Microsoft set for showdown with game labels

Ben Berkowitz

LOS ANGELES: This holiday season will likely see the most competitive video

game war ever - as Bill Gates battles Mario the Plumber and the rest of the

established players over the future of the game player market.

Two new next-generation consoles will come onto the shelves - the

long-anticipated XBox from Microsoft Corp. and the GameCube from Nintendo Co.

Ltd. - joining the PlayStation 2 from Sony Corp. in the war over the preciously

spent dollars of the video gaming public.

"I think there'll be an incredible amount of excitement this year. We're

already having the strongest year ever," said Sega president Peter Moore.

According to the Digital Gaming in America Survey, released on August 7 by the

Ziff Davis Media Game Group, 58 per cent of all active video game players plan

on buying at least one new console this season.

The survey showed that 62 per cent of the gamers asked which console they

would like chose PS2, followed by 34 percent who wanted the XBox and 33 percent

who chose the GameCube. The survey suggests some will buy more than one format.

Leading publishers THQ Inc. and Activision Inc. both raised their financial

guidance for the year recently, expecting just such strong sales.

And for the consumers who can't or won't spend the kind of money needed to

buy a next generation unit ($199 for the GameCube, $299 for XBox and PlayStation

2, as of now), there are still two very popular, and now very cheap consoles on

the market, Nintendo's N64 and the Dreamcast from Sega Corp.

But consoles aren't the only hot new gaming products with Nintendo recently

releasing its next-generation handheld gaming platform, the Game Boy Advance.

Between its release date and the end of the second quarter on June 30, Game Boy

Advance sold well enough to be the No 1 revenue source for the entire quarter

for major game publisher Activision and a leading source for other publishers

like THQ and Electronic Arts Inc.

Growth will continue



Most video game publishers agree that sales of XBox and GameCube games in
particular won't have much of any impact on their top or bottom lines in the

fourth quarter of this year. But the general consensus is that the industry is

at the beginning of a growth cycle that some think, could last as long as five

years.

According to research firm NPD Group, game console sales are up 180 per cent

in dollars sold and 66 per cent in units sold for the first half of this year

over 2000. Microsoft unabashedly says that it will spend $500 million marketing

the XBox, with Nintendo and Sony expected to spend similarly.

As opposed to last year, when Sony badly missed its shipping estimates for

the PlayStation 2 and could not meet even a fraction of demand, both Nintendo

and Microsoft say they will be prepared this season.

XBox delayed in Japan



Nintendo, which hasn't revealed a November 5 launch date unit quantity,
plans to ship 1.1 million units by December 31. Microsoft has said it will have

between 600,000 and 800,000 units available at launch on November 8, 1 million

units by the end of the calendar year, and between 4.5 million and 6 million

units by its fiscal year-end next June 30.

"I don't really think there'll be too much of a problem for either

company" in terms of meeting shipping targets, said James Lin, an analyst

at Jeffries & Co. "I think Sony will win this Christmas," Lin

said. He said that Sony's established position, as the current leader in the

next-generation console market would translate to the top unit sales spot for

the holidays.

However, Lin said that before that happens, the price of the PlayStation 2

will have to come down from its current levels. "I do not there's any

argument out that Sony will cut prices," he said, noting that he had heard

rumors of a cut to as low as $199. "At the end of the day ... it's going to

be lower than $299."

In fact, Lin believes that Microsoft will have to cut the price on the XBox

to match Sony if it hopes to compete, noting that while Nintendo's target

demographic is like children ages 6 to 14, both PlayStation 2 and XBox will

appeal to the 18-plus crowd.

A Microsoft spokesman said that the company was on track with the pricing

announcements it has already made, noting that the basic XBox unit ships with an

Ethernet port and a hard drive, both of which are separate add-ons for

PlayStation 2.

Credit Suisse First Boston analyst Heath Terry agreed that Microsoft was not

likely to cut prices, saying that to do so would be like "leaving money on

the table," since the XBox will likely sell every unit it ships this year,

no matter the price. At any rate, no matter who sells what this year, industry

players and analysts all agree on one thing: as good as this holiday season is

going to be, it's nothing to compared to what's coming next year. Holiday 2002

"has every chance of being an absolute monster," Sega's Moore said.

(C) Reuters Limited 2001.