Divnich: Now it's Microsoft's turn

Jesse Divnich, analyst for The simExchange, has told GamesIndustry.biz that the forthcoming price cut for the Xbox 360 is a necessary reaction to Sony's Blu-ray victory.

"I've always considered the console wars to be like a game of chess and Sony's recent Blu-ray victory is equivalent to putting Microsoft in 'check'," he said. "This is why we are talking about an Xbox 360 price cut and not a PlayStation 3 price cut - Sony already made their move, it's now Microsoft's turn."

But while a price-cut might have a positive short-term impact on Xbox 360 sales, Divnich believes that it is within Sony's power to undermine such a move with a price cut of its own later in the year.

"Of course, in the short-term this will be a good strategy for Microsoft to position itself away from the PS3 as a cheaper next-generation console, while still being able to compete against the Wii," he said.

"A price cut will also position Microsoft to take advantage of some of the upcoming releases such as Rainbow Six: Vegas 2 and Grand Theft Auto IV, both of which are multi-platform titles and definite hardware drivers."

Looking at the longer-term picture, Divnich believes that the battle will be won by whoever can offer the best value - and that simply cutting prices won't differentiate a product enough, because others can simply follow suit.

"Overall, a price cut will change the picture by the end of the year because Microsoft will have that edge during a short period of time as Sony reacts to an Xbox 360 price cut and Nintendo tries to determine if there is any threat," he said.

"Microsoft must continue to develop its Xbox Live service as the superior outlet for not only online gaming, but also be the greatest source for downloadable content in terms of movies, music, and television.

"That is where the Xbox 360 can differentiate itself since the PS3's PlayStation Network will never be able to compete against the level of service that Xbox Live can provide."

And he added that there are still challenges ahead for Sony, even though its next-generation DVD rival has now conceded defeat.

"For the PS3, Sony must continue to push for stronger adoption rates of not only high-definition televisions, but its own Blu-Ray disc players," he said. "They must convince the public that Blu-ray will be the standard and that the DVD format is not only inferior but will eventually go the way of the VHS.

"Once again, this is where the PS3 can differentiate itself from its competitors. Of course, there have been rumours of a new Xbox 360 SKU that will contain a Blu-ray player, which I am sure Sony would be more than happy to license their technology out to Microsoft - after all, I would consider Xbox 360 Blu-ray player as equivalent to Mercedes putting BMW engines in their cars."

Meanwhile, he thinks that while the proposed Xbox 360 price cut will make the Arcade console cheaper in Europe than the Wii, he doesn't think Nintendo will lose sleep over the move.

"The Wii is of course always special and I don't think either the PS3 or the Xbox 360 will ever be able to compete against it - no matter how low either of them drops their price," he said.

"The Wii just simply offers an experience unparallel to what any other system can provide. The price is not the selling point of the Wii."

The simExchange is a virtual games industry online stock market, in which gamers, developers, and investors trade stock to predict how games will sell.