Copyright 2001

[ November 15th 2001 ]

The billion-dollar clash of the video-game titans opens today, with Microsoft's retail launch of its new console, the Xbox, pitting it against Sony and Nintendo. However, Microsoft views its true competition as NBC's popular TV show Friends or the box-office movie hit Monsters Inc.

It sees its challenge as developing entertainment more compelling than anything else vying for a consumer's leisure time. "We have been very successful in changing the way people work from nine to five," said J. Allard, general manager for Microsoft's Xbox platform. "Now we have the way to change the way people play from five to nine."

The US$300 Xbox is the manifestation of Microsoft chairman Bill Gates' ambition to put the company at the heart of the coming digital revolution - the family living room. It will spend US$500 million on marketing Xbox. The software giant faces formidable competition from dominant console-maker Sony, whose PlayStation and PlayStation2 game systems are in 33 million United States households, and video-game veteran Nintendo, which unveils its new system, the US$200 GameCube, on Sunday.

Analysts predict PlayStation2 will win comfortably this holiday season, with sales reaching 10 million consoles in North America since its launch 13 months ago. Microsoft and Nintendo each promise to ship about one million game systems this year.

Microsoft's decision to enter the video-game market is evidence that the business has matured beyond its toy-industry roots. Sales figures provide the details. Analyst Gerard Klauer & Mattison expects sales to reach a record US$8.1 billion this year, equalling theatre box-office receipts, which are on track this year to break US$8 billion for the first time.

Total receipts for games hardware, software and accessories are up 35 per cent from last year, according to NPDFunworld, a New York group that tracks retail sales. Industry analysts expect the sector to continue to climb at a 25 per cent to 30 per cent annual rate over the next five years.

The demographics of game play are expanding beyond the traditional audience of adolescent boys to include a more girl players and adults. A survey for the Interactive Digital Software Association found that 60 per cent of Americans played computer or console games, and more of them were over 18.

"It is not just for the pimply kids. It has become mainstream entertainment, just like watching movies or listening to music," said Kazuo Hirai, president of Sony Computer Entertainment. "Just walk into a [video shop]. Along with motion-picture DVDs and VHS cassettes, you have got mostly PlayStation games for rental. Those guys would not get into that business unless they thought that business was there."

Even larger sociological forces are at work, contributing to the popularity of video games. Trend forecaster Faith Popcorn has dubbed it "cocooning". Americans are staying closer to home, a trend that is especially evident after the September 11 terror attacks.

These factors lead industry forecasters, such as Deutsche Banc Alex Brown, to predict that interactive entertainment will grow faster than any other form of entertainment over the next four years, eclipsing box-office, home-video rentals and music sales. It is estimated that 60 per cent to 70 per cent of US households will own one of the next-generation game systems, as many as own personal computers.

Indeed, this new breed of more-robust game console, some of which also can play DVD movies and audio CDs or provide high-speed Internet connection, could be positioned as the centrepiece of living-room entertainment. That was what attracted Microsoft's interest.

Mr Allard said the confluence of digital devices - from portable MP3 music players to personal video recorders such as TiVo, to direct broadcast satellite TV and digital photography - suggested a business opportunity. "You don't have to squint too hard to see that technology is going to change entertainment forever," Mr Allard said. "We are on the verge of a digital entertainment revolution. That opportunity needs a leader. Who better to do it?"

Microsoft's Xbox, with its DVD player, Ethernet port, 733-megahertz processor and powerful Nvidia graphics chip, is poised to become the focus of a home entertainment system. It is arguably more powerful than PlayStation2 or GameCube and has bigger ambitions. While Nintendo and Sony view online console games as a far-off feature, Microsoft is building Xbox's identity around what Mr Allard describes as "broadcast gaming".

He is betting that mainstream players will not be satisfied with the kind of game play that is restricted to the living room. They will want to form their own basketball team with friends from across the country or beyond and play in virtual competition. They will pay to download a new mission for an episodic game such as Tomb Raider, or game-show fans will become contestants on The Weakest Link.

"I want an Xbox next to every television. To put an Xbox next to every TV means your experience has to be better than the competition, more compelling than Friends, ER or Third Rock from the Sun," Mr Allard said.

Competitors such as Nintendo are gambling on a simpler formula. It says the technical differences between the game systems are invisible to most consumers. Its new console, the GameCube, will succeed on the strength of its exclusive game franchises, such as Pokemon, Mario and Zelda.

"We believe they [Microsoft] are making a mistake," said George Harrison, Nintendo's senior vice-president of marketing. "If you are making the best game machine you can, at the most attractive price, consumers are willing to pay for the benefits they see right now, against the future potential of modems."

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