May 21, 2013

Microsoft preps Xbox do-over

The new gaming console -- to be unveiled Tuesday -- faces more competition that past versions.

Bloomberg News

SEATTLE - Microsoft is revamping the Xbox to fend off a breed of competitors ranging from Apple to Facebook. Those companies were nowhere in gaming when the software maker debuted its last version five years ago.

click image to enlarge

Attendees play with Microsoft’s Xbox 360 game console at the Consumer Electronics Show in Las Vegas. Microsoft faces threats from companies including Apple and Facebook.

David Paul Morris/Bloomberg News

Now these newcomers -- along with Google and Amazom.com -- are posing a threat by introducing their own software and devices that let consumers access an array of games and entertainment on smartphones, computers and home electronics.

Where once Microsoft's Xbox had only to contend with Sony's PlayStation and Nintendo's Wii, there's now a plethora of devices boasting robust graphics and computing power, capable of downloading games from the Internet and connecting TVs in the living room to gadgets throughout the house. That's putting pressure on Microsoft to make the new Xbox -- to be unveiled Tuesday -- capable of delivering more programming, entertainment and services, moving it further beyond the gaming realm.

"This has to last them in the living room for four to 10 years," said Brian Blau, an analyst at Gartner Inc. in San Francisco. "They have to think about what's coming in five years and compete against the two generations of tablets which will come out during that time."

The new gadget will use the Kinect sensor to recognize faces and recommend content based on a user's interests, people with knowledge of the matter said. Due in stores by year's end, the latest Xbox will also feature Advanced Micro Devices Inc. chips designed to make it easier for developers to create games, people said in April.

As it takes on challengers, Microsoft is also seeking to extend the Xbox's two-year streak as the best seller over Sony's PlayStation and Nintendo's Wii. Worldwide console gaming is a $27 billion market.

The new Xbox will probably have Microsoft's Skype, which delivers low-cost voice and video calling, and an improved Kinect motion- and voice-control system, said Michael Pachter of Wedbush Securities Inc.

"Few people will buy an Xbox just to watch TV, but Microsoft is making the bet that enough people will want to play games some of the time and watch TV all the time," he said.

In an indication of the changing fortunes for companies at the intersection of software and consumer electronics, Microsoft shares have risen 16 percent over the last five years, compared with a 59 percent slump for Sony. Apple's stock has more than doubled, while Google has advanced 57 percent.

Microsoft is also in talks with cable operators, including Time Warner Cable, to have the Xbox replace the set-top box in living rooms, delivering some content over the Web instead of through traditional cable pipes, said Richard Doherty, president of technology-consulting firm Envisioneering Group Inc. The discussions are ongoing, he said.

"They might not even use the phrase game console this time around because they're trying to pitch it as this incredible entertainment hub in the home," he said.

Representatives of Microsoft and New York-based Time Warner Cable declined to comment.

As Microsoft works to beef up the Xbox, newer kinds of games are taking hold, threatening to pull gamers away from consoles. Customers are flocking to inexpensive titles for tablets and mobile phones running Google 's Android operating system or Apple's iOS.

U.S. retail sales of packaged video games fell 21 percent last year to $8.9 billion, according to researcher NPD Group, while revenue from games downloaded to computers and mobile devices rose 16 percent to $5.9 billion.

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