Microsoft Updates Xbox as Competiors from Apple to Facebook Gain in Games

Microsoft Seems Very Intent on Xbox Being the #1 Game Console.


Check out heir new updates to Xbox…


Microsoft Updates Xbox as Apple to Facebook Gain in Gaming

Attendees play with Xbox 360 game console during the Consumer Electronics Show in Las Vegas.
Photographer: David Paul Morris/Bloomberg

Microsoft Corp (MSFT). is revamping the Xbox to fend off a breed of competitors ranging from Apple Inc (AAPL). to Facebook Inc. (FB) Those companies were nowhere in gaming when the software maker debuted its last version five years ago.

Now these newcomers — along with the likes of Google Inc. (GOOG) and Inc. (AMZN) — 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 Corp. (SNE)’s PlayStation and Nintendo Co.’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 tomorrow at an event in Redmond, Washington — 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.

Video Calling

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, an analyst at Wedbush Securities Inc. in Los Angeles.

“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 22 percent over the past five years, compared with a 58 percent slump for Sony. Apple’s stock has more than doubled, while Google has advanced 57 percent. Microsoft rose less than 1 percent to $35.08 at today’s close in New York.

Set-Top Substitute

Microsoft is also in talks with cable operators, including Time Warner Cable Inc., 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.

Downloading Gains

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.

Zynga Inc. pioneered social gaming with such titles as “FarmVille,” which lets users populate digital landscapes with virtual cows and tractors. Facebook, owner of the world’s largest social-networking service, is building its own gaming empire, announcing in March that the number people paying to play games on its service rose 24 percent from a year earlier.

Companies like Finland’s Supercell, maker of “Clash of Clans,” and Japan’s GungHo Online Entertainment Inc (3765)., which sells “Puzzle and Dragons,” are winning over customers with free downloadable games that for many are replacing pricey console titles, said Ed Fries, a former Microsoft video-games vice president.

Story By Dina Bass and Cliff Edwards, Bloomberg News