While much of the gaming world is focused on the PlayStation 3, Sony may divert attention back to the current generation of gaming by the end of the month.

An analyst's note, issued Wednesday, predicts the company will cut PlayStation 2 prices from $149 to $129 by the end of April.

Sony could cut PS2 prices by the end of April.

Many analysts expected Sony (Research) to announce a PS2 price cut at E3, the annual trade show of the video game industry. But Colin Sebastian, senior research analyst for Lazard Capital Markets, said a move this month, coupled with last month's quiet price drop for the PSP handheld device (from $249 to $199), will allow the company to go into E3 with momentum and allow the focus to be solely on the PS3.

"In our opinion, hardware price cuts are necessary not only to drive demand at the end of a console cycle, but also to bring the current-generation consoles within reach of more value-oriented customers," wrote Sebastian.

A Sony spokesperson declined to comment, saying the company does not address "rumors and speculation".

A Sony price cut would likely be matched immediately by Microsoft (Research), which would lower the price of the original Xbox. However, since that company's focus is laser focused on its next generation machine - the Xbox 360 - it could result in some interesting moves.

Traditionally, price cuts are matched. So, when Sony goes to $129, Microsoft follows (or vice versa). Microsoft, however, has greatly de-emphasized the original Xbox since the 360's launch – and, by some reports, is no longer manufacturing the original machine. If so, it doesn't have much to lose and may try to one-up Sony, in an attempt to gain its own momentum going into E3. That could, conceivably, mean a new Xbox price of $99.

"Microsoft could do something like that just to make it a little more interesting, but I have no read on what Microsoft is going to do," Sebastian told me.

Whatever Microsoft's reaction, it might be a bit harder for consumers to capitalize on it. Supplies of the Xbox have declined considerably and a drastic price cut could make it a hard-to-find item.

A PS2 price cut could be a welcome shot in the arm for the gaming industry, which has seen revenues decline steadily in the recent months. (February software sales were down 13 percent compared to the 2005 numbers. Analysts expect the March numbers to show an even bigger gap.)

Increased hardware sales tend to boost software sales – and Sony recently cut the price on some of its biggest PS2 games, including "God of War" and "Gran Turismo 4" to $19.99. Third party publishers, though, might find additional pressure to lower the price of their current generation games. Electronic Arts (Research), the leading independent publisher, was forced to reduce the price of several games, including seminal favorite "Madden" in January. Take Two Interactive Software (Research) also recently cut the price of its hit title "Grand Theft Auto: San Andreas".

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