Microsoft Corp will give video-game industry insiders their first look at its new Xbox game console this week, in a tryout expected to show how the system stacks up against Sony Corp's PlayStation 2 and Nintendo Co's new GameCube.
Xbox will debut at the E3 video-game trade show starting today in Los Angeles, providing an opportunity for people outside the company to use the machine. With its first game console, scheduled to go on sale later this year, Microsoft is taking on Sony and Nintendo, which have sold millions of systems.
PHOTO: AP
The champion will combine clever marketing with killer games that can be played only on that specific system, analysts said. A clear winner may not emerge until after the holiday shopping season of 2002, when the devices will all have had more than a year to attract buyers. The No. 3 device may wind up on the scrap heap.
"In the past you've quickly had two consoles emerge as the front-runners and then the others become inconsequential," said Jeffrey Griffiths, senior vice president with retailer Electronics Boutique Holdings Corp. "The big difference this time is that you've got three incredibly wealthy companies all vying to be No. 1." It's unclear if consumer demand is sufficient to support three new consoles -- along with Nintendo's handheld Game Boy Advance. More than two new consoles have never thrived at once, Griffiths said.
Consumers in the past have rejected devices ranging from Atari Corp's Jaguar to Nintendo's Virtual Boy. To avoid a similar fate, Microsoft plans to spend US$500 million promoting Xbox, which will compete most directly with PlayStation 2 for the allegiance of older teens and young adults. GameCube is likely to find a home among gamers aged 6 to 14, analysts said.
Some analysts expect Microsoft to say at the show that it will put Xbox on sale sometime between mid-October and early November at a price of US$249 or US$299. Nintendo, meanwhile, could reveal a retail price for GameCube as low as US$199.
Video-game related stocks have soared on optimism that sales and profit will rise with the new game systems. Nvidia Corp, which makes chips for Xbox, has more than doubled this year.
Microsoft is the top performer in the Dow Jones Industrial Average, with its shares rising 57 percent this year.
Microsoft is unlikely to make money from Xbox any time soon, though. Console makers typically sell their devices at a loss and earn money by collecting royalties from independent software publishers who make games for the system.
Microsoft may lose US$2 billion on Xbox before breaking even in fiscal 2005, according to Merrill Lynch analyst Henry Blodget.
Microsoft is playing catch-up against Sony, which unveiled PlayStation 2 last year. Both devices play digital versatile disc movies (Xbox requires the purchase of an additional remote control), and both may let users log on to the Internet at some point in the future.
The difference could come down to the games. Gamers will reward the company that develops the best titles or persuades game software developers to publish exclusives for its console.
"It's really a question of content," said Sam Nordberg, an analyst with Lord Abbett & Co. "If you don't have the software, it doesn't matter how good or how flashy your box is." Microsoft has done well in wooing independent software companies to make Xbox games, Nordberg said, by promoting features such as a hard drive that may lead to improved sound and video.
Some of Microsoft's claims to developers may not pan out, though. Officials at game companies debunked Microsoft's assertion that Xbox is easier and costs less for developers compared with PlayStation 2.
"I wouldn't say there are any great differences in developing games for any of these platforms," said Bobby Kotick, chief executive at Activision Inc.
Microsoft has to overcome Sony's head start in selling consoles, which gives game publishers a bigger customer base. Sony could sell as many as 30 million PlayStation 2s by March 31, compared with 7.5 million to 6 million for GameCube and 6 million to 5 million for Xbox, said Larry Probst, chief executive of Electronic Arts Inc.
Widely anticipated PlayStation 2 titles expected to go on sale later this year such as "Metal Gear Solid 2" will compete with the first Xbox games, which aren't likely to demonstrate the system's capabilities, he said.
As Microsoft assumes the unfamiliar role of upstart, history could be on its side. Console makers such as Nintendo, Atari and Sega Corp have failed to retain their advantage when introducing more advanced systems.
"No one's been able to hold the lead successfully," Griffiths said. "That should make Microsoft feel good about their chances."
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