Xbox Shoots for Next Level
Andrew Martin recently flew from his home in Florida to New York and stayed in a $400-a-night hotel -- all to play video games.
And Bill Gates picked up the tab.
A 24-year-old English major, Martin is considered a tastemaker among a group that Microsoft Corp. is sparing little expense to woo: hard-core video game enthusiasts.
Martin has posted more than 10,000 messages about video games on the Internet, so Microsoft considered his opinions key to generating positive buzz about its Xbox 360 game console.
As the software powerhouse readies the $399 console for release Nov. 22, the praise of gamers like Martin may give Microsoft the edge it needs to overtake market leader Sony Corp. in the $25-billion global game business.
“I played it and thought: Wow,” Martin said of a horror game that topped a favorable Xbox 360 write-up he posted online. “I wasn’t expecting there to be good games right away.”
It’s no game for Microsoft, which has lost billions of dollars on its current Xbox console. With Xbox 360, Microsoft envisions not only a sophisticated game machine but also a device that acts as the living room’s central nervous system. The console can display digital pictures on a television or work in conjunction with Apple Computer Inc.’s iPod music player to create custom game soundtracks.
“We definitely want the business to be bigger,” said Robbie Bach, head of Microsoft’s Xbox division. “We definitely want to be profitable and we certainly want to be the leader. If we come a close second to Sony and the market grows there’s goodness that comes from that, but it’s not everything we want.”
Sony has the same aspirations for its PlayStation 3, expected to hit store shelves next spring. And the stakes for Sony may be even higher than they are for Microsoft.
Although Xbox represents a costly experiment for the profitable Microsoft, games are one of the few bright spots for Sony, which has struggled against competition from the iPod and pricing pressure from Chinese and Taiwanese flat-panel TV manufacturers.
The success of PlayStation 3 is all the more important for Sony because the console includes Sony’s proprietary high-definition DVD technology, called Blu-ray. Sony is locked in a bitter format fight with Toshiba Corp., which backs a rival technology. Many see the success of Blu-ray and PlayStation 3 tied to each other.
“If you hear Blu-ray wins, it’s over for Xbox,” said Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles. “It’s not that [Microsoft] did anything wrong on the gaming side. Sony is exploiting its position as one of the dominant consumer electronics manufacturers. If they win on Blu-ray, they win.”
Sony’s current game console, PlayStation 2, outsells Xbox more than 4 to 1. It has sold 96 million PlayStation 2 consoles, compared with Microsoft’s 22 million Xboxes and Nintendo Co.’s 19 million GameCubes, according to the companies’ latest sales figures.
This time around, industry observers expect Sony to face a fierce foe in Microsoft.
“When we look back on this three or four years from now the relative market share between Sony and Microsoft will be much closer to each other, and there’s even a possibility Microsoft’s will be greater,” said Caris & Co. analyst Mark Stahlman.
Others aren’t so sure.
“A lot of retailers think Sony’s going to win,” said Richard Doherty, an analyst at Envisioneering Group in New York. “We think Microsoft is going to do better in this cycle because they’re shipping first, but we really don’t know many game developers that think Microsoft is going to be 10% ahead of Sony.”
Both consoles will play games, music and videos and connect to the Internet. Both seek to take advantage of high-definition television, which offers sharper pictures and more detailed resolution than conventional TV.
And both push the envelope on video game graphics to rival those of $3,000 computers. Xbox 360 harnesses its graphics capabilities in the game “Kameo: Elements of Power” to breathe life into little details. Sparkling flecks of pollen float through the air, turquoise and fuchsia monarch butterflies flutter across the screen and blades of lush, lime-green grass sway with the wind.
The Xbox 360 not only is more powerful than its predecessor but also is more cost-effective to manufacture and is enjoying stronger initial support from the software industry. The industry’s backing is important because its games allow Microsoft to concentrate on churning out the kind of exclusive, hit titles that drive console sales, much as “Halo” did for the original Xbox.
Toward that end, Microsoft acquired video game developers Rare Ltd., the firm behind “Perfect Dark,” and Bungie, the maker of Halo, and struck publishing deals with a handful of independent firms to produce exclusive content for Xbox 360.
The company expects sales of consoles, games and related products to exceed $1.5 billion during the first 90 days. A standard console is expected to sell for $299. One with a detachable hard drive, wireless controller and headset is expected to go for $399.
Unlike with the money-losing Xbox, Bach said, Microsoft hoped to break even on each Xbox 360 console -- and cut a profit from software and online memberships.
“It’s impressive to see how much Microsoft has learned,” said John Schappert, a senior vice president at Electronic Arts Inc.’s worldwide studios, which confirmed five games for Xbox 360’s launch, including “Madden NFL 06.”
In addition to its library of games, Microsoft is counting on a head start of several months. By the time PlayStation 3 and Nintendo’s new console, Revolution, go on sale next year, Microsoft hopes to have sold at least 2.75 million to 3 million Xbox 360 consoles.
Sony, though, has never been first to launch a new generation of consoles, instead using its credibility among gamers to persuade them to put off new purchases until its machines hit the market.
“Historically we have not been the first to market on any of our generations: Not on PlayStation, not on PlayStation 2, and obviously we won’t be with PlayStation 3,” Sony spokeswoman Molly Smith said. “That hasn’t deterred us one bit or affected our ability to ascend to the No. 1 position worldwide.”
As it spars with Sony, Microsoft also will have to contend with Nintendo, which has built a loyal fan base with its string of Mario, Zelda and Metroid games.
“Between Microsoft and Sony, those are basically two power boxes, and people are going to pick one or the other,” Nintendo spokeswoman Perrin Kaplan said. Nintendo, she said, will win buyers with its exclusive games and innovative new controller.
The three-way fight will be particularly tough in Japan, Sony and Nintendo’s home turf. Xbox holds less than 1% the Japanese market, a situation Bach blamed in part on his company’s late launch in Japan as well as a poor selection of the role-playing and fantasy titles preferred by the country’s gamers.
“It’s one of the few countries where we haven’t been successful and we haven’t been No. 2,” Bach conceded.
To woo the Japanese consumer, Microsoft ditched the black, bulky look of the original Xbox in favor of a sleek design and cucumber-flesh color for the Xbox 360. To generate buzz, the Xbox Lounge, a display center the size of a city block where visitors can play games, recently opened in the Aoyama neighborhood in central Tokyo.
Microsoft also has signed exclusive deals with several star game designers including Hironobu Sakaguchi, the creator of the popular “Final Fantasy” series. Those deals, Bach said, have generated support from other Japanese publishers.
“Certainly Japan is going to be tougher than North America and Europe, but we think we can start to make progress there and build a market position,” Bach said.
Few doubt Microsoft’s commitment.
“Microsoft is the largest, most significant and well-funded competition that Sony has seen in this space in its history,” said Ankarino Lara, director of product development for GameSpot, an online game news site. “When you think of Microsoft, it’s enormous. It’s global. It’s Bill Gates. Bill Gates, I’m sure, would like to take Sony down.”
