The price cut is a sign of the increasing competition between the HD DVD and Blu-ray disc high definition formats. Xbox 360 HD DVD buyers between 1 August and 30 September will get five free HD DVD movies by mail-in, from a catalog of 15 films picked for the promotion which include Apollo 13, Seabiscuit, Constantine, Casablanca, We Were Soldiers, U-571 and Blazing Saddles.

Rival Sony’s PlayStation 3 console has a Blu-ray disc player that is considerably more expensive than the Xbox 360 but it features only a standard definition DVD player. Recently, the Japanese consumer electronics giant which is championing Blu-ray disc technology against HD DVD reduced the price of the PS3 in north America by $100.

Microsoft VP Jeff Bell said that the $20 price drop would enable the Xbox 360 HD DVD player to be the most affordable way to enjoy high definition films. “From the beginning, we set out to offer Xbox 360 owners an unrivaled high-definition experience, with a choice of optical discs on the HD DVD format and digital downloads through Xbox Live Marketplace,” he said.

The company also announced that the movie ‘300‘ and pilot program for Heroes:Season 1 would be available in HD DVD format and it would also be unveiled at Xbox Live Marketplace on 14 August.