Netflix Benefits as Gamemakers Cut Prices

LOS GATOS, Calif. (TheStreet) -- When Sony(SNE Quote) cut the price of its PlayStation 3 to $299 last month and doubled its sales, the first thank you note should have arrived in a red envelope.

The move prompted Microsoft(MSFT Quote) to cut $100 off the price of its Xbox Elite to protect its second-place market share, behind Nintendo. Suddenly, Netflix's(NFLX Quote) agreement to stream movies exclusively through Xbox consoles became more promising.

The price war boosted Xbox sales 64% to 352,600 units last month compared with August, according to new data from NPD Group. While Xbox trailed Nintendo and Sony sales, its gain will likely benefit Netflix, which has gained 1 million new subscribers since it started offering content through Xbox Live in November.

With nearly 10 million subscribers and a 36% share of the video rental market, Los Gatos, Calif.-based Netflix is positioned to take a bite of the 45% controlled by Blockbuster(BBI Quote) and other video stores. Blockbuster disclosed in government filings last month that it might shed 20% of its 7,000 shops, converting some to kiosks.

Blockbuster is looking to its own DVD mail service and rental kiosks to stanch the bleeding, but going after Redbox's 22% share of the struggling rental industry seems dubious at best. The Coinstar(CSTR Quote) subsidiary is mired in lawsuits with major studios over its cheap DVDs. Wal-Mart(WMT Quote), meanwhile, plans to scrap DVD and Blu-ray display space amid a more than 13% drop in DVD revenue for the first half of 2009.