Video games are Walmart's new front in the price wars

It looks like Walmart is fixing to do for video games what it's already done for toys and books this season.

Wal-Mart Stores (WMT) announced it has cut the prices of popular video games like Halo 3: ODST; Rock Band: Beatles; and Left 4 Dead 2 by up to 20% and will give away a $50 gift card with each $199 Nintendo Wii console sold Dec. 5-12. It's not exactly a $10 toy or $9 book, but as the retail behemoth's announcement said, it's "game on."

Rivals Target (TGT) and Kmart (SHLD) shouldn't be far behind, especially since Target has vowed it won't be underpriced by Walmart this year. And expect some move also from Toys R Us, which this season has shown it's willing to get down with the discounters to protect its market share, even as it tries to stay above the fray.

In fact, Toys R Us was first into the video-game promotions when it announced it would offer trade-ins on old games, even those made for vintage consoles like the Intellivision and Atari 2600. A few weeks later, Sears Holdings launched preordering for video games at its Sears and Kmart stores. And right before Black Friday, Toys R Us upped the ante again, by adding newer game consoles to the trade-in program and including consoles in its layaway program for big-ticket gifts.

Game Over for Console Games?

All this fighting over video games has a purpose, other than bleeding the other guy dry: Electronics is one department where retailers are seeing consumers willing to spend this holiday. But they're still careful, so a $40 video game is a better traffic draw than a big-ticket item.

Sadly, this could all be a fight over a bigger slice of a shrinking pie. As Walmart was making its announcement, CEO John Riccitiello of Electronic Arts (ERTS), which sells the blockbuster Left 4 Dead 2, told the Reuters Global Media Summit in New York on Tuesday that the video-game software market is beginning to dry up.

Riccitiello says EA plans to release fewer games next year because online games played on social networking sites or cell phones are taking ground from console games. Online games like Bejeweled will make up half the industry sales by next year, he said.

So retailers will find fewer titles to stock next holiday, but for now, the price war is on. Even money is that Target and Sears will have something to say before the next holiday shopping weekend.

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