On the eve of the launch of PS3 and Wii, stakes in the console tussle amid Sony, Nintendo, and Microsoft have never been higher
by Cliff Edwards
The battle for supremacy in the game-console industry has raged for decades. Earlier skirmishes have pitted Microsoft and Sony against Nintendo, which itself had unseated the first generation of stalwarts, including Sega and Atari.
Microsoft (MSFT), Sony (SNE), and Nintendo (NTDOY) remain very much at odds—and their contest escalates on Nov. 17, when Sony releases the next iteration of its centerpiece PlayStation console in the U.S. Nintendo's Wii hits stateside stores two days later. As longstanding as the scuffle may be, the stakes for each contender in the $30 billion video game market have never been higher.
Consider Sony's challenge. Stung by the failure of its Betamax video recorder decades ago, Sony began assembling a media empire that aims to tie films, music, and other content to the company's hardware. The consumer-electronics giant had high hopes for PlayStation 2, which has sold more than 100 million units and has left Sony the console market leader, with an estimated 70% share at one stage. But PS2 ultimately remained a gaming console at heart.
Prelaunch Stumbles
Enter PlayStation 3. Arguably the most powerful system on the market, it's run by a cell processor that cost billions of dollars and contains Blu-ray drive technology at the base of its video capabilities. And the company will suffer tens of millions of dollars in losses at the outset, in part because of a delay in the introduction of the PS3 (see BusinessWeek.com, 10/19/06, "Video Biz Hits Sony When It's Down").
More PS3 setbacks ensued in the critical days leading up to the launch. A scarcity of consoles bred chaos among retailers and exasperation among consumers. And on Nov. 14, Sony said not all the games made for earlier PlayStations would be compatible with the new machine, contrary to the company's previous promises (see BusinessWeek.com, 11/14/06, "Sony's PS3 Issues Threaten Revival").
Stumbles aside, Sony has high hopes for PS3, betting the console can become the centerpiece of consumer home media. It sports a built-in Web browser, wireless Internet, and a hard drive for downloading movies and music. Sony hopes the built-in Blu-ray player, a format it helped create, will give it a boost against competing HD-DVD technology. Sony holds patents on Blu-ray, so its success could translate into hundreds of millions of dollars in licensing revenue from other electronics makers over the next decade. The lure of crystal-clear movies also could spur DVD sales, audio products, and high-def TVs, all of which are important to Sony's future.
Nintendo's Strategy
That's not all that's riding on PS3. Sony is also betting that, despite being a year behind Microsoft in launching a next-generation console, game developers will be attracted to the massive amount of storage capacity on Blu-ray disc. If they are, some of the best-looking and most innovative games eventually would only be possible on the PS3, giving Sony another leg up on rivals.
Chief among them, of course, is Nintendo, maker of the Wii. After the GameCube failed to make much of a splash, pundits have argued Nintendo should get out of the console business and focus mainly on making handhelds like the Gameboy and Gameboy Advance. Others then questioned the company's future when Sony announced it would begin selling the PlayStation Portable device to compete with Nintendo's DS handheld.
Nintendo faced down naysayers by moving to attract more casual gamers. Nintendo's DS has outsold the PSP, thanks to innovative games like Big Brain Academy, which helps keep the mind sharp with a series of daily game challenges, and Nintendogs, where users own and train a puppy.
Winning Wiis?
Nintendo's Wii, formerly codenamed Revolution, is winning early raves from game developers and gamers for its innovative wireless controller. The tool includes motion-sensing and acceleration technology that lets it double as a gun, a fishing rod, a steering wheel, and other instruments (see BusinessWeek.com, 10/31/06, "Nintendo Brings the Games to the People").
The Wii Virtual Console adds the ability to download and play oldies-but-goodies from a number of past consoles, includes the Nintendo Entertainment System, Super NES, Nintendo 64, Sega Genesis, and TurboGrafx 16. It's features like these that have some analysts surmising that Wii will outsell PS3 right out of the gate. NikkoCitigroup says sales of the Wii could top 6 million by the end of March, compared with 5.5 million for the PS3.
And even if the Wii flops, Nintendo still can fall back on its software catalog of fan favorites such as The Legend of Zelda, as well as its very strong handheld business.
Microsoft's Mission
However successful Sony or Nintendo may be, both are playing catch-up to Microsoft, which released its next-generation console, the Xbox360, a year ago. As of the end of September, Microsoft had sold 6 million units. It expects to ship another 4 million machines from October through December.
Like Sony, Microsoft sees its console playing a key role in larger ambitions. Microsoft believes that all content eventually will be digitally transmitted, over servers using its Windows software, to PCs and handheld devices that also use its operating systems, media players, and software designed to thwart piracy.
But unlike Sony, Microsoft is hedging bets with Xbox 360, which still uses packaged discs for most of the highest-performing games on its system. Perhaps realizing the disadvantage of not having a next-generation DVD technology to promote as Sony does, Microsoft over the holidays will be selling an add-on HD-DVD player for rock-bottom prices (see BusinessWeek.com, 11/7/06, "Showtime for the Xbox 360").
Tips from Apple
Microsoft is trying to condition consumers for Web downloads, however, with Xbox Live, which lets users keep track of friends online and download games and other content. A new service called Live Anywhere will let mobile-phone and PC users connect to Xbox Live.
To realize longer-term goals, Microsoft is moving away from creating a community of hardware partners that use the titan's software. Microsoft now is adopting the Apple (AAPL) approach of integrating hardware and software together into branded products—in Microsoft's case, the Xbox. Microsoft's entertainment division just released the Zune music player and plans to offer other such products in 2007 (see BusinessWeek.com, 11/13/06, "A Method to Microsoft's Zune Madness").
Indeed, Microsoft will be doing all it can in the coming weeks to keep the Xbox 360 relevant for consumers even as many gamers—and the people spending holiday dollars on their behalf—eagerly await the arrival of PS3 and Wii.
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