E3 '07: Analysts expect 360 price drop

Sony has made the first price cut in the new generation of console wars, and industry watchers think it might be time for Microsoft to answer.

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SANTA MONICA, Calif.--The E3 Media and Business Summit hasn't even started yet, and the big news has already started to break. Late last night, Sony announced it was lopping off $100 from the 60GB PlayStation 3 and releasing a new 80GB model bundled with MotorStorm in August. Today, a handful of industry analysts sent out investor notes with their own predictions for the show, and each addressed the distinct possibility of Microsoft announcing a price cut for the Xbox 360.

Lazard Capital Markets' Colin Sebastian, Wedbush Morgan Securities' Michael Pachter, Oppenheimer's Shawn Milne, and Nollenberger Capital Partners' Todd Greenwald all brought up the possibility of an Xbox 360 price cut, but they differed on how much the cut would be and when it would be revealed.

Pachter suggested Microsoft would cut the price of the Elite model of Xbox 360 from $479 to $399, with the Pro and Core packages shedding $50 each, to $349 and $249, respectively.

"On balance, we think that the lower $499 price point for the PS3 60GB model offers consumers a compelling value compared to the current $479 price point for the Xbox 360 Elite model," Pachter wrote. "While the Elite has a 120GB hard drive and HDMI cables, it does not have WiFi built in nor does it offer Blu-ray playback capability, with both standard features for the PS3. Similarly, we think that the $499 PS3 compares quite favorably with the $399 Pro 360 model, which has only a 20GB hard drive and no HDMI output. Because of this favorable comparison, we believe that Microsoft is all but compelled to cut prices, and we think the price cuts will come no later than at Microsoft's Tuesday night press conference."

Sebastian was not as convinced about the breadth or immediacy of the price cut, but he too said it was coming. While Pachter expects the cut to be announced no later than tomorrow, Sebastian thinks it will arrive "before the end of the summer." Furthermore, he told investors that the cut--which he pegged at $50--would be on "at least one" of the Xbox 360 packages, rather than all of them.

Milne's view was similar to Sebastian's, with the analyst expecting a $50 price cut on the Xbox 360 sometime before the launch of Halo 3. However, unlike his counterparts, Greenwald did not say straight up that he expects a price cut. He instead pointed to E3 2002 as a scenario that might repeat itself.

"During the last cycle, the first PlayStation 2 cut occurred after 19 months. Coincidentally, the Xbox 360 has now been on the market for about 20 months, with no price cut as of yet. Also, last cycle the Xbox got a $100 price cut after just six months (the PS3 has been out for eight months and we believe is in desperate need to catch up to the 360 and Wii installed bases). Therefore, if this cycle were to follow the last, we could see a $100 price cut on both the 360 and PS3."

Keep checking GameSpot's full coverage of the E3 Media and Business Summit for more from the show as it happens.

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