Microsoft cuts price of Xbox
By Cesca Antonelli and Tiernan Ray
Bloomberg News Service
REDMOND, Wa. — Microsoft Corp., which is trying to compete with Sony Corp. in video-game machine sales, said it will reduce the price of its money-losing Xbox console in North America tomorrow, ahead of a reduction that analysts expect from Sony.
Xbox will cost $149.99 in the Unied States, a $30 markdown, Microsoft said in a statement.
Microsoft aims to boost Xbox demand to fight Sony's PlayStation2, which outsells Xbox 5 to 1 in the $8 billion market for game systems. The unit that includes Xbox had a loss of almost $2 billion in the past two fiscal years. Microsoft said last week it would simplify the Xbox programming software to encourage game makers to create more titles, and the company has said it will try to build the next Xbox version with cheaper parts to lower costs.
"It shows the kinds of resources Microsoft can use if it wants to get ahead in a market," Brendan Barnicle, who follows Microsoft at Pacific Crest Securities in Portland, Ore., said of the Microsoft price cut preceding one by Sony for the first time.
Sony may reduce PlayStation2 to $149 or less at the E3 video-game conference in May in Los Angeles or before then, say analysts including Heath Terry, an analyst following video-game makers such as Electronic Arts Inc. at Credit Suisse First Boston in New York.
"We have not announced plans for a price reduction, and as the market leader, we are not inclined to react to competitive moves," Sony spokeswoman Teresa Weaver said. "Consumers pay what they think products are worth, and they still see PlayStation 2, with its multi uses right out of the box, as a great value," she said.
Shares of Microsoft, the world's biggest software maker, rose 28 cents to $25.31 at 4 p.m. New York time in Nasdaq Stock Market composite trading. Sony's American depositary receipts, each representing one ordinary share, rose 6 cents to $41.64 in New York Stock Exchange composite trading.
Conversations with Microsoft computer-hardware partners indicated Microsoft was moving away from using the Xbox as a center for home media, Barnicle said.
"We've been thinking the console might become a cheaper device with less functionality than originally expected, and this is consistent with that," said Barnicle, who rates Microsoft shares "buy" and said he owns them.
Sony is "dedicated to evolving PlayStation 2 into a wider entertainment proposition in the home," said Weaver. Sony on Dec. 13 shipped in Japan a version of the PlayStation2 called the PSX that can play DVDs and record television programs on a built-in hard disk drive.
