In Battle of Consoles, Different Game Plans
The next generation of video game consoles promises epic battles powered by technological wizardry and high-stakes strategy.
And then there are the games.
Four years after PlayStation 2, Xbox and GameCube started their three-way tussle for a spot in American living rooms, the companies that make the consoles are preparing for their next round -- a brutal fight for control of the often-capricious $25-billion global game market.
For Sony Corp. and Microsoft Corp., the successors to their PlayStation 2 and Xbox, respectively, also are vying for the brass ring of digital entertainment in the living room: the ability to sell games, music, movies and shows over the Internet.
“They view the console as more than a platform for video games,” said Michael Goodman, senior analyst at Yankee Group in Boston. “Their vision is that the console will evolve as the centerpiece for the digital living room. That means digital distribution of games, movies, music, video. The whole digital enchilada.”
By contrast, Nintendo Co. insists that its new console will focus solely on games.
All three companies will tout the virtues of their respective consoles -- which won’t show up in stores until this Christmas and next -- at next week’s annual Electronics Entertainment Expo in Los Angeles. Although the new consoles all will tout bigger games, better graphics and faster chips, their approaches to the rapidly morphing video game market are vastly different.
Microsoft, a newcomer to video games but a powerhouse in the software industry, has linked its console’s success to the Internet and the home personal computer. Sony, whose decision to include a DVD player in its PlayStation 2 helped vault the console into first place, has focused on building the Swiss Army knife of consoles with the potential to be the home entertainment hub. And Nintendo has said it will compete by bringing out a first-class slate of games.
At stake for Sony is a business that has become a reliable profit center -- PlayStation contributed more than 10% of sales but 38% of the company’s operating income in the fiscal year ended March 31. For Microsoft, Xbox is a key platform to extend its reach from the personal computer into the living room. And for Nintendo, its bread-and-butter business of selling video games rides on how well it performs in this upcoming round.
First out of the gate will be Microsoft, which plans to start selling its Xbox 360 console by this Christmas, a year ahead of Sony and Nintendo. After running second to Sony for the last four years, Microsoft is aiming at the top spot.
Its console -- which sports a white hue Microsoft calls “chill” -- is a slightly slimmer, lighter version of the current black Xbox. It houses four powerful chips that require multiple fans and lots of circulating air to keep cool.
Although the first Xbox had an integrated 8-gigabyte hard disk drive, the new box will feature a 20-gigabyte detachable drive. The company will not say whether the hard drive will be sold separately or bundled with the console.
Microsoft also would not say whether Xbox games, such as “Halo 2,” could be played on the Xbox 360. The chip architecture of the new console is vastly different from that of the current box, which runs on an Intel Pentium chip.
The centerpiece of Microsoft’s new console, however, has nothing to do with hardware specs. It’s an expansion of the company’s online service, called Xbox Live. Currently, 1.5 million players pay just under $50 a year to subscribe to the service, which lets players chat and find opponents online for multi-player games.
The new service will add an online marketplace, where players can download additional levels or game items such as weapons, cars and characters.
Online represents a double source of revenue for Microsoft -- a recurring stream from yearly subscription fees and royalties each time players make a purchase. The company is keen to tip the profit scale with Xbox 360. It has lost money on each Xbox sold, hoping to make up for the losses from game sales.
For game publishers, online commerce presents an additional way to make money without having to spend tens of millions building the online network to manage transactions, billing and other back-office functions.
“The infrastructure is all done,” said Robbie Bach, head of Microsoft’s Xbox division. “All publishers have to do is create the content and then reap the benefits.”
Many publishers will find the option attractive, analysts said.
“Today, 95% of revenue is made” from store sales, said Yankee Group’s Goodman. “Only 10% of games make a profit. So it becomes critical to find new sources of revenue without incurring the large development costs of making a new game.”
Ankarino Lara, director of Gamespot, an online game news site, believes players also will bite.
“As long as the content is compelling, gamers will be willing to pay for it,” Lara said. “There’s a pretty well-established market already for expansion packs that adds new levels and helps extend the life of the game. Being able to do that online is just a very logical next step. But it has to be easy.”
To Microsoft, games may be just the first step in creating a platform for online distribution of other forms of entertainment, with content stored on a PC and streamed to the console.
“Over time, do I think there’s opportunity to have a music offering” on Xbox Live? Bach said. “Sure. You can assume that’s a logical area ... if that’s what our customers want.”
Sony also has ambitions to dominate the digital living room. But its approach is very different from Microsoft’s, analysts said. Whereas Microsoft’s strategy uses PCs as the main repository of digital entertainment, Sony envisions a network of smart gadgets talking to one another.
Central to Sony’s vision of networked devices is a new microprocessor it calls the Cell. The chip -- under development for the last four years by Sony, IBM Corp. and Toshiba Corp. -- is designed to eventually be the backbone of multiple Sony products, including the next PlayStation, computers and hand-held devices.
“The chip is wired to play with other devices that also have the Cell processor in it,” said Rick Doherty, an analyst at Envisioneering Group. “Because it has eight processors in each chip, the Cell has enough spare hands to be able to do three-dimensional rendering, true high-definition television, multichannel sound, and be able to talk to other devices in the household without having to slow down.”
The new PlayStation is expected to have as many as four Cell processors, each potentially running at 4 gigahertz. In addition, it will be able to play so-called Blu-ray DVDs, next-generation discs capable of storing five times as much data as regular DVD discs. Several movie studios, including Walt Disney Co. and Sony Pictures, have said they will release high-definition movies on Blu-ray discs.
“Sony will position PlayStation 3 as a universal next-generation DVD player and a home entertainment server,” said P.J. McNealy, an analyst at American Technology Research. “For Sony, the console is a key platform for controlling your home entertainment of the future.”
Though Sony is the undisputed leader in this round, having sold four times more consoles than its closest rival, the Japanese consumer electronics giant will still face some challenges, analysts said. For one thing, Sony is slated to release its box a year later than Microsoft, assuming there are no glitches in manufacturing.
Another issue is the complexity of developing games for the Cell.
“The Cell is pretty different than anything out there,” said Kevin Krewell, editor in chief of Microprocessor Report, an industry newsletter in San Jose. “It’s going to be a challenge to program for. No doubt about that. There’s going to be a learning curve. The early games will look good, but not as good as they could be. It won’t be until later after developers learn all the tricks that games will fully exploit the processing power of the chip.”
Nintendo tried to exploit this potential weakness, promising that its next-generation console, code-named Revolution, will be easy to program.
“Developing for it will be familiar,” Nintendo President Satoru Iwata pointedly said in his keynote at the Game Developers Conference in March. “It will not require a steep learning curve.”
Nintendo has said little about Revolution, aside from the fact that IBM is developing the core chip and ATI Technologies Inc. is supplying the graphics chip. Although the company has not said when it will launch the box, executives have stated that they intend to match Sony’s release schedule.
Having sold just 16 million GameCube consoles to Sony’s 76 million and Microsoft’s 20 million, Nintendo is having to strike a different note from its competitors. Instead of jumping on the multimedia bandwagon, Nintendo has decided to focus on the basics: games.
And, ultimately, games are what sell consoles.
“Although the hardware will set the foundation, the thing that most people will want to know about are the games,” Lara said. “These companies will have to push exclusive titles to differentiate themselves, titles like ‘Halo,’ ‘Zelda’ and ‘Grand Theft Auto.’ At the end of the day, it will be the games that will drive sales.”
*
(BEGIN TEXT OF INFOBOX)
First of next generation
The Xbox 360, Microsoft’s successor to its first Xbox console, is a slimmer, lighter device scheduled to hit store shelves this Christmas, a year ahead of rival consoles from Sony and Nintendo.
*
Brain: Three IBM PowerPC chips at 3.2 gigahertz, plus one ATI graphics chip at 500 megahertz.
Hardware: 20-gigabyte detachable hard drive, wireless controllers, multichannel surround sound, DVD player.
Release: Expected by Christmas.
New: Expanded online game store for downloadable content; ability to stream music, video and photos from a PC or directly from devices.
*
Game consoles in the U.S. as of March 31
PlayStation 2: 35.4 million
Game Boy Advance: 28.3 million
Xbox: 13.2 million
GameCube: 9.5 million
Nintendo DS: 1.65 million
PlayStation Portable: 1.5 million
Sources: Sony, Nintendo, Microsoft
