“This exclusive partnership offers you the ability to instantly stream movies and TV episodes from Netflix to the television via Xbox 360. Xbox 360 will be the only game console to offer this movie-watching experience, available to Xbox LIVE Gold members who are also Netflix unlimited plan subscribers…at no additional cost.”

– Microsoft on its Xbox 360/Netflix partnership, Aug. 2009

So much for Xbox 360’s game console exclusivity on Netflix streaming. This morning, the DVD-by-mail pioneer said that beginning sometime next month, owners of Sony’s PlayStation 3 game consoles will be able to stream movies and TV shows from Netflix.

The feature, which brings an unlimited amount of online viewing with any subscription worth $9 or more, will initially require an “instant streaming Blu-ray disc” to enable it. Not the most elegant of implementations, but presumably a firmware upgrade will likely follow and bake the feature into the PS3.

For Netflix (NFLX), the deal provides a chance to broaden its subscriber base. About nine million PlayStation 3 systems have been sold in U.S., and more than 25 million worldwide. So the potential for new customers here is substantial. For Sony (SNE), which already offers movies and TV shows to PS 3 users for a $3 to $4 fee, it’s a way of removing an Xbox 360 marketing advantage Microsoft (MSFT) has been lording over it since this past August.

That said, Nintendo is cutting the price of its Wii videogame system by $50 in hopes of growing the market for the popular device as we head into the winter holidays. On Sunday, the company will begin peddling the Wii at a suggested retail price of $199.99.

The new price is the first reduction since the console launched in November 2006 and follows similar price cuts by two rivals, Sony’s (SNE) PS3 and Microsoft’s (MSFT) Xbox 360.

All three are hoping they’ll attract recession-addled gamers into the market, and according to Reggie Fils-Aime, president of Nintendo of America, they’ve got decent shot at it. “Our data shows in the U.S. alone there are 50 million consumers who are interested in playing videogames but they haven’t yet done so,” Fils-Aime told The Wall Street Journal. “They are waiting for product innovation or a slightly better value.”

If it was, surely we wouldn’t be seeing the sixth consecutive month of declining sales reported by NPD. According to the market research firm, overall sales in the United States in August of hardware, software and game accessories were $909 million–a 16 percent drop from the same period a year ago.

Hardware sales were down 25 percent for the month and 17 percent for the year. Software fared little better. It was down 15 percent for the month and 14 percent for the year.

Six straight months of falling sales. Overall, the industry is down 14 percent for the year, earning nearly $9.1 billion so far in 2009, according to NPD. Is this a trend that can be dismissed with the standard “well, software drives console sales” explanation? I’m not so sure. It’s not like Mario Kart and Madden NFL 10 have disappeared from the shelves. Indeed, they’re still top-selling titles. They’re still driving sales. They’re just driving a hell of a lot fewer of them.

Indeed, Electronic Arts (ERTS) CEO John Riccitiello bemoaned this very fact in an email to employees, released yesterday. “It is discouraging that one of our highest-rated and best-marketed ‘Madden’ titles in years is facing strong headwinds,” he said, adding industry trends “present a challenge.”

Perhaps that’s because we’re in the middle of the worst American recession in 50 years and $40 for a videogame is still $40. I’ll bet $5 and my old Intellivision that the videogame industry will post its first year-over-year loss since 2004 this year.

Hardware Sales:

1. Nintendo DS     552.9K
2. Wii     277.4K
3. Xbox 360     215.4K
4. PlayStation 3     210.0K
5. PSP     140.3K
6. PlayStation 2      105.9K

Top 10 Software Sales:

1. Madden NFL 10 (Xbox 360, Electronic Arts): 928,000
2. Wii Sports Resort (Wii, Nintendo): 754,000
3. Madden NFL 10 (PS3, EA): 665,000
4. Batman: Arkham Asylum (360, Square Enix): 303,000
5. Batman: Arkham Asylum (PS3, Square Enix): 290,000
6. Madden NFL 10 (PS2, EA): 160,000
7. Dissidia Final Fantasy (PSP, Square Enix): 130,000
8. Wii Fit (Wii, Nintendo): 128,000
9. Mario Kart Wii (Wii, Nintendo): 120,000
10. Fossil Fighters (DS, Nintendo): 92,000

“In 2004, as you may recall, we launched a slim version of PlayStation 2, a defining moment for that console, helping us to really expand the user base of PlayStation 2 further,” Sony Computer Entertainment Chief Executive Kazuo Hirai said at the Gamescom videogame trade show in Cologne, Germany. “Today is that day for PlayStation 3.”

And so, starting Sept. 1, the PS3 will be available for $299. That’s still well above Microsoft’s (MSFT) Xbox 360, which retails for less than $200 and Nintendo’s Wii, which sells for $250, but it’s a hell of a lot better than $399. And analysts say it will almost certainly spur demand for the console. “People were expecting this to happen. [Sony] had to do something,” MKM Partners analyst Eric Handler told MarketWatch. “This will bring some new customers to the fold.”

Indeed. But how long can Sony sustain such market share gains, when Microsoft and Nintendo are almost certainly mulling price cuts for their platforms as well?

In a research note today, FTN Equity Capital Markets analyst James Hardiman said “evidence is mounting” that Sony will announce a PS3 price cut, perhaps during its Tuesday presentation at GamesCon.

Videogame analyst Heath Terry of FBR Capital Markets shares this view, and in a note to clients, he put a dollar figure on the cut. “With Sony set to announce a $100 price cut on the PS3 on Tuesday at Gamescom in Germany according to our retail checks, we believe the other hardware manufacturers will respond with a combination of price reductions and bundling strategies that should drive significant acceleration in hardware sales,” Terry wrote, adding that the cut, should it come to pass, will mark “the first of a series of catalysts that should drive a return to growth” for the videogame industry.

Certainly, it would give Sony (SNE) a nice boost in sales in the run-up to the winter holiday consumer binge. And given its most recent financials, the company could really use one right now.

In March, Japanese sales of Nintendo’s wildly popular game console fell below those of rival Sony’s PlayStation 3 for the first time. According to data released on Monday by research outfit Enterbrain, Sony sold 146,948 PS3s in the five weeks to March 29, while Nintendo sold 99,335 Wiis–and, for those keeping track, Microsoft (MSFT) sold 43,172 Xbox 360s. Driving sales: Yakuza 3 and Resident Evil 5–two new titles not yet available for Wii.

Could this be the beginning of a new trend, a dramatic reversal of fortune for Sony, which ceded its gaming console dominance to Nintendo back in 2006? Sony (SNE) clearly hopes so, but Nintendo doesn’t seemed too worried. “It is still the first few months of the year when sales are slow for the industry so we are not particularly concerned,” a spokesperson told the Financial Times. “We hope to line up strong software to support hardware sales in the second half of the year.” And if it’s able to do that, Nintendo probably does have little cause for concern–at least for now. The Wii is still outselling the PS3 by 3-to-1 in the states, and at eight million sold, cumulative Wii sales in Japan exceed the three million consoles Sony’s managed to sell.

Confirming recent speculation, Sony this morning said that it’s dropping the price of the PlayStation 2 from $129 to $99.99 as of April 1. “With this new price, we intend to introduce a new generation of consumers–some of whom weren’t even alive when the system was first introduced in 2000–to the immense entertainment value offered by PlayStation 2,” John Koller, Sony’s director of hardware marketing, explained in a blog post. “In the gaming industry, the typical lifecycle for a console is around five years, but because we build each of our platforms for a large and diverse consumer base, we design our platforms differently. With the original PlayStation and now PlayStation 2, we’ve proven that consumers can rely on our platforms for their gaming and entertainment needs for at least a decade.”

And that does indeed seem to be the case. Though nearly 10 years old, the PS2 remains quite popular. Indeed, Sony expects to sell eight million of the consoles in its current financial year–not so far off from the 10 million PlayStation 3s it expects to sell in the same period. And it will certainly grow in popularity at this lower price point, giving Sony (SNE) a means to really take Nintendo’s Wii to the mat.

Now, about that PlayStation 3 price cut rumor: Sony isn’t planning one, though arguably that’s exactly what the console, which is being outsold two-to-one by the Xbox 360 and the Wii, needs. “As we have stated previously, we do not have plans for a PS3 price drop, and any rumors to that effect are false and are the result of speculation,” Sony Computer Entertainment America said in a statement. “SCEA remains focused on the long-term momentum of PS3. With the industry’s best software lineup this year, combined with our most aggressive marketing campaign to date, we remain confident in our approach and the value we’re delivering with PS3.”

Now that’s not nearly the 44 percent spike of the previous year, but it’s certainly far better than expected. Said NPD analyst Anita Frazier: “While industry growth has not continued at the blistering pace we saw during the second and third quarters, December’s 9 percent increase over last December brings the year in 19 percent ahead of last year, and sets a new record for total industry sales.”

The engine of the industry’s sales growth? Nintendo. Defying the continued deterioration of the economy, the company saw sales for its Wii and DS consoles surge 59 percent and 23 percent in December and 62 percent and 17 percent for all of 2008. Meanwhile, Microsoft (MSFT) sold 1.44 million Xbox 360s during the month. And Sony (SNE) sold just 726,000 PS3s and 410,000 PSPs.

Clearly, Nintendo carried the industry despite the current economic downturn. Indeed, the Wii accounted for an astonishing 55 percent of all current generation home console sales in 2008.

“Without these sales, the industry would have likely felt the full wrath of the recession–much like other industries closely linked to gaming,” said Jesse Divnich of Electronic Entertainment Design and Research. “We believe their simple-to-use design, cheaper and wider variety of software titles, and the already ‘hot effect’ in place on both systems, all played a role in driving both the Wii and the DS to the top of their segments. Simply put, Nintendo saved Christmas.”

And so the company has begun offering a video-downloading service for its PlayStation 3 videogame console. Announcing the service at the gaming industry’s E3 conference in Los Angeles, Sony (SNE) said TV-show rentals will cost $1.99 per episode and movie rentals $2.99 to $5.99. Movie purchases will start at $9.99 and top out at $14.99. Not bad for content from Sony Pictures, Fox Film & Television (NWS), MGM (MGM), Lionsgate (LGF), Warner Bros. (TWX), Disney (DIS), Paramount (VIA) and Turner Entertainment (TWX). Certainly a compelling proposition for the 10 million or so PS3 users in the U.S., who no longer really need to buy an Apple TV (AAPL) or Netflix Player (NFLX) to deliver downloadable video to their TV sets.

Still, PlayStation Network’s video delivery service faces stiff competition from those rivals and from Microsoft (MSFT), which on Monday announced a deal with Netflix to stream movies over the Internet to the Xbox 360 game console. That said, Sony doesn’t seem much concerned with Microsoft, which it seems to view as a bit behind the curve. “The Xbox 360 is irrelevant in Japan, and in Europe PlayStation 3 sales have passed the Xbox 360,” said Peter Dille, senior vice president of marketing for Sony Computer Entertainment America. “We have a good dog fight in the U.S. but worldwide, when you look at a global footprint, the PS3 is the only console that can offer developers the ability to amortize costs over three markets. We’re looking at this as a marathon and we’re confident that the PlayStation 3 will win the crown.”