Sony Strikes First on Game Price Cuts - TheStreet

Lunging out of the gate ahead of its competitors,

Sony

(SNE) - Get Report

dramatically slashed prices on its hot PlayStation 2 video game console.

The company reduced the best-selling box's price by $100, undercutting competitor

Microsoft's

(MSFT) - Get Report

Xbox machine. Before Sony's bold stroke, both boxes retailed at $299.

Sony's chess move comes as Wall Street anticipates a similar move from Microsoft, the No. 3 player in the game market. Bill Gates & Co. are expected to cut prices on the money-losing Xbox next Monday, when the annual grandstanding session known as the Electronic Entertainment Expo gets under way.

Sony's pricing decision is dramatic in that some analysts expected a cut of only $50. In making the deeper cut Sony's Tokyo headquarters appears to be signaling its confidence that it can maintain its lead as the games marketplace booms. The market nodded along, boosting the stock a dime to $55.10.

The estimated $12 billion gaming industry is having one of its hottest years as it shakes off game console launch growing pains. Software publishers stand to benefit the most; for instance,

Electronic Arts

(ERTS)

last week posted record profits growth for fiscal 2002.

Far and away the clear leader among the big three game giants, Sony has sold over 30 million units worldwide, controlling over 80% of the global market for video game machines that connect to televisions. Microsoft previously indicated that it has sold about 1.5 million units and scaled back shipment estimates this year, now saying it plans to ship 3.5 million to 4 million by June this year.

The Redmond, Wash., software giant has already slashed its prices in Europe and Japan, where Sony remains the most popular console, but has kept prices the same in the U.S.

Nintendo

, the No. 2 game company, has already sold about 4 million units of its GameCube worldwide. The GameCube retails for $199.

For Sony, the price cuts also reflect ambitions far beyond maintaining its hegemony in interactive entertainment. In a meeting with the press and analysts this morning, Sony CEO Nobuyuki Idei said the games division is part of Sony's three-pronged strategy to interlace games with content from movies and music and its global edge in consumer electronics.

A similar meeting was held in New York last Thursday, where the company focused on chatting up Wall Street about its American divisions. For the first time in Sony of America's history, Sony executives broke out valuation estimates for its American entertainment units, valued at $14 billion to $19 billion, fueling ongoing speculation that the company plans to spin off these properties. Sony of America CEO Howard Stringer denied the company has any plans to do so.