Who's Got Game Now?

With its next Xbox, Microsoft is out to grab more share from Sony and Nintendo

Who knew product briefings could be so entertaining? For months, Microsoft Corp. (MSFT ) talked up the long-awaited unveiling of its new game console, which is expected to be called Xbox 360, set for May 16. Then Sony Corp. (SNE ) tried to steal Microsoft's thunder by scheduling a news conference a scant three hours earlier to reveal its own console. Microsoft's riposte: a "sneak peek" of the new Xbox during a 30-minute infomercial airing on MTV (VIA ) on May 12. "Everyone's watching what Sony will come out with and what we will come out with and who can be the leader this time around," says Microsoft Chairman William H. Gates III.

Like gunslingers in their own shoot-'em-up games, top console makers are blasting away with marketing salvoes months before products even hit the shelves. Analysts don't expect Xbox 360 to go on sale until November, with machines from Sony and Nintendo Co. (NTDOY ) coming in early 2006. Still, the company that captures the lead will not only sell the most hardware, it will likely collect the biggest slice of revenues from sales of game software and fees from gamemakers whose titles run on their consoles. They're battling to rule a $24 billion industry that's expected to grow to $27 billion by 2007.

The stakes are even higher than usual with this generation of consoles. These machines are so powerful that they're capable of becoming all-purpose entertainment appliances in the digital home of the future. They will deliver not just games but also music, movies, e-mail, and advertisements. And the top console company will hold sway over the technologies that link home devices -- giving it a leg up in the race to sell scads of related products.

Microsoft did little more than establish a beachhead with its first console, but this time it could do much better. For starters, Xbox 360 will hit stores ahead of PlayStation 3 -- rather than being 20 months behind, as the first Xbox was when it debuted four years ago. Its own Halo 2 was the No. 2-selling game last year. And Microsoft has pulled out the stops to woo gamemakers by making it much easier to create exciting games for Xbox. "Microsoft is finally thinking like a software company -- and about how they can help their partners build games," says Brian J. Farrell, CEO of game developer THQ Inc. (THQI ) Farrell is developing new games designed to harness Xbox' features.


Analysts believe Microsoft will gain market share on both rivals. Unlike the last time around, it will have a wide selection of popular games from the get-go. "There will be more games because Xbox is now proven," says equity analyst Edward S. Williams of Harris Nesbitt Corp. Right now Sony has a 69% market share worldwide, vs. 16% for Microsoft and 15% for Nintendo, according to market researcher DFC Intelligence. By the time the next generation peaks, Williams predicts, Microsoft will have 25% market share, Sony 65%, and Nintendo 10%.

That's despite the fact that PlayStation 3 is expected to boast hotter technology. In addition to high-definition graphics and massive processing power in its Cell multimedia chip, it also will offer a new DVD technology called Blu-ray Disc. Unlike Xbox 360, the new PlayStation will be able to run high-definition movies. "We look at delivering a quantum leap in technology, not just Xbox version 1.5," says Sony spokeswoman Molly Smith. But analysts believe it's the games that matter most -- so being a little less hot won't hurt Microsoft much.

Nintendo is a wild card. Executives there say they'll launch their new console, code-named Revolution, around the same time as Sony. But they haven't provided any information so far about its capabilities -- and little has leaked out. Gates dismisses the industry stalwart as a "niche player," but game developers say it's way too early to count Nintendo out.

Microsoft isn't likely to crush the competition. But a year from now the contest between Xbox and PlayStation could be much more even. One thing's sure: All this one-upmanship is going to prove mighty entertaining for gamers.

By Cliff Edwards in San Francisco and Jay Greene in Seattle

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