Xbox facing crucial Xmas sales test
Xbox facing crucial Xmas sales test
Pressure on for Microsoft to deliver the video game goods
Monday, September 23, 2002 Posted: 9:13 AM EDT (1313 GMT)
LONDON, England (Reuters) -- It's been just six months since Microsoft Corp. launched its video game console Xbox in Europe and there is already mounting pressure on the U.S. software giant to score a big Christmas.
The Xbox needs to end its first year with a flourish. If it doesn't, industry observers say, its prospects for turning a profit will be pushed back a few years, triggering some deep soul-searching at Microsoft headquarters in Redmond, Washington.
"If Microsoft has a disastrous Christmas, particularly in important markets like the UK and the U.S., then somebody in Redmond is bound to say, 'Wait a minute guys. This doesn't look good,'" said Toby Scott, editor of video game trade publication Games Analyst.
Industry experts are quick to point out the $30 billion video game market has never supported three consoles, alongside the PC, noting that Dreamcast maker Sega Corp. of Japan gave up the console business when it couldn't compete.
While the market is now bigger than ever, rivaling music and film box office sales, one elemental truth remains. Without a large installed base, developers are less inclined to create exclusive games for a machine, making profits elusive.
A poor Christmas won't sway Microsoft's commitment immediately, but its prospects for being able to stay in the market long-term will look murkier if it fails to capitalize on what is set to be the industry's biggest sales periods ever.
Market research firm ScreenDigest reported last month that Sony, Nintendo and Microsoft would sell 14.2 million units in the Europe, Middle East and African regions this year, 28 percent above the industry's previous best year of 1998.
Of those, Microsoft will sell 1.5 million Xbox machines, ScreenDigest is forecasting.
Red-faced in Redmond
Early Xbox sales sagged below expectations, forcing Microsoft into embarrassing back-to-back price cuts within a four-month span, the last of which was last month.
Microsoft is estimated to lose anywhere from $76 to $150 on each Xbox which retails for $199 in the United States and around 249 euros in Europe.
By many accounts, European demand for the Xbox has rebounded in line with rivals, but it still trails market leader Sony Corp.'s PlayStation 2 and Nintendo's GameCube in what's becoming an increasingly important region.
What Microsoft needs now is to generate some good old-fashioned buzz for Xbox, a machine that gamers say is as sophisticated as any ever put on the market.
To that end, top Xbox executives, including Xbox's General Director Jay Allard, will brief the media in Spain on its upcoming Christmas plans, discussing new game titles and other product launches.
At the two-day event this week, Microsoft is expected to announce the European plans for Xbox Live, its online gaming service.
Though the market is minuscule at the moment, online gaming is seen as a crucial growth area as console makers and games publishers look to derive additional revenues by charging gamers subscriptions for multi-player action.
Industry observers have speculated Microsoft's European Xbox Live launch would happen before Christmas.
With a built-in Ethernet card and hard drive, Xbox is the only one of three consoles to be Internet-ready "off-the-shelf." Microsoft is likely to pound this advertising message hard in the coming months, one analyst said.
"They're going to want to capitalize on that. It's a way to differentiate themselves in the market," the analyst said.
However, Microsoft will be trying to get its message out amid a blizzard of video game ads this autumn. Sony has pledged to spend $98 million to plug the PlayStation 2 console and games in the second half of the year throughout the PAL-TV regions of Europe, Australia and the Middle East.
Got any games?
One glaring concern over the Xbox is its relative lack of exclusive game titles. Sony for one has buttoned up long-standing relationships with top games publishers such as Eidos and Electronic Arts, guaranteeing it a steady flow of exclusives.
Microsoft has only had one break-out hit of its own design, the military action game "Halo." The firm has been looking to buy independent game developers to more quickly build up its catalog of exclusive games, and took the first step last week.
On Friday, Microsoft bought a 49 percent stake in privately held British games maker Rare Ltd. from Nintendo, a deal that has been held up for weeks while Rare unwound its ties with customer Nintendo for which it once developed exclusive games titles.
Industry observers, meanwhile, note that the competition to secure exclusive ties with developers and games publishers has pushed up their potential sales prices to unprecedented levels.
Reports have put a Rare sale price at over $400 million, several times what similar sized developers fetched in previous years, creating large potential costs for Microsoft.
The volatility of returns showed in Nintendo results as Rare's titles contributed 9.5 percent of Nintendo's fiscal 2001 total software unit sales, but only 1.5 percent in fiscal 2002.
"If the only way Microsoft can get a big exclusive title is by buying the developer, that's not a viable business model," said Scott.
Xbox facing crucial Xmas sales test
Pressure on for Microsoft to deliver the video game goods
Monday, September 23, 2002 Posted: 9:13 AM EDT (1313 GMT)
LONDON, England (Reuters) -- It's been just six months since Microsoft Corp. launched its video game console Xbox in Europe and there is already mounting pressure on the U.S. software giant to score a big Christmas.
The Xbox needs to end its first year with a flourish. If it doesn't, industry observers say, its prospects for turning a profit will be pushed back a few years, triggering some deep soul-searching at Microsoft headquarters in Redmond, Washington.
"If Microsoft has a disastrous Christmas, particularly in important markets like the UK and the U.S., then somebody in Redmond is bound to say, 'Wait a minute guys. This doesn't look good,'" said Toby Scott, editor of video game trade publication Games Analyst.
Industry experts are quick to point out the $30 billion video game market has never supported three consoles, alongside the PC, noting that Dreamcast maker Sega Corp. of Japan gave up the console business when it couldn't compete.
While the market is now bigger than ever, rivaling music and film box office sales, one elemental truth remains. Without a large installed base, developers are less inclined to create exclusive games for a machine, making profits elusive.
A poor Christmas won't sway Microsoft's commitment immediately, but its prospects for being able to stay in the market long-term will look murkier if it fails to capitalize on what is set to be the industry's biggest sales periods ever.
Market research firm ScreenDigest reported last month that Sony, Nintendo and Microsoft would sell 14.2 million units in the Europe, Middle East and African regions this year, 28 percent above the industry's previous best year of 1998.
Of those, Microsoft will sell 1.5 million Xbox machines, ScreenDigest is forecasting.
Red-faced in Redmond
Early Xbox sales sagged below expectations, forcing Microsoft into embarrassing back-to-back price cuts within a four-month span, the last of which was last month.
Microsoft is estimated to lose anywhere from $76 to $150 on each Xbox which retails for $199 in the United States and around 249 euros in Europe.
By many accounts, European demand for the Xbox has rebounded in line with rivals, but it still trails market leader Sony Corp.'s PlayStation 2 and Nintendo's GameCube in what's becoming an increasingly important region.
What Microsoft needs now is to generate some good old-fashioned buzz for Xbox, a machine that gamers say is as sophisticated as any ever put on the market.
To that end, top Xbox executives, including Xbox's General Director Jay Allard, will brief the media in Spain on its upcoming Christmas plans, discussing new game titles and other product launches.
At the two-day event this week, Microsoft is expected to announce the European plans for Xbox Live, its online gaming service.
Though the market is minuscule at the moment, online gaming is seen as a crucial growth area as console makers and games publishers look to derive additional revenues by charging gamers subscriptions for multi-player action.
Industry observers have speculated Microsoft's European Xbox Live launch would happen before Christmas.
With a built-in Ethernet card and hard drive, Xbox is the only one of three consoles to be Internet-ready "off-the-shelf." Microsoft is likely to pound this advertising message hard in the coming months, one analyst said.
"They're going to want to capitalize on that. It's a way to differentiate themselves in the market," the analyst said.
However, Microsoft will be trying to get its message out amid a blizzard of video game ads this autumn. Sony has pledged to spend $98 million to plug the PlayStation 2 console and games in the second half of the year throughout the PAL-TV regions of Europe, Australia and the Middle East.
Got any games?
One glaring concern over the Xbox is its relative lack of exclusive game titles. Sony for one has buttoned up long-standing relationships with top games publishers such as Eidos and Electronic Arts, guaranteeing it a steady flow of exclusives.
Microsoft has only had one break-out hit of its own design, the military action game "Halo." The firm has been looking to buy independent game developers to more quickly build up its catalog of exclusive games, and took the first step last week.
On Friday, Microsoft bought a 49 percent stake in privately held British games maker Rare Ltd. from Nintendo, a deal that has been held up for weeks while Rare unwound its ties with customer Nintendo for which it once developed exclusive games titles.
Industry observers, meanwhile, note that the competition to secure exclusive ties with developers and games publishers has pushed up their potential sales prices to unprecedented levels.
Reports have put a Rare sale price at over $400 million, several times what similar sized developers fetched in previous years, creating large potential costs for Microsoft.
The volatility of returns showed in Nintendo results as Rare's titles contributed 9.5 percent of Nintendo's fiscal 2001 total software unit sales, but only 1.5 percent in fiscal 2002.
"If the only way Microsoft can get a big exclusive title is by buying the developer, that's not a viable business model," said Scott.
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