"Asking consumers to pay $500 to $600 for a game console, when most have yet to purchase an HDTV, will give many current PlayStation 2 owners reason to consider the competition," said Michael Wolf, principal analyst with ABI Research's broadband and multimedia research practice. "Sony has clearly hamstrung itself with a box that is expensive to manufacture, and these costs are driving a retail pricing strategy that places a high financial burden on the consumer."

As the E3 show came to a close last week, Nintendo was the clear winner in the "buzz" stakes: the industry embraced the innovation the company has shown with its motion-sensing controller. By focusing on unique gameplay experiences and shunning the graphics space-race consuming its competitors, Nintendo is enjoying much higher publisher support than was evident at the launch of its GameCube.

ABI Research also believes that Nintendo is the best positioned of the three to expand into the casual gamer and new gamer audiences with creative titles such as Wii Sports and WarioWare: Smooth Moves.

While Nintendo had the best showing at E3, the biggest announcement came from Microsoft with the unveiling of the Live Anywhere service. This new iteration of the company's online gaming service is clearly still in the development stage, but the ability for PC and mobile phone users to access the same online gaming community is a huge strategic maneuver with important long term implications.

"The ability for gamers to be continuously connected across three screens is incredibly important," said Wolf. "While we believe buy-once-play-anywhere will be hard to implement due to intellectual property and technology restrictions, the initial benefits of Live Anywhere--such as mobile scheduling and game asset purchases--will give Microsoft something that the other two competitors will be hard-pressed to counter."