Microsoft Seeks Gamer Acceptance With Xbox One E3 Event

Source: Microsoft

The screen of the Xbox One, showing the TV and movie screen views. Close

The screen of the Xbox One, showing the TV and movie screen views.

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Open
Source: Microsoft

The screen of the Xbox One, showing the TV and movie screen views.

Microsoft Corp. (MSFT), seeking to position its Xbox One entertainment console as the premium living-room choice for gamers as well as families, showed exclusive titles such as “Halo” and set a price that surprised analysts.

The Xbox One will hit stores in November for $499 in the U.S., Microsoft executives said today at the annual Electronic Entertainment Expo in Los Angeles. The console will have 13 exclusive next-generation games, said Don Mattrick, president of the company’s interactive entertainment unit.

Microsoft is using E3 to blunt the perception that the console de-emphasizes games in favor of movies, sports and functions like Skype video-calling. The company today showed major titles like Electronic Arts Inc. (EA)’s “Battlefield 4” with some exclusive content, and highlighted features that make games more interactive, social and hyper-realistic.

“As we’ve been promising, it’s all about the games,” Mattrick said from the stage at E3.

The machine, first announced on May 21, uses improved Kinect voice commands and motion sensing to recognize users and switch between games, TV shows and Skype calls. The emphasis on other content led to grumbling among serious gamers, concerns Microsoft set out to answer today showing the new Xbox’s advanced features can lift traditional game play as well.

The next version of “Halo,” Microsoft’s top-selling science-fiction game that has anchored the Xbox, will arrive in 2014, the company said. It will run at 60 frames per second, more than double the speed of most movies today. “Plants vs. Zombies,” another Electronic Arts game, will be exclusive to Xbox.

Price Tag

Exclusive Xbox One titles with advanced graphics also include “Sunset Overdrive,” from Insomniac Games Inc., and Crytek’s “Ryse: Son of Rome.”

Analysts said they were surprised at the $499 price tag for the console, an upfront cost that could potentially be lowered by contracts for content such as for Microsoft’s Xbox Live service. The machine will cost 499 euros ($662) in most of Europe and 429 pounds ($668) in the U.K., Microsoft said.

“It seems expensive,” said Brian Blau, an analyst with researcher Gartner Inc. “It really seems like they are trying to create a different type of premium product, like Apple creates a premium product with high-end design, and comes in at a high price. It certainly seems Microsoft is putting enough resources behind it to put a lot of games into the ecosystem.”

Price Debate

Xbox One will compete against Sony Corp. (6758)’s coming PlayStation 4, which also will be selling by the holidays, in addition to consoles, tablets and other devices that have eaten away at the traditional video-game market. Nintendo Co. (7974)’s Wii U, released in November, sells for about $300 in the U.S. and has missed sales targets.

The Xbox Live service, content partnerships with the NFL, access to Skype video calls and unique features such as the SmartGlass app that allows users to switch between screens set Microsoft apart, Mattrick said in an interview.

“We’re overdelivering value against other choices,” Mattrick said. “Any modern product these days, when you look at it, $499 isn’t a ridiculous price point.”

While Microsoft showed a lot of games, the high price could work against it, Blau said. In the last generation of consoles, Sony’s PlayStation 3 lost its lead pursuing a similar premium pricing strategy. The Wii sold the most units in that generation and the Xbox has sold the most in the past two years or so.

“It’s a huge price increase,” Blau said. “Creating that premium product hasn’t really worked in the games industry. I’m skeptical.”

Loyal Users

The Xbox one will probably be subsidized, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. He said Microsoft is probably calculating it can fetch the higher price for the first 10 million units, pulling in an extra $1 billion, and it can cut the price if it has to.

“It will come out of the pockets of their most faithful,” Pachter said.

The Xbox 360 ranges from about $199 to $299, depending on accessories bundled with it, such as Kinect. Microsoft unveiled a new, slimmer version of the current-generation machine today at E3.

‘Special Features’

Xbox One titles include “Forza Motorsport 5,” which takes advantage of the console’s social capabilities to create an avatar that learns the player’s driving habits and stands in for them to keep playing while they’re away, for example at work.

Another title called “Project Spark” allows users to create their own games. The company also played up integration with the SmartGlass app.

Developers are looking for the first new consoles in almost seven years to pull the video-game industry out of a two-year slump in retail sales.

“Our goal is to make sure that we really do take advantage of whatever special features the machines are going to bring,” said Tony Key, vice president of sales and marketing at Ubisoft SA.

After some gamers criticized Microsoft for its lack of clarity on used games and how new ones will be played, the company said last week consumers may sell their games back to retailers or give them to friends, provided they have approval from the publisher. All games must be authenticated at least once every 24 hours to continue playing, the company said.

Stock Rise

John Reseburg, a spokesman for Electronic Arts (EA), and Alan Lewis, a spokesman for Take-Two Interactive Software Inc (TTWO)., declined to comment on whether their companies would place limits on used games sales, trade-ins or swaps among friends. A spokeswoman for Activision Blizzard Inc. (ATVI), the largest publisher, didn’t return a e-mail seeking comment.

Microsoft, based in Redmond, Washington, fell 0.6 percent to $35.47 at the close in New York. The stock has gained 33 percent this year, compared with an advance of 15 percent for the Standard & Poor’s 500 Index.

To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Thomas Giles at tgiles5@bloomberg.net

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