At this time last year, Sony's video game business looked like it might take a beating. Sales of its PlayStation 3 lagged behind those of Microsoft's Xbox 360 and Nintendo's Wii. Sony's machine was more expensive – at least $400 compared to $250 for the Wii. And although the PS3 has more processing power than the others, few games have taken advantage of all the horsepower under its hood.

Now at the start of this year's E3 – the annual business conference that sets the tone for the industry – everything is different. Well, not everything: The Wii is still outselling the other machines, and Nintendo is still making more money than its rivals. But the PS3 suddenly looks like a good deal compared to the Xbox 360. This has very little to do with any difference in performance. At this point, most third-party publishers develop their PS3 and 360 games together, so any differences are minor. And though Microsoft has some impressive exclusives, including the "Halo" and "Gears of War" franchises, most analysts expect it to gain ground on its Redmond-based rival.

One reason the PS3 carried such a high price tag was Sony's decision to include a Blu-Ray player that could be used to view movies in that format. A couple of years ago, this seemed foolish – it doesn't do much for game play, there weren't many movies available and Sony was locked in a format war with Toshiba, which was promoting its HD DVD technology with help from Microsoft. Gamers didn't think the extra feature was worth the extra cash.

This winter, Sony won its format war – to the extent that Toshiba abandoned the format in February. Blu-Ray suddenly seems useful, if not quite necessary. And since video game console makers subsidize machines to make money on software, the PlayStation 3 looks like a bargain. It costs $400, while the most reasonable Blu-Ray player I could find on Amazon is going for $330. If you're in the market for a Blu-Ray player, you can get a next-generation video game machine for $70. If you're thinking about getting a Blu-Ray player, the idea of getting a next-generation game machine might push you over the edge. And if you're thinking of buying a video game machine and you're not sure which one you want, the PlayStation 3 fills two functions. (Perhaps most importantly, it's easier to justify spending $400 to a wife or girlfriend who likes movies.)

This won't hurt the Wii, which is a very different machine in a very different price range. (As I joke to friends, If you don't pick up a Wii for $250, you must just hate fun.) But it could cause problems for the Xbox 360. Microsoft does have some nice exclusive games, but Sony now has at least one exclusive hit in "Metal Gear Solid 4: Guns of the Patriots" and more on the way. Sony still lags in online features, but it is expected to announce plans to address that this week.

The video game business is once again a real horse race – great news for those of us who cover it. I'll weigh in again with a mid-week update on Wednesday.