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Game For a Price War?

What's a video game worth?

For the past 10 years, the answer to that question has been fairly simple. Except for special cases, top-of-the-line games went for about $50.

But with the launch of Microsoft's (MSFT) Xbox 360, and with it the beginning of the next console cycle, prices appear to be in flux.

( TheStreet.com this week also looked at how Microsoft's rivals will cope with the ballyhooed rollout; how far Microsoft will make it into consumers' living rooms ; and what all the new game machines mean for investors .)

Depending on the publisher, games for the Xbox 360 are being offered at two different price points, one of which is set at about $60, or $10 more than the typical price for current generation games. At the same time, prices for current generation games appear to be starting to slip.

With development costs rising as much as 100% on next-generation games, publishers have a strong reason to try to push up prices, says Van Baker, an analyst with industry research firm Gartner.

But the $50 price point seems to be a psychological barrier with consumers that publishers may have a tough time overcoming, he says.

"It's going to be a challenge for the market to sort itself out," he says.

Where things end up when pricing starts to settle down again could go a long way toward determining how profitable the game publishers will be both in the near and longer term.

And it also could help determine which publishers and developers will be able to stay in the game.

But right now, the market seems to be unsettled on prices:

  • On the Xbox 360, games from publishers such as Electronic Arts (ERTS) and Activision (ATVI) are priced at about $60.

    But the standard games from Microsoft all are set at about $50. In the past two console cycles, so-called triple A games all have generally carried the same $50 price, no matter whether they are from the console manufacturer or outside publishers.

  • In recent weeks, industry giant EA has cut the price on several of its games for Sony's (SNE) PlayStation 2 and the original Xbox, according to industry analysts. The price cuts have meant that the retail charge for the games has fallen from about $50 to about $40.
  • According to some analysts, the price cuts also are starting to affect games for Sony's handheld platform, the PlayStation Portable. A number of recent triple A games for the systems have come out at about a $40 price point -- instead of $50 -- which could put pressure on overall pricing, says Brent Thill, an analyst with Prudential Equity Group.
  • Software publishers such as Electronic Arts and Activision have been itching to raise prices on next-generation games.

    The argument made by the publishers and analysts who defend the plan is that games are costing more to develop, the hours of entertainment they provide have been rising and consumers are paying more for other forms of entertainment, such as sports or movie tickets.

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