Rumors of price cuts to the Xbox 360 and PlayStation 3 have increased in number over the past few weeks. While Sony has been tight-lipped regarding its pricing plans, rival Microsoft now says it's time for a new approach.

"We are well aware that the sweet spot of the market is really 199 bucks," said director of Xbox product management David Hufford to Bloomberg. The Sony PlayStation 2 is currently priced at $129, and managed to outsell all of the next-generation consoles last November, despite the launch of the PlayStation 3 and Nintendo Wii that month.

"When mom walks into the store and sees she can get a console with a game for $250, she sees it as a $300 value. They've done a good job," Hufford added, referencing the Wii's current MSRP of $249, which also includes the game Wii Sports.

By the end of April, Microsoft was leading the overall North American field with 5.4 million sales of the Xbox 360, which carries an MSRP of $299 for its basic model, $399 for its premium modle, and $479 for the recently-introduced Elite. Nintendo had sold 2.5 million Wii consoles since its release, with Sony managing to sell 1.3 million PlayStation 3 systems in roughly the same period. Like the Xbox 360, the PlayStation 3 initially came in at two price points, but the $499 version was recently discontinued in the US, leaving the more expensive $599 system as the only option.

Heading into the new generation of consoles, Nintendo remained a distance third in the race for system supremacy. Some saw Nintendo's staunch practice of family-friendly marketing as a clear-cut weakness, with Microsoft gaining a foothold in the industry by targeting a more mature segment of gamers with the original Xbox. However, exploiting an innovative control scheme in conjunction with a lower price, Nintendo's Wii has been outpacing its competitors over the past six months, often jostling for position with the PlayStation 2 as the top selling system.

Xbox 360 games targeted at younger players such as the heavily-promoted Viva Pinata have largely failed, although the recent port of Guitar Hero 2 has finally given Microsoft a way into a wider market. "If we don't make that move [to a broader audience] early and expand our demographic, we will wind up in the same place as with Xbox 1, a solid business with 25 million people," said Microsoft VP Peter Moore. "What I need is a solid business with 90 million people."

The lack of a strong launch lineup for the PlayStation 3 has drawn many analysts to conclude that Sony will need to issue a price drop in order to make up some ground in the numbers game. During the Reuters Global Technology Summit in New York, CEO of Ubisoft Yves Guillemot forecast a gloomy future for the company that has sold over 35 million PlayStation 2 consoles. "For sure Sony will have a different market share... lower than before," he said.

Guillemot's suggestion to Sony: "They have to decrease the price quite significantly."

Industry analyst Colin Sebastian of Lazard Capital Markets recently claimed that Sony had reduced production of the PlayStation 3 in Asia, which the firm took as an indication that the PS3 will likely not see a price drop this year. In response, SCEE director of corporate communications Nick Sharples told MCV last week that the analysis was incorrect, while not going so far as to confirm or deny a change in price for the PlayStation 3.

"I'm not aware of any cut in production. We have our forecast for the year for PS3 of ten million and that still stands," said Sharples. "The normal seasonal uplift towards the peak season will happen, but that's completely normal. The idea of price certainly doesn't follow on to any adjustment in production. Analysts may wish to think so, but there's no basis of fact in any of it.

"We announce when changes in price will happen and we don't discuss them beforehand."