By ROBERT A. GUTH, NICK WINGFIELD and PHRED DVORAK
Staff Reporters of THE WALL STREET JOURNAL
May 9, 2005; Page B1
Got from - http://forum.teamxbox.com/showthread...=344153&page=1
Staff Reporters of THE WALL STREET JOURNAL
May 9, 2005; Page B1
On Thursday night, Microsoft Corp. will launch the next round in its videogame war with Sony Corp. when it unveils the successor to its Xbox game player.
Microsoft is dead serious about its new weapon. In February, after five hours of meetings with the videogame group, Chairman Bill Gates told the new Xbox's creators, "this is one of the most ambitious things the company has ever done."
The timing of the introduction says a lot about that ambition. Mr. Gates will unveil the console, to be called the Xbox 360, on MTV several days before Sony announces its own next-generation machine, the PlayStation 3 -- widely seen as an attempt to steal Sony's thunder. And Microsoft deliberately planned for the new Xbox to be on the market many months before Sony's box hits shelves.
The scope of the new war between Microsoft and Sony will extend beyond games. Each company will attempt to use its videogame consoles to grab a larger piece of the market for digital entertainment than it has today. Both will position the consoles as broader entertainment devices that will let consumers play music from the Internet, conduct online transactions and download movies.
The war comes as Sony is beset by shaky finances and struggles through a management upheaval that this year cost its chairman his job and led to the demotion of its videogame czar. Microsoft, meanwhile, risks deepening losses on videogames that are already a drag on the company, as growth of its core personal-computer software business slows. Xbox-group losses have been about $1.2 billion a year since 2001.
Microsoft also is coming from way behind. Sony's PlayStation 2 holds the commanding market share position in the videogame market and the Japanese company has a decade of experience with the tricky blend of manufacturing, marketing, pricing and partnerships needed to field a hit game machine.
Microsoft says it is applying to the new Xbox 360 some hard lessons it learned from the first Xbox, launched in 2001. The first box was 12 months behind Sony's PlayStation 2 in getting into U.S. stores; that gave the Japanese company a huge lead that Microsoft could never recoup.
Microsoft also didn't initially get enough hit games to run on the first Xbox. And while the first Xbox was popular enough to secure Microsoft a No. 2 position in the market to Sony, narrowly beating out Nintendo Co.'s GameCube, the box was a consistent money-loser.
For the new box, Microsoft cut back production of its own in-house games in favor of games from leading outside makers. Microsoft executives spent the past two years wooing the creative head of videogame giant Electronic Arts in Vancouver, gave special software tools to developers, and cut deals for games with three legendary creators in Japan, where the Xbox had failed due to a lack of good local games. And, responding to consumers' calling the first box ugly, Microsoft hired outside firms to design the new one.
Microsoft is also expected to try to exploit its leadership position in PC software to help broaden the appeal of its Xbox successor. Last year, it sold a device that could be installed on the Xbox that let gamers access content such as videos and music from PCs running a version of Windows designed for consumers called Media Center Edition. That access technology is expected to be included in the new box. "An Xbox 2 versus an Xbox gives you a chance to redefine who you are," says Microsoft Vice President Bryan Lee.
Microsoft executives vow to have the new box in stores by November -- timing that they say will give Microsoft the head start that Sony enjoyed in the first round. Sony's console is expected sometime next year, though the company hasn't announced its plan yet.
Whether Microsoft's lead will be an advantage is a matter of debate in the industry. Several years ago, Sega brought its Dreamcast to market earlier than Sony's PlayStation 2 only to have sales of the console stifled by manufacturing problems and PlayStation fans who saved their money for the Sony machine. Sega later exited the console business amid heavy losses on the Dreamcast.
Masayuki Chatani, chief technology officer for Sony's videogame unit, says his company "isn't concerned" about Microsoft's possible head start. "We don't do things because someone else has done something," he says. "We want to make a machine that people will think is fantastic."
The new consoles from both companies will have far more extensive connections with the Internet than the prior generation. And the popularity of broadband Internet lines -- now in half of all U.S. homes -- could dramatically change how the devices are used. Game consoles could also accelerate the shift to high-definition television sets, which consumers have been slow to adopt due to skimpy broadcast programming, by introducing a large library of games that take advantage of HDTV.
It's the latest version of a long-term dream by the videogame industry to turn the once-humble game player into a broader entertainment device. Notably, Nintendo Co. has backed away from that high-stakes race. It too will announce its new console, code-named Revolution, next week but has said it will emphasize innovative game-playing capabilities in the device rather than try to push it as a broader entertainment hub.
"We're not looking to become TiVo or other things," says George Harrison, a senior vice president for Nintendo's U.S. division. "We're looking to become a game machine."
In contrast, Sony's machine will showcase some of the company's riskiest technology: the "cell" microprocessor, developed with International Business Machines Corp. and Toshiba Corp., and the Blu-ray optical disc, created in tandem with Panasonic and a handful of other electronics companies.
The new technologies are pricey, multiyear projects for Sony -- the company has plowed around $2 billion into cell alone -- and both will be features of PlayStation 3. Sony is counting on using a successful PlayStation 3 launch as a springboard to recoup costs and push those technologies into other next-generation products.
Sony's critical mission is to maintain its market lead. Sales of the five-year-old PlayStation 2 are slowing, but videogames still account for more than a third of all Sony's operating profit; in the past they amounted to more than half.
The Japanese company's situation is made more volatile by the abrupt overhaul in March of Sony's top ranks, including the replacement of Chief Executive Nobuyuki Idei with American operations head Howard Stringer.
Microsoft has different challenges. On top of the first Xbox's losses, growth in sales and profits is slowing at Microsoft's two largest product areas, Windows and Office. Any misstep with the new Xbox could ripple through the company.
Mr. Gates says the Xbox group must meet its plan to begin selling the new console in time for the holidays. He says the group "doesn't get to call me up and say, 'Hey, we're 30 days off here,' and I call up Santa and say, 'Hey, move Christmas.' "
For game publishers, the transition to the new generation of consoles represents new creative possibilities and loads of potential pitfalls. The new machines will give them unprecedented amounts of computing horsepower with which to pump out jaw-dropping special effects, but spectacular graphics could cost them lots of money. Truly taking advantage of the new machines will require larger teams of engineers and artists, as much as doubling the development budgets on big games, which stands at around $10 million or more for some titles. At the same time, the audience of users with the new consoles is expected to be small for the first year or two, limiting profits.
As a result, there's likely to be further consolidation and failures in the games business. Big publishers say they are confident the new consoles will lead to an overall expansion of the games business, despite rising costs. "As the quality of our entertainment increases, our markets naturally expand," says Warren Jenson, chief financial officer of Electronic Arts.
Microsoft is dead serious about its new weapon. In February, after five hours of meetings with the videogame group, Chairman Bill Gates told the new Xbox's creators, "this is one of the most ambitious things the company has ever done."
The timing of the introduction says a lot about that ambition. Mr. Gates will unveil the console, to be called the Xbox 360, on MTV several days before Sony announces its own next-generation machine, the PlayStation 3 -- widely seen as an attempt to steal Sony's thunder. And Microsoft deliberately planned for the new Xbox to be on the market many months before Sony's box hits shelves.
The scope of the new war between Microsoft and Sony will extend beyond games. Each company will attempt to use its videogame consoles to grab a larger piece of the market for digital entertainment than it has today. Both will position the consoles as broader entertainment devices that will let consumers play music from the Internet, conduct online transactions and download movies.
The war comes as Sony is beset by shaky finances and struggles through a management upheaval that this year cost its chairman his job and led to the demotion of its videogame czar. Microsoft, meanwhile, risks deepening losses on videogames that are already a drag on the company, as growth of its core personal-computer software business slows. Xbox-group losses have been about $1.2 billion a year since 2001.
Microsoft also is coming from way behind. Sony's PlayStation 2 holds the commanding market share position in the videogame market and the Japanese company has a decade of experience with the tricky blend of manufacturing, marketing, pricing and partnerships needed to field a hit game machine.
Microsoft says it is applying to the new Xbox 360 some hard lessons it learned from the first Xbox, launched in 2001. The first box was 12 months behind Sony's PlayStation 2 in getting into U.S. stores; that gave the Japanese company a huge lead that Microsoft could never recoup.
Microsoft also didn't initially get enough hit games to run on the first Xbox. And while the first Xbox was popular enough to secure Microsoft a No. 2 position in the market to Sony, narrowly beating out Nintendo Co.'s GameCube, the box was a consistent money-loser.
For the new box, Microsoft cut back production of its own in-house games in favor of games from leading outside makers. Microsoft executives spent the past two years wooing the creative head of videogame giant Electronic Arts in Vancouver, gave special software tools to developers, and cut deals for games with three legendary creators in Japan, where the Xbox had failed due to a lack of good local games. And, responding to consumers' calling the first box ugly, Microsoft hired outside firms to design the new one.
Microsoft is also expected to try to exploit its leadership position in PC software to help broaden the appeal of its Xbox successor. Last year, it sold a device that could be installed on the Xbox that let gamers access content such as videos and music from PCs running a version of Windows designed for consumers called Media Center Edition. That access technology is expected to be included in the new box. "An Xbox 2 versus an Xbox gives you a chance to redefine who you are," says Microsoft Vice President Bryan Lee.
Microsoft executives vow to have the new box in stores by November -- timing that they say will give Microsoft the head start that Sony enjoyed in the first round. Sony's console is expected sometime next year, though the company hasn't announced its plan yet.
Whether Microsoft's lead will be an advantage is a matter of debate in the industry. Several years ago, Sega brought its Dreamcast to market earlier than Sony's PlayStation 2 only to have sales of the console stifled by manufacturing problems and PlayStation fans who saved their money for the Sony machine. Sega later exited the console business amid heavy losses on the Dreamcast.
Masayuki Chatani, chief technology officer for Sony's videogame unit, says his company "isn't concerned" about Microsoft's possible head start. "We don't do things because someone else has done something," he says. "We want to make a machine that people will think is fantastic."
The new consoles from both companies will have far more extensive connections with the Internet than the prior generation. And the popularity of broadband Internet lines -- now in half of all U.S. homes -- could dramatically change how the devices are used. Game consoles could also accelerate the shift to high-definition television sets, which consumers have been slow to adopt due to skimpy broadcast programming, by introducing a large library of games that take advantage of HDTV.
It's the latest version of a long-term dream by the videogame industry to turn the once-humble game player into a broader entertainment device. Notably, Nintendo Co. has backed away from that high-stakes race. It too will announce its new console, code-named Revolution, next week but has said it will emphasize innovative game-playing capabilities in the device rather than try to push it as a broader entertainment hub.
"We're not looking to become TiVo or other things," says George Harrison, a senior vice president for Nintendo's U.S. division. "We're looking to become a game machine."
In contrast, Sony's machine will showcase some of the company's riskiest technology: the "cell" microprocessor, developed with International Business Machines Corp. and Toshiba Corp., and the Blu-ray optical disc, created in tandem with Panasonic and a handful of other electronics companies.
The new technologies are pricey, multiyear projects for Sony -- the company has plowed around $2 billion into cell alone -- and both will be features of PlayStation 3. Sony is counting on using a successful PlayStation 3 launch as a springboard to recoup costs and push those technologies into other next-generation products.
Sony's critical mission is to maintain its market lead. Sales of the five-year-old PlayStation 2 are slowing, but videogames still account for more than a third of all Sony's operating profit; in the past they amounted to more than half.
The Japanese company's situation is made more volatile by the abrupt overhaul in March of Sony's top ranks, including the replacement of Chief Executive Nobuyuki Idei with American operations head Howard Stringer.
Microsoft has different challenges. On top of the first Xbox's losses, growth in sales and profits is slowing at Microsoft's two largest product areas, Windows and Office. Any misstep with the new Xbox could ripple through the company.
Mr. Gates says the Xbox group must meet its plan to begin selling the new console in time for the holidays. He says the group "doesn't get to call me up and say, 'Hey, we're 30 days off here,' and I call up Santa and say, 'Hey, move Christmas.' "
For game publishers, the transition to the new generation of consoles represents new creative possibilities and loads of potential pitfalls. The new machines will give them unprecedented amounts of computing horsepower with which to pump out jaw-dropping special effects, but spectacular graphics could cost them lots of money. Truly taking advantage of the new machines will require larger teams of engineers and artists, as much as doubling the development budgets on big games, which stands at around $10 million or more for some titles. At the same time, the audience of users with the new consoles is expected to be small for the first year or two, limiting profits.
As a result, there's likely to be further consolidation and failures in the games business. Big publishers say they are confident the new consoles will lead to an overall expansion of the games business, despite rising costs. "As the quality of our entertainment increases, our markets naturally expand," says Warren Jenson, chief financial officer of Electronic Arts.
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