Experts believe that Sony will cut the retail price of its PlayStation2 (PS2) console within weeks to remain competitive.
With Microsoft and Nintendo slashing the cost of their gaming consoles, there is pressure on Sony to follow suit. From 26 April, Microsoft's Xbox console will cost £199 in the UK -- the same as the PS2 -- while Nintendo said on Monday that its GameCube console would cost £129, not £169 as earlier announced, when it goes on sale in Europe early next month.
Sony must act soon if it is to avoid being squeezed out of the market, according to observers.
"Sony will respond with a PS2 price cut within a month at most," predicted Paul Jackson, an analyst at Forrester Research on Monday. He thinks that, at £199, the Xbox is a very appealing product.
Jackson believes that Sony should cut the price of a PS2 to £169 or less. "The PS2 is the most established next-generation console, with a good catalogue of games. But at the same price point as the Xbox, the PS2 now looks tame -- Sony has to cut 50 euros off its console price in response to Microsoft's and Nintendo's moves," Jackson said.
A £30 price cut would really only bring the PS2 onto a fiscal par with the Xbox, though, as customers must pay £27 for a PS2 memory card. Unlike the Xbox, the PS2 does not contain a hard drive to accommodate saved games.
Microsoft's Xbox price cut took the industry by surprise. Console makers typically wait around 12 months after launch before cutting prices, but Microsoft is taking action within two months of the Xbox's UK launch, amid speculation that the console was selling poorly.
"The fact that the move comes so quickly on the heels on the introduction shows its concern for the company's first foray into a highly competitive marketplace dominated by Sony and Nintendo," said Scott Smith, director of networked business strategies Europe at the Yankee Group, in a research note.
Smith believes that Microsoft and Nintendo are doing the right thing in cutting prices, with sales likely to slow over the coming months as the summer holiday season approaches.
Jackson warns, though, that hardware price cuts are potentially dangerous, as console makers already sell their products below cost in the hope of generating revenue from software sales.
"Manufacturers cannot sustain even bigger per unit losses on their consoles without higher games sales -- software is where they recoup their money. Will cheaper hardware mean more software sales per console? No; only better, cheaper games will do this," Jackson said.