It’s been quite the couple of days for Sony. The company announced at E3 this week the launch of the PlayStation Network Video Download Service as well as the 80 GB version of the PS3 for the same price as the 40 GB model.

The PlayStation Video Service will give users the ability to download full length movies, TV shows through the PlayStation Store on the PlayStation Network. The PlayStation store has a catalog of 1,500+ movies and TV episodes some of which are available in HD as well as standard.

Unfortunately the content being made available from 20th Century Fox Home Entertainment, MGM Home Entertainment, Lionsgate, Sony Pictures Home Entertainment, Warner Home Video, Walt Disney Studios Home Entertainment, Paramount Home Entertainment, Funimation and Walt Disney is only being launched in the US for now, so it looks like Europe will have to wait a little while before they get the service.

Sony also announced a permanent price cut of its 80 GB console, which will replace the 40 GB version of the PlayStation 3. Sony said that it will drop the 40 GB version of the PS3 and replace it with the 80 GB version, which will now retail for $399, down from $499. The price cut comes right after a similar announcement about the Xbox 360 and puts both consoles at a similar price. To be clear, however, the upcoming 80 GB model appears to lose the backwards compatibility and memory card reader slots that are a part of the current MGS4 bundle.

$399 is still a steep price tag for a game console, but Sony is now approaching Xbox territory. The PS3 is now right in the middle between the $449 Xbox Elite with a 120 GB hard drive and the $349 60 GB Xbox Pro. The fact that the PS3 comes with a Blu-ray drive and the Xbox stays with an upscaling DVD player means the decision between an Xbox 360 and a PS3 is now going to mainly be a question of how much the Xbox’ entertainment features or the PS3’s Blu-ray drive are worth to you.

Sony has seen its PS3 gain traction in recent months and the company now seems to be determined to pull further ahead of Microsoft, which lately seemed to be struggling in European and Asian markets.

Microsoft has recently upgraded its Xbox 360 with new entertainment features and is driving the console much more to become an entertainment center, it will be interesting to see whether Microsoft’s or Sony’s console will be collecting the dollars down the road.

The downside of this cutthroat competition, of course is shrinking margins or increasing losses. The PS3 and especially the Xbox 360 are in a time of their life-cycles where both should be starting to actually make a profit. While Microsoft actually may be making a profit (at least its gaming and entertainment division already does), Sony’s latest price cuts raises further doubts, if the PS3 can ever become a profitable business. As part of a recently filed financial report, the company said that it has lost $3.3 billion on the PS3 so far and analysts actually doubt whether the companies will ever be able to recoup those losses. However, the Microsoft’s balance sheet looks even worse: Combined losses of the Xbox and Xbox 360 between 2002 and 2007 exceeded more than $7 billion, according to SEC filings.

However, it is not difficult to see that Sony just made a very aggressive move and Microsoft’s temporary price cut seems even more half-baked now. The $299 20 GB Xbox 360 will only be available until supplies last and the new 60 GB almost seems expensive. Another price cut in the near future may me inevitable for Microsoft.