UPDATE 2-Xbox 360 will outsell Sony's PS3 - Microsoft

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By Daisuke Wakabayashi and Kemp Powers

LOS ANGELES, July 14 (Reuters) - Microsoft Corp (MSFT.O) said on Monday its Xbox 360 console will sell better than Sony Corp's (6758.T)(SNE.N) rival PlayStation 3 over the lifetime of the machines.

Microsoft also displayed a line-up of games to drive demand for the console, including "Gears of War 2," a much-anticipated sequel to its blockbuster science-fiction shooter game. It will debut exclusively for the Xbox 360 on Nov. 7.

The company is locked in a three-way competition with Nintendo Co Ltd's (7974.OS) Wii and the PlayStation 3, which comes with a high-definition Blu-ray video player. The Wii is the current leader, while Sony's PS2 was the winner of the last generation of consoles.

"Xbox 360 will sell more consoles worldwide this generation than PlayStation 3," Don Mattrick, a senior vice president at Microsoft's Xbox division, said at a Microsoft news conference before the start of the E3 video game industry trade show.

Microsoft said on Sunday it will cut the price of its best-selling Xbox 360 Pro with a 20-gigabyte hard drive to $299 from $349 while supplies last. In early August, it will introduce a new model with a 60-gigabyte hard drive for $349.

A cut to $299 makes the Xbox 360 Pro $100 less than one of the console's major rivals, Sony's PlayStation 3 with a 40-gigabyte hard drive. Microsoft said the Xbox 360 has outsold the PS3 in the United States by 5 million units.

Microsoft introduced the Xbox 360 in November 2005, a year before Sony released the PS3 and Nintendo rolled out the Wii.

In a sign that the company is positioning the Xbox 360 as an entertainment hub instead of just a game machine, Microsoft said it signed a deal to make TV shows and movies from NBC Universal available on its Xbox Live online platform.

Microsoft also announced a tie-up with Netflix Inc (NFLX.O) to let subscribers of the movie rental company watch streamed films and TV shows on Xbox 360 game consoles starting this fall.

The Xbox 360 does not come with a high-definition video player like the PS3 but the company expects digital download of video to eventually overtake demand for packaged movies and TV shows. Currently, Xbox Live offers some high-definition movies but the Netflix service does not.

Microsoft said a third of all paid content downloaded in the United States is movies and television shows.

MII TOO?

One of the major announcements at the press conference was a planned fall overhaul of the Xbox 360 console interface.

The new suite of features will include a community games channel to showcase user-created titles and the addition of personalized avatars reminiscent of those on Nintendo's Wii console.