May 11, 2005 9:43 AM PDT

Next-gen consoles take center stage

In the game industry, there are two significant months in the year--May and December--and they have nothing to do with the weather.

In mid-May, a key conference takes place--the Electronic Entertainment Expo, or E3, where trends, and in some cases bets, are set. During the holidays, companies watch to see if their bets paid off and if they successfully steered new directions.

At this year's E3, slated for May 16 to May 20 in Los Angeles, all bets will be on new gaming consoles from the big three players--Microsoft, Sony and Nintendo.

News.context

What's new:
The video game industry is about to hit Los Angeles for the annual E3 trade show, which last year drew some 65,000 attendees.

Bottom line:
This year's E3 will be all about consoles, with the three biggest players jostling to talk up their latest offerings and tighten their grip on the competitive market.

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"The major console makers are going to lay...the groundwork for the next generation, and all the developers and publishers are going to get, in some cases, their first looks at the new features," said Schelley Olhava, game analyst with research firm IDC.

Microsoft will kick off the console frenzy several days before the start of E3 with a Thursday MTV special launching the Xbox 360. The taping of "MTV Presents: The Next Generation Xbox Revealed," occurred last week and--surprise, surprise--supposedly leaked images of the new console have already flooded the Internet.

A mainstream television network dedicating a broadcast to a new gaming console indicates just how pervasive gaming has become, but for all of the attention and fanfare, the game industry hasn't been able to grow its share beyond an audience of loyal enthusiasts. The major players are aiming to build up the market and their stakes in the coming months, when the industry is expected to go through the cyclical transition that occurs roughly every five years when new consoles are introduced.

"The gaming population hasn't changed that much over the years," said Olhava. "Household penetration has remained in the same 40-to-45 percent range, and the industry has replaced older people who quit gaming with new ones...The industry may be digging deeper into that stratum, meaning those gamers may be buying more games, but not necessarily attracting new gamers."

Olhava added that the round of new consoles would likely be more evolutionary than revolutionary for the industry.

"It won't be a problem selling 1 to 2 million units for these guys, but the tricky part is getting beyond that and growing the market," she said.

Microsoft, for one, is aiming for higher returns on its console efforts after a decent showing with its first Xbox.

Getting their game on
"Our goal in the last generation was to be in the game," Microsoft chairman Bill Gates said at a recent speech to business journalists in Seattle. "With three companies, Sony, Nintendo and Microsoft, we came out a very strong No. 2. What we got from that round, at some financial cost, was not only the opportunity to play again, but to play again with great credibility."

That financial cost amounts to losses of $1.2 billion a year since the launch of its game efforts in 2001.

Still, the revenue forecast for the U.S. console market is expected to continue to grow from $8.7 billion to $11.3 billion in 2010, according to research firm JupiterResearch.

Microsoft and its Xbox is a distant No. 2 in the North American console market, behind Sony with its PlayStation2 but ahead of Nintendo and its GameCube, according to data from IDC. Olhava estimated that last year, Sony shipped about 5 million units, making up 42 percent of the market, while Microsoft shipped about 3.4 million for 28.3 percent in 2004. Nintendo shipped 2.5 million consoles for 21.2 percent of the market.

Overall, Xbox is also behind the PlayStation2, with 12.1 million currently on the market, compared with 30.8 million Sony units. GameCube logs in with 9.1 million units.

However, with this latest round of new consoles--which are generally updated as part of the five-year transition cycle--analysts expect the market to be less lopsided in Sony's favor. Microsoft, which is expected to launch Xbox 360

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21 comments

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Xbox sales a "strong" #2?
PS2 had total sales of 30.8 million units, Xbox
had 12.1 million units, and GameCube had
9.1 million units. And Bill Gates calls that a
"strong" #2 performance? Makes you wonder
what his definition of a weak #2 performance
would be.

Furthermore, the claim that Microsoft's goal
with Xbox was to be "in the game" is false.
They wanted the #1 position and they failed.
They failed badly. Not even close. And that's
despite the fact that they were absorbing
massive financial losses in order to sell
Xboxes at prices significantly below the
manufacturing cost.
Posted by (26 comments )
Reply Link Flag
strong #2
"Makes you wonder what his definition of a weak #2 performance would be."

A weak #2 would be if they lost 1.2billion each year...Oh, wait. They still call that a strong #2. Never mind. I have no idea what his definition of a weak #2 performance would be.
Posted by nmcphers (261 comments )
Link Flag
to be "in the game" is false?
Do you sit in on board meetings? Have you talked to the share holders? Talked to the programmers? Or are you just MS bashing at random, with little clue about what you are talking about?
I think it is the last. Everyone sets out to be #1. GameCube was designed to take the market. It didn't. MS set out to take the market with XBox. It didn't.
However, as Billy stated, they have some creditability now, for a good platform, and a strong showing. So now it is round 2, and we shall see who is left standing.
Posted by catchall (245 comments )
Link Flag
Wrong
Microsoft were pretty clear when they released the XBOX that the main point to get into the game. While they obviously wanted to win, all they needed was a foot in the door. Rememeber that they have tried at least two other times to get into the console market, the last one being the DreamCast. This time they succeeded.

If you disagree then you really should provide supporting evidence before calling Microsoft a liar.

Incidently, Sony initially sold the PS2 below manufacturing costs. It is common practice in the console market.
Posted by Andrew J Glina (1673 comments )
Link Flag
Was this an XBOX article?
By the title I thought I would have got an overview of all the next-gen consoles instead the article was dominated by who else....M$. I didn't know CNET was owned by M$. What propoganda! Sony will still win! M$ and their digital media hub/dishwasher/cell phone/microwave next gen console.
Posted by ZP (19 comments )
Reply Link Flag
Leaked
The hardware info for the XBOX360 was leaked, hence it was the focus of the article. That, and the fact that the MTV show about it's release is happening tomorrow.

Had this been a leak from sony about the cell processor, then the focus would have been on sony.

"this just in, a buffalo born in New Mexico has two heads... for coverage, we go live to someone in a glass bottom submarine looking at starfish" doesn't really make sense, does it?

Knee-jerk reactions from the Anti-MS (it MS not M$. Grow up, you're just making yourselves look childish) crowd do not a discussion make.
Posted by (54 comments )
Link Flag
Other consoles
There is a lacking of information about the other consoles. Thus they focused on the XBOX. Calm down.
Posted by Andrew J Glina (1673 comments )
Link Flag
More information
D B, there isn't much information available on the other consoles, yet. Sony hasn't announced much other than the fact that PS3 has a cell processing architecture, and Nintendo hasn't said anything at all.
Posted by Christopher Hall (1205 comments )
Link Flag
Do real poeple care?????
I get the impression that the various game devices are competing
for a relatively small audience, too many of which have yet to find a
life.
Posted by Earl Benser (4310 comments )
Reply Link Flag
caring is sharing
I think the fact that the games business is making more money than hollywood, means people care.
Posted by (54 comments )
Link Flag
I am real
I have an XBOX and a PS2. (I play the XBOX more.) All of my friends have at least one current generation console. All have bought games. Some have bought more than 10. (Not me, I stick to a few games.) Yes, people do care. Where are your facts or do you just have "impressions"?
Posted by Andrew J Glina (1673 comments )
Link Flag
Mainstream?!
When did MTV become a mainstream tv network! It doesn't even play music.All you ever see or hear is crap, oh i mean rap!
Posted by (17 comments )
Reply Link Flag
Xbox Unveiling
May 12 9:30 PM Eastern & Pacific, 8:30 PM Central
MTV will air a 30 min show about the next-gen Xbox.
For more information go to the following link:
<a class="jive-link-external" href="http://www.xbox.com/en-US/news/2005/0411-mtv.htm" target="_newWindow">http://www.xbox.com/en-US/news/2005/0411-mtv.htm</a>

----?
Posted by arbelaez2k3 (2 comments )
Reply Link Flag
how ironic
that one of the main complaints about gamecube from xbox owners is that it looks like a playskool toy. but now the new xbox looks like it belongs next to a hello kitty ibook.
Posted by Sam Papelbon (242 comments )
Reply Link Flag
 

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