Sony can lower the price of PS3 more than MS can lower the price of X360? Come on, dont be ridiculous! PS3 originally cost more than double the X360 to produce (over $800 vs below $400) and no matter what, X360 will be less of economical concern for MS than PS3 is for Sony. Plus, MS is dropping the price by only a $50 margin, while Sony by a $100 margin. In short, Sony is giving up more on a much more pricy console.

So what now? At optimum case, 360 costs around $300 to produce now (with the new model introduced), and MS breaks even. PS3, on the other hand costs no less than $700 and causes around $200 of loss per unit

That's not entirely true, though. For MS, it's also getting a larger install base for LIVE Marketplace digital distribution -- movies, tv shows, etc. 

 if the XBox is a standalone businesses, it's certainly out of business by now.

if Playstation is a standalone business, PS3 wouldn't have become the expensive console that it is today, since they won't be able to afford the what, $2 bln R&D on the console.  yes, they made a lot more than $2bln last gen, but they won't risk a $2bln project.

(which means ironically, the PS3 would be selling better!  as a less technically advanced console, it'll sell cheaper.)

the bottom line is: Sony the corporation is behind PS3, Microsoft the corporation is behind the 360.  and as corporations go, anybody who thinks that Sony can afford a price war easier than Microsoft is dilusional. 

 Definitely agree with Lingyis. Both Sony and Microsoft are in this for a convergence box, and Blu-Ray is only a drop in this bucket. Both of them are willing to take a huge, awful beating in this battle. 

Not really "breaking" news, more like expected news.  

Analyst Micheal Pachter said on Monday that Microsoft will, in fact, reduce the price of the Xbox 360 tomorrow at the start of the company's E3 press briefing. He believes the $299 Core will drop to $249; the $399 Premium to drop to $349; and the newly released $479 Elite to drop to $399 in response to lower-than-expected (price of a PS3).

Already reaching half of their pre-installed base in less than two years isn't terrible, what do they expect? The next couple months will be interesting to see what these price drops do to sales trends, not sure if they affect xmas sales though.... Are there xmas surges in the Japanese market as well?

 Yes there are.

 yep.  and then of course Apple sneaks in next year with its 2nd generation iTV, so both sony and MS end up losing billions just to pave the way for Apple.

This is very true -- Apple is the real competitor.

iTunes is blowing Zune out of the water and will continue to do so. However, a lot of the reason for this is because, to the average consumer, iTunes is the only music downloading service that they're aware of. iTunes has become synonymous with music downloads, the same way kleenex is synonymous with tissues. The average non-technical person was introduced to downloaded music through iTunes, and thus, will always stay with iTunes.

It's this introduction that drew the customer loyalty they have now. So the question is, who will be the first company to introduce the average consumer to digital distribution for video?

The filesize limitations of movie downloads have kept them from being mainstream up to this point. Even with broadband, they take an hour or so to come through the pipes -- this annoys people who are used to the convenience of an mp3-type file that is nearly instantaneous over a high-speed connection. Unless the speed of broadband improves exponentially in the near future, this will continue to be a prohibiting factor.

At this time, the only real solution to this problem would be in software. Just looking at the internet, the major American networks are offering their TV shows streamed via a flash interface, and it's already nearing broadcast quality in just a short time its began to be offered. If Sony, Microsoft, or Apple could come up with an on-demand software solution that lets users stream HD movies, tv shows, etc., directly to their television with no loss of quality, they would win this consumer war.

And whoever does it first will be the new iTunes. Everyone else will just be Zune.

Even at $350 for the premium they should be making money.  And $400 for the elite would almost certainly be making money per unit sold.

A price drop now would hurt Sony pretty badly. 

A $50 drop would nullify any sort of momentum gain (in terms of a ratio) versus the PS3.

However, the drop won't hurt what PS3 is doing. IMO, the X360 should start selling ~30k/mo more due to a $50 drop, and the PS3 should start selling ~15k/mo more due to the $100 drop.

Ultimately, it's a good step, but to actually conquer the holidays, MS NEEDS a $100 drop. If it dropped the price $100 @ E3, then MS would just about have this year's US and European Christmases wrapped up for a solid win.

Do the Japanese buy more stuff around Christmas? Go look at the charts, and you tell me. Hardware and Software sales are typically around 4x that PER WEEK versus non-holidays. The big difference is that they don't see a real major boost in November that's real convincing (it's better, just not US better).