Sony, already dominant in the US$30 billion global video game industry, went on the offensive against its rivals at the Electronic Entertainment Expo, announcing a new handheld game player, a partnership with America Online (AOL) and an exclusive deal with the industry's top game publisher. Sony's PlayStation Portable (PSP) is a direct attack on the Game Boy stronghold of Nintendo, while the deal for online sports games with Electronic Arts is a snub at the online aspirations of Microsoft's Xbox. The PSP will feature a 4.5-inch liquid-crystal display screen, a custom-designed 1.8 gigabyte optical disc and movie and music playback features. It will also feature a 32-bit central processor, much like Sony's original PlayStation console. Sony's plans were brushed aside by Nintendo, which has dominated the handheld market since the 1980s. Nintendo said it would focus its efforts on linking its handheld Game Boy line with its GameCube console and launching new versions of its legendary games, such as The Legend of Zelda. Nokia, the world's largest mobile phone maker, also announced plans to enter the lucrative game industry with a hybrid phone and game device set to be available in October for US$299 - a 40 per cent premium on the PlayStation 2 console. Sony said it would encourage game publishers to re-issue older games for the PSP as well as develop new titles. 'I would think some of the publishers would want to take advantage of their existing libraries,' said Sony Computer Entertainment of America president and chief operating officer Kazuo Hirai. Some of the PSP's planned features, such as a screen with a wide-aspect ratio, would lend themselves to entirely new games, Mr Hirai said. 'The apparent hurdle of introducing a new platform or a new media is not that much of a hurdle,' he said. Mr Hirai said fans of Sony's line of personal digital assistants, the Clie, should not expect that the PSP will bear much resemblance to the Palm OS-based PDAs. 'Clie to us is more of a productivity tool,' Mr Hirai said. 'I don't know that there's really anything that can be used from the Clie design . . . for the PSP.' Analysts said Sony was trying to repeat its success of 1995, when the original PlayStation unseated Nintendo as the world's top console. 'They will spend the US$100 million it takes - because, why not?' said Wedbush Morgan analyst Michael Pachter. Others were more excited by the news that Sony would bundle its network adapter, which enables Internet gaming, with an updated PlayStation 2 console for US$199. Sony also announced a partnership with AOL to introduce a service that would allow PlayStation 2 users to chat with one another via AOL. Titled AIM Talk, the service would allow PlayStation 2 owners with voice headsets and video cameras to communicate via instant messaging with other users on PlayStation 2 or PCs. Also, AOL said it would introduce features allowing PlayStation 2 users to listen to streaming music and watch film previews and TV clips. Microsoft already offers voice chat within games on its Xbox Live service, though its users cannot chat with people outside the Microsoft system. In another surprise, Sony cut the PlayStation 2's price to US$179 in the United States, down from US$199. Microsoft responded with a matching US$20 price cut on the Xbox. 'I think that [Microsoft] may have jumped the gun here,' Mr Hirai said. 'I assume they want to be in more homes. That's probably where they need to start.' Mr Hirai said Sony's cut would help clear inventory ahead of the June launch of a redesigned PlayStation 2, which will include an online adapter. Microsoft Xbox vice-president J Allard said he was unimpressed by the price cut, but felt he had to replicate it. 'We want to be competitive on all fronts,' he said. 'Sony made the move to reduce [its] cost. We learned that yesterday and we matched.' Matt Rosoff, an analyst at research firm Directions, was similarly unimpressed by either firm. 'They didn't really set the show on fire,' he said. 'It is mainly a response to Sony and also a response to the kind of lacklustre reaction to their other E3 [Electronic Entertainment Expo] announcements.' Satoru Iwata, Nintendo's president, said his company had no plans to budge from its US$149 price tag for the GameCube. He said his rivals' online business models were fundamentally flawed. 'I don't think it's reasonable to make someone pay for a game and then make them prepare a network connection and also charge a monthly fee,' Mr Iwata said. 'In the near future we are hoping to announce something that addresses this issue.' So far, only one online game, Fantasy Star Online, has debuted on the GameCube platform. Sega, which has sold 200,000 copies of the game so far, said that 'most people play offline'. With the Sony and Nokia announcements, and the expected launch this year of a device code-named 'Helix' from TapWave, a start-up founded by former Palm executives, Microsoft will be the only big game company without a stake in the handheld market. In January, Microsoft chairman Bill Gates said a portable version of the Xbox was not imminent. 'It'll be several years, more like three years, before you could do something like an Xbox in a portable factor,' he said. The announcements led to two days of sharp drops in Nintendo's share price in Tokyo. 'I think the drop in our share price in reaction to that announcement was excessive,' said Mr Iwata. 'All we have from Sony is the name of their new machine and the optical media.'