worry.

Until next week, I remain,

Rick Munarriz

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Longtime Fool contributor Rick Munarriz recommends windshield wiper fluid when trying to look back. He owns no shares in any of the stocks in this story and 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.