May 14, 2002 5:05 AM PDT

Game industry girds for battle

Sony, Microsoft and Nintendo will launch new campaigns in the game console wars next week, with the main weapons this time involving online gaming and price cuts.

The Electronic Entertainment Expo, the game industry's main trade show, kicks off May 22 in Los Angeles. Games are the premier attraction at E3, with publishers showing off every title they plan to release during the coming year. Highlights this year range from previews of potential blockbusters such as "Doom III" to a video jigsaw puzzle featuring Penthouse's Miss April.

But hardware manufacturers will make their dent before the show starts, including several days of press events intended to set up business strategies for the coming year.

Sony got the ball rolling Tuesday by cutting the U.S. price of its PlayStation 2 game console by one-third and dropping the price of its older PlayStation One by 50 percent. Effective immediately, the PS2 costs $199, down from $299, while the PSX now sells for $49, down from $99.

Besides the cuts for game consoles, the main competition will be around plans for putting consoles online, with Microsoft taking the biggest gamble.

The company is building a subscription-only broadband network to allow Xbox owners to play against one another online, using the Xbox's built-in Ethernet adapter. Prices and availability for the service, which will include live voice chat, are scheduled to be announced at E3.

While Microsoft is pitching the service as the future of gaming, initial expectations are modest. David Cole, president of research firm DFC Inteligence, said he'd be surprised if Microsoft can get 10 percent of Xbox owners to sign up for the online service in the first year.

Sony Playstation "I think their expectations are that it's going to be a very slow build," Cole said. "They're making a long-term investment, getting way ahead of the market."

Brian Farrell, CEO of game publisher THQ, added that Microsoft's broadband-only service may further limit adoption, partly because DSL subscribers are likely to be reluctant to set up a home network to extend broadband to their living room.

"We've all talked about online console gaming the last six or eight years," Farrell said. "It's a little closer, but it's not here yet. We don't have the bandwidth yet as an industry, and when we do have the bandwidth, it's probably not in the right place. You've got your PC in one room and the TV in another--that's going to be a problem."

Sony and Nintendo appear to be listening to the skeptics. Both companies have announced plans to back in to the online gaming arena by selling online accessories for their consoles and encouraging game makers to add online features to titles.

Xbox The latter is likely to be a hard sell, said Farrell, as publishers will need compelling business reasons to bear the costs of setting up an online gaming infrastructure.

"I think people are going to experiment a lot with the business model and the technology model until we figure out what works for us and what works for the customer," Farrell said. "Universally, it's been fairly hard for businesses to charge consumers for stuff online."

But that's exactly what some of the biggest names in the game business are hoping to do from the PC side. E3 is expected to include previews of some of the leading titles publishers hope will push online gaming toward the masses. Those include "The Sims Online," a multiplayer version of Electronic Arts' popular PC game; "Star Wars Galaxies," Sony Online Entertainment's role-play game based on the "Star Wars" universe; and "EverQuest II," Sony's planned sequel to its popular fantasy game.

Other big titles likely to be shown at the trade show include new versions of "Tomb Raider," "Unreal" and "SimCity," plus movie tie-ins covering everything from "Scooby Doo!" to "Minority Report."

Game players may even end up with some extra money for software as a result of console makers coming through with price cuts. Besides cutting the price of the PlayStation 2 by $100, Sony also reduced prices on its memory card and controllers.

Melissa Comer Williams, an analyst at Gerard Klauer Mattison, said the price cuts are necessary to grab market share in what is expected to be "a relatively light software roster for summer."

Williams said video game retailers experienced "an immediate doubling" of PlayStation sales when Sony first cut its price on the system in May of 1996.

She said in a research note that price cuts will come in threes, meaning Microsoft and Nintendo are likely to match Sony's lower prices.

"It's about who wants to take the leadership position; it is seen as a position of weakness to wait for the other guy to move," added Farrell. "E3 is a great time to get publicity going."

 

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