Game Console Prices Drop

Microsoft has cut the price of its Xbox video game console, a day after rival Sony Computer Entertainment America discounted its PlayStation 2.

Effective Wednesday, the Xbox is selling at a retail price of $180, down from $200 in the United States. In Canada it will sell for $250 ($180 in U.S. currency), down from $300, Microsoft said in a statement.

The price drop is only effective in the United States and Canada. Microsoft has no plans to reduce the price in other markets, the company said.

Surprise Cut

Microsoft's price cut was not expected. The company did not mention it on Monday when it announced a host of new games and features for the console. Microsoft made its product announcements before the opening of the Electronic Entertainment Expo (E3) in Los Angeles, which began Wednesday and runs through the weekend.

"It is a surprise announcement; I don't think they necessarily were planning to cut prices," said Matt Rosoff, an analyst with independent research company Directions on Microsoft. "Microsoft has always said it would match Sony price cut for price cut, and they have to do that."

Sony on Tuesday trimmed the price of its PlayStation 2 to $180 in a move to clear inventory of current PlayStation 2 systems. The company is preparing to release a combo pack of a PlayStation 2 with a network adapter for online gaming, priced at $199, that will replace the existing PlayStation 2 packaging.

The price-cutting sequence repeats the companies' leapfrog pricing of a year ago. Microsoft dropped the price of its Xbox by about one-third a day after Sony dropped the price tag of its PlayStation a like amount.

Losing Money

Microsoft is cutting its Xbox prices despite continuing losses in Microsoft's Home and Entertainment division, which includes the Xbox game console.

Losses nearly doubled in the most recent quarter compared to a year earlier, as revenue tumbled and marketing spending increased, Microsoft disclosed in a regulatory filing this week.

The division markets the Xbox game console, PC games, consumer hardware, and Microsoft TV. It posted an operating loss of $190 million for its fiscal third quarter that ended March 31, compared with a $97 million loss a year earlier, according to the filing.

Quarterly revenue at the division fell to $493 million from $943 million a year ago, according to Microsoft. The drop is largely attributable to lower sales of Xbox game machines and games in all geographic regions, Microsoft said in the filing. Last year's quarter marked the launch of Xbox in Europe and Japan and reflected sales following the U.S. launch during the preceding quarter.

Microsoft also sustained a recent setback when a leading game vendor apparently snubbed the Xbox. Earlier in May, Electronic Arts lifted the veil on its major announcements for E3, saying that ten of the online sports games it is rolling out at the show will be for the PlayStation 2.

Microsoft's cash cows remain its Client and Information Worker groups, which include the Windows operating system and the Office productivity suite, respectively.