Microsoft cuts Xbox price by 25 percent

Guests play the Xbox 360 ''Halo 3'' Multiplayer Beta video game during a preview party at Quixote Studios in Los Angeles May 15, 2007.

SAN FRANCISCO/NEW YORK (Reuters) - Microsoft Corp plans to slash the price of its high-end Xbox 360 video game console by $100, or 25 percent, stepping up the price war in the video game console market.

Effective Friday, Microsoft will drop the price of the Xbox 360 Elite to $299.99 in the United States, just days after Sony Corp cut the rival PlayStation 3 to $299 from $399.

Analysts have said the cuts will pressure Nintendo Co Ltd to lower the price of its best-selling Wii console, which retails for $249, but for now the company is standing firm.

"We don't have such a plan," Nintendo spokesman Yasuhiro Minagawa said when asked about a price cut.

Among this generation of game consoles, the Xbox is No. 2 in the United States behind the Wii. But U.S. sales of the Xbox are up 17 percent this year, the only console to show growth.

The price on the entry-level Xbox Arcade model will stay at $199.99, and Microsoft will phase out its mid-range Xbox Pro model, leaving it with two models. The Pro will sell for $249.99 until supplies run out.

Since PS3, Xbox and Wii are increasingly centerpieces of home entertainment, their sales can spur purchases of software, accessories and other media, and boost traffic at retailers like Wal-Mart Stores and GameStop.

And while the unit that runs Xbox is a small part of Microsoft's overall sales -- at about 11 percent -- it is the company's biggest weapon in the battle to control entertainment in the living room.

Microsoft spokesman David Dennis said the price cut was in the works for some time and was not a response to Sony's cut. Rather, he said, the price reduction will attract new buyers and help simplify Microsoft's product mix for manufacturers and retailers as well as customers.

"It really makes the decision for consumers a lot easier," he said. "They're either price conscious and they gravitate toward the Arcade, or they want the full Xbox 360 experience."

In Europe, the Elite price will shrink by 50 euros ($71) to 249.99 euros, or 199.99 pounds ($324) in Britain. Chris Lewis, head of Xbox Europe, said the cut would help Microsoft match or beat its 2008 performance, when it increased unit sales of Xboxes more than 80 percent in Europe.

Beyond console sales, the cuts by Microsoft and Sony should provide a lift to a broader gaming industry has been stuck in a slump brought on by a lack of big-name releases and a recession that has pinched consumer spending.

Indeed, game publishers like Activision Blizzard have clamored for price cuts, which often boost sales of software.

"Software makers should be quite happy about it," KBC Securities analyst Hiroshi Kamide said. "The industry should stage a bit of a recovery in the second half of this year."

Microsoft shares rose 2 cents to $24.57.

($1 = 0.7024 euro = 0.6170 pound)

(Additional reporting by Georgina Prodhan in London, and Kiyoshi Takenaka and Mayumi Negishi in Tokyo; Editing by Phil Berlowitz and Derek Caney)