updated 7/13/2008 2:54:54 PM ET 2008-07-13T18:54:54

Microsoft Corp. is trimming the price of its Xbox 360 video game console to make way for a new model with a bigger hard drive.

Starting Sunday, Microsoft's mid-range Xbox 360 console with a 20-gigabyte hard drive will cost $299 in the U.S., down from $350.

(Msnbc.com is a Microsoft-NBC Universal joint venture.)

Blogs have carried rumors of the decision since June, when photos depicting the $299 price tag were posted to the Internet.

An updated Xbox 360 is set to arrive in stores in early August. The $350 replacement will sport a 60GB hard drive, significantly more space for storing the games, TV shows and movies Microsoft sells on its Xbox Live Marketplace Web site.

Microsoft also is expected to give the Xbox a little extra appeal by streaming movies and TV episodes through a high-speed Internet service offering by Netflix Inc. The long-rumored deal could be announced as early as Monday at a video game conference in Los Angeles.

Microsoft did not adjust prices for its more basic Xbox 360 Arcade version, which has just 256 megabytes of storage and costs $280, or for the Xbox 360 Elite, a $450 model with a 120GB hard drive.

The Redmond, Wash.-based company released its next-generation game console in 2005, a year ahead of competing machines from Nintendo Co. and Sony Corp.

As of the end of May, Microsoft had sold 10.3 million Xboxes in the U.S., according to data from market researchers NPD Group. By comparison, Nintendo had sold 10.2 million Wii consoles, and Sony had sold 4.5 million PlayStation 3 machines.

Nintendo has kept the Wii's price at $250 since its U.S. launch in November 2006, while Microsoft and Sony have made several cuts to console prices in different regions. Currently, PS3 models cost $400 to $500 in the U.S.

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