Microsoft Uses Kinect to Combat Nintendo Wii, Lure Gamer Moms

Microsoft Corp. today starts selling Kinect, a device that lets consumers play video games with their bodies, to help it lure casual gamers and add years to the life of its Xbox 360 gaming console.

Kinect, shaped like a flat, black box, tracks a player’s movement and voice and costs $149.99 by itself or starting at $299.99 when purchased with an Xbox 360 console. Microsoft yesterday boosted its forecast for Kinect sales this year to 5 million units from 3 million after the device sold out in pre- sales at retailers such as Amazon.com Inc. and Best Buy Co.

Chief Executive Officer Steve Ballmer is depending on Kinect to catch Nintendo Co., which pioneered the motion-sensing gaming market with its Wii controller, and Sony Corp., whose Move controller hit stores in September. The product is also designed to help Microsoft goose sales of the aging Xbox 360, released in 2005, and improve margins of a unit that lost about $8 billion before reaching profitability in 2008.

“It’s a very intuitive and innovative product,” said Gregg Moskowitz, an analyst at Cowen & Co. in New York, who has an “outperform” rating on Redmond, Washington-based Microsoft. “It’s not ideal for every video game, but it has that potential to tap into a new market where we haven’t seen Microsoft before.”

Microsoft may generate $500 million in Kinect sales this quarter and $1 billion this fiscal year, which ends in June, according to Moskowitz. If Microsoft can meet its new forecast for holiday Kinect sales, the company will exceed his estimate by about $250 million for the quarter, Moskowitz said.

Casual, Social Gamers

With Kinect, Microsoft is aiming at users of so-called casual games, which tend to be more family-friendly than traditional shoot-’em-up video titles, and social games, played on social networks such as Facebook Inc. Consumers may spend $2.4 billion on casual games this year, according to Parks Associates, a research firm in Dallas.

Microsoft, which pioneered the market for online multiplayer console games, will try to extend its advantage with Kinect games such as “Kinect Sports” and “Kinect Adventures.” Many of the 17 games available at introduction let gamers snap photos of themselves playing and post them online.

As a company that hasn’t traditionally attracted casual gamers with Xbox, Microsoft may need to take pains to win over wives, mothers and teenage girls who may already have an Xbox in the house but don’t use it, said Michael Pachter, a video-game analyst at Wedbush Securities Inc.

Ellen, Oprah

To do that, Microsoft has previewed the device on daytime talk shows hosted by Oprah Winfrey and Ellen DeGeneres. A clip of DeGeneres doing Merengue moves along with Kinect’s “Dance Central” game -- from the makers of the classic title “Rock Band” -- led Pachter’s non-gamer wife to ask when the family was getting one.

It worked in Ballmer’s household too, the executive told a group of students at the University of Washington last month. His wife, Connie, had banished the Xbox from the main part of the house, saying it was distracting the kids from homework, until she saw Kinect, Ballmer said at the time.

“They have a lot riding on it,” Pachter said. “If they can get every Wii household to upgrade to this, they can sell another 50 million consoles. They won’t succeed in that, of course, but that’s the goal.”

Microsoft rose 11 cents to $27.14 at 4 p.m. New York time in Nasdaq Stock Market trading. It has declined 11 percent this year.

Microsoft’s ‘Confidence’

Microsoft’s higher Kinect sales forecast “shows a lot of confidence,” Pachter said. In that same period, Sony may sell about 3 million Move units, he said.

Microsoft’s Entertainment and Devices unit, made up mostly of Xbox sales, had a profit of $679 million for the year that ended June 30, only the third year the business has turned a profit. Kinect is key to expanding margins. Consoles typically lose money for the first several years before turning profitable and the Xbox 360 is now narrowly profitable, Microsoft has said.

Unlike a new console, Kinect won’t lose money from the time of its release, according to Moskowitz. When it reaches full sales capacity, Moskowitz expects Kinect to be more profitable than the Xbox. Microsoft unveiled Kinect in June 2009.

Still, many hard-core gamers like Pachter himself “won’t really care” about Kinect, he said. Pachter said he’d rather spend the money to buy “Vanquish” and the latest installments of “Gears of War’ and “Call of Duty,” three shooting games.

Don Mattrick, president of Microsoft’s Interactive Entertainment Business, said in an interview that he’s confident “Xbox and Kinect is for everyone, whether you are 8 or 80.”

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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