The software giant could not immediately be reached for comment, but the Journal cited people familiar with the matter in reporting that Microsoft will reduce the price for the version of the Xbox 360 with a 20GB hard drive as early as Sunday. In fact, the Journal said the lower-priced console is expected to be widely advertised in Sunday advertisements for electronics stores.

A Summer Sales Boost

Michael Cai, a video-game analyst at Parks Associates, said the price cut could lead to a summer sales boost. Microsoft, he said, needed to stimulate gamer interest in the console, and now is the right time for a price cut.

Ironically, although the video-game industry is reporting one of its strongest sales periods in history, Cai said Grand Theft Auto IV didn't do much to help console sales. NPD Group reports game sales in May climbed 41 percent to $537 million. Launches of highly anticipated titles like Guitar Hero, GTA IV and Wii Fit have been a boon to the industry.

"GTA IV didn't help much and there isn't a killer game on the horizon -- no pun intended," Cai quipped. Parks Associates' study of 2,000 U.S. Internet gamers, Electronic Gaming in the Digital Home II, reports that consumers interested in buying a console are more interested in Nintendo's Wii and Sony's PlayStation 3 than the Xbox 360. Among those who intend to purchase a console, 38 percent ranked Wii as their No. 1 choice, followed by PS3 at 31 percent, and Xbox 360 at 19 percent.

Microsoft Jockeys for Lead

While Microsoft may have gotten out of the next-generation console gates early and become the leading console in terms of units in homes, Sony and Nintendo are moving up.

The PS3 is finally firing all cylinders after a rough start, spurred by price cuts and new game titles. The PS3 starts at $399, but includes a Blu-ray Disc video player. Sony has been edging out Microsoft in sales or coming in a close second in recent months. According to NPD, U.S. retailers sold 209,000 PS3s, compared with 187,000 Xbox 360s, last month.

Cai said Microsoft's price reduction could shake things up and turn more heads toward the Xbox again. His research suggests the $50 price drop could help consumers see Microsoft's console as a better value. "Shaving off $50 narrows the gap between the perceived value of the Xbox 360 and the Wii and PS3," Cai said.