End of the Land Grab

The announcement of Sony's new PS3 Slim and consequent price-drop for the entire PS3 range ought to be a decisive and positive moment in the company's hardware strategy. Equally, Microsoft's recent demonstration of its ability to grow Xbox 360 hardware sales through a tough recession ought to give a positive glow to its own efforts. In short, this week both "core" console manufacturers ought to smell of roses.

That's not, however, how much of the commentary about the week's developments has gone. Perhaps the most striking words I've read in the past couple of days belong to EEDAR's director of analyst services, Jesse Divnich, who painted both Microsoft and Sony as "financially exhausted" - "like 12th round boxers", to be precise.

The phrase rings true. Sony's price-cut, long overdue, comes alongside the introduction of new hardware - and the combination probably wipes out much of the benefit of the 70 per cent reduction in PS3 manufacturing costs which the firm was trumpeting only weeks ago. Sony's wider financial problems are well-documented, with layoffs and restructuring defining its recent years. Faced with tough competition from undercutting rivals in core markets like television, Sony can ill-afford continuing losses from its videogames business.

For Microsoft's part, it knows that even despite its much more stable financial position, further heavy losses from the Home and Entertainment Division would cause serious questions to be raised by investors. Stung by years of losses from the original Xbox, and still smarting from the billion-dollar reserve which had to be created to deal with the 360's hardware reliability problems, the firm's money-men know that they need to be seen to be marshaling their resources against threats like Google and Apple - not throwing further money into the Xbox pit.

As a result, this week's new hardware and price drop from Sony, coupled with rumours of a restructuring of the Xbox 360 range from Microsoft, don't feel like heated competition - they feel like an uneasy stand-off. If reports of Microsoft's future strategy hold true, the Xbox 360 Pro will be phased out, and the 360 Elite dropped to USD 299 in its place - competing directly on price with the PS3. In the UK at least, this restructuring will also see the Arcade model getting a small price bump.

The status quo, as we head towards Christmas, would therefore be very even. Both firms would have their main hardware offering priced at broadly the same price point, albeit with Microsoft also offering a slightly crippled lower-end model. For Sony, finally achieving price-tag parity with Microsoft's main offering is something of a victory in itself, but while both firms will eye their rivals warily, further price drops to differentiate the hardware are unlikely.