Sony and Microsoft open games console price war in battle for Christmas sales

Sony and Microsoft opened a fresh round in their battle for the games console market yesterday, cutting prices of their PlayStation 2 and Xbox machines by 17 per cent, to £170 and £160 respectively.

The announcements came within an hour of each other, but are likely to strengthen Sony's advantage, because the PlayStation 2 is the best-selling console in the world, and has been on the market for longer than Microsoft's Xbox. The latter was launched in March, but this is its second price cut from the original retail price of £299. The PlayStation 2 was launched early in 2001 in Europe, and its last price cut was last September.

Microsoft said the latest move was aimed at capturing more of the Christmas market. Sandy Duncan, vice-president for Xbox in Europe, said: "The video games industry is more robust than ever this year, and new consoles and games are expected to dominate Christmas wish lists."

Console makers expect to lose money on the sales of the hardware, which is then recouped with royalties of about £5 to £10 on every game sold. Game players on average buy a handful of titles each year.

Microsoft is lagging in third place in the market behind Sony and Nintendo, whose GameCube, launched in May, costs €199 (£140). Nintendo said that it has no plans to reduce the cost of the GameCube in Europe; the company is due to publish a trading update today. The PlayStation 2 has shipped 33 million units worldwide since its Japanese launch in March 2000.

Microsoft said last month it had sold 3.9 million units worldwide in the seven months to the end of June.

The price cuts, which were expected by analysts as a means for the companies to kick off post-summer sales, come on the eve of the ECTS video games developers conference in London.

Microsoft has been aggressively wooing developers in order to make the Xbox pay off, and now claims to have 200 games available for the Xbox with another 300 in development. But for the developers, there is little advantage in producing a product for a less popular platform – meaning that Microsoft has had to ease up on the royalty it can charge.

The Xbox is expensive to produce compared with the PlayStation 2 because it contains an advanced graphics chips, built-in broadband modem and a hard drive. Despite economies of scale, analysts in May estimated that Microsoft was losing between $76 and $105 on every Xbox sold.