Investment firm Wedbush Morgan has suggested the PlayStation 4 will retail in the US for $349, significantly lower than the PS3's starting price of $599.
In an E3 preview note to investors Michael Pachter, analyst at the company, estimates that the PlayStation 4 has a bill of materials at around $275, while Microsoft's Xbox One costs around $325. As such, Wedbush is expecting the new Microsoft console to cost $399.
"If the Wii U's popularity does not improve by the end of the year, many third-party publishers may pass on producing games for the console"
But while Microsoft's new hardware may be priced higher initially, it's also more likely to be available at a subsidised price to the consumer through a subscription contract from a broadcast, cable or ISP provider.
"We believe the ability to watch live TV from a cable, telco, or satellite set-top box through Xbox One could entice an MSO to drive subscriptions through a subsidised box in exchange for a multi-year contract. The 'always connected' requirement for the Xbox One likely means that a broadband connection will be required, suggesting to us that ISPs may have an incentive to offer a subsidy as well.
"In addition, Microsoft could conceivably subsidise the Xbox One through prepaid Xbox Live Gold subscriptions (as it has done on a limited basis in the past) or premium Skype functionality as well. Similarly, Sony could subsidise the PS4 through prepaid PlayStation Network subscriptions, but unlike Microsoft, it does not have a history of doing so," he added.
Looking at Nintendo, Pachter suggested the company needs to prove to consumers at E3 that it has an enviable line-up of titles for the rest of the year.
"Nintendo risks losing additional share to its console competitors if the quality and volume of content available for Wii U does not pick up markedly in the near-term.
"In addition, if the Wii U's popularity does not improve by the end of the year, many third-party publishers may pass on producing games for the console. We note that EA recently announced that it had no Wii U games in development, and it remains a possibility that the publisher will abandon the platform entirely. Should other third parties follow EA's lead, the Wii U could be relegated to a first party only platform."
While all eyes will be on the new console generation, Wedbush Morgan is also expecting a round of price cuts on the current generation technology. The PlayStation 3 and Xbox 360 are likely to have another $50 shaved off their prices, with the Wii dropping to $99. As well as a Vita price cut from Sony, there's also the possibility that Nintendo will try and boost Wii U sales with a $50 price cut or new software bundle.