Game On

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: Dewayne Hendricks <dewayne () warpspeed com>

Game On
By Alex Romanelli -- 12/26/2002 11:30:00 AM
Electronic News
<http://www.e-insite.net/electronicnews/index.asp?layout=article&doc_id=1101
49&spacedesc=news>

This Christmas, Santa's sack will not be weighed down by any one
particular consumer electronics product. The recession has hit the
market fairly badly, not just in terms of economics, but in terms of
innovative products coming to market. And this is likely to continue
in 2003. For the first time in recent memory, the consumer market
lacks a killer app. Analysts have pointed to several consumer
segments making small, but interesting, progress in 2003.

This week, Electronic News examines what's in store for the consumer
market in 2003.

Games Consoles

In addition to a DVD player, the other must-have box in one's living
room is a games console. Despite no new consoles from the three big
players -- Sony, Microsoft and Nintendo -- analysts expect 2003 to be
a crucial year for video gaming. All three companies are betting big
on online gaming becoming the next phase of the industry's future.
2003 could be make or break for Microsoft Corp. in the video gaming
market, having only entered the space late in 2001 with the Xbox
console.

"If online gaming does not take off in the next two or three years I
strongly believe Microsoft will pull out of the video game market,
because they are losing so much money already," said Jay Srivatsa,
analyst with iSuppli Corp. "You can't go head to head with Sony on a
level playing field without changing the game, no pun intended. They
have to do something very different and online gaming is their ticket
to success."

According to Brian O'Rourke of In-Stat/MDR, Microsoft's approach
differs from Sony's. (In-Stat/MDR is owned by Reed Business
Information, the parent company of Electronic News.) In addition to
designing the Xbox specifically as an online gaming console,
Microsoft has built its own online gaming infrastructure, running
servers and taking responsibility for billing, security and matching
up players. Sony and Nintendo instead are a more hands off, making
game developers responsible for the networking infrastructure.
Microsoft is spending hundreds of millions if not billions of dollars
on Xbox Live over the next three to five years, he said.

"There's no guarantee of success here," O'Rourke said. "But Microsoft
can afford to lose hundreds of millions of dollars or billions if
they are convinced something is right. If they are wrong it's not
going to drive them out of business, but if Xbox Live really flops
they potentially could have to re-evaluate their commitment to
console gaming overall, because they are not going to catch Sony any
time soon, if at all."

Online gaming is dependent on broadband adoption, as dial-up Internet
access is just too slow for large graphics files.

"It is not going to become totally mainstream but I think we're going
to see traction next year because broadband penetration is
increasing," Srivatsa said. "It's also going to come down to content.
You have to have the right games. That's one of the reasons Xbox is
not selling well in Japan. It's barely making a dent in Japan because
they don't have the content."

One potential market strategy is for Microsoft to subsidize the price
of their games in order to drive online gaming.

"But at the end of the day their games have to be just as good as
Playstation 2," Srivatsa said. "Meaning number of titles, content,
interest level."


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