February 16, 2003
Who's Blocking the Xbox? Sony and Its Games
By MATT RICHTEL
http://www.nytimes.com/2003/02/16/b...nt&position=top

AN FRANCISCO -- XBOX, the video game console that Microsoft introduced nearly 14 months ago, is technologically sophisticated and, by many accounts, the best way to play games against competitors over the Internet.

But the advantages have not translated into the returns Microsoft had hoped for. It has sold nine million Xbox consoles, on the low end of its projections; it continues to lose money on each one it sells; and it remains desperately behind Sony, whose PlayStation 2 is selling at a record pace. Wall Street analysts have mixed opinions about whether Microsoft's early effort has been successful, but they agree that it has a way to go.

Avid game players like Brian Green, 26, who spends hours each week on both consoles, have a simple explanation for why Microsoft has yet to make the inroads it sought. "The Xbox is cool," he said, "but the PlayStation is where the games are at."

That is not good news for Microsoft, because people tend to buy electronics based on the amount of software they can use. Sony learned that lesson two decades ago, when its technically superior Betamax video recorders were swamped by VHS machines that had more tapes available.

Makers of video games are starting to produce more games for Xbox, but the 2-to-1 gap with PlayStation will take some time to close. And while Microsoft, which has more than $40 billion in cash on hand, can afford to be patient, analysts and investors wonder how much time and money it is willing to invest before it starts to turn a profit.

The issue is of no small significance. The market for consoles and video games is worth more than $9 billion a year. Even while losing on selling consoles, Microsoft could still make a lot of money from game makers. They pay the console makers about $10 for each copy of the games they manufacture — and they made well in excess of 50 million games in the United States last year. Games typically sell at retail for $50.

For now, though, there are only losses for Microsoft. It declines to say how much it loses on each console, but industry analysts estimate the figure at close to $100. Sony, by contrast, does not sell PlayStation 2's below cost.

Part of Microsoft's problem is the ambitious design of Xbox: its chipsets and other electronic components are more expensive than those of the PlayStation. Microsoft has also been unable to realize certain economies of scale because sales have not been as robust as expected.

Joseph Osha, a semiconductor analyst at Merrill Lynch who follows Nvidia, a company that makes the graphics processing chips for the Xbox, said Microsoft had had to "pull back sharply" on its orders. He estimated that Microsoft had 1 million to 1.5 million unsold Xbox chipsets, which are the brains used in Xbox consoles.

Microsoft is too big to have its stock price move significantly on sales of Xbox. But the effect of all that idle Xbox inventory is evident on its profit-and-loss statement. In a recent filing with the Securities and Exchange Commission, Microsoft said its home and entertainment segment, which includes the Xbox and television divisions, lost $348 million in its most recent quarter on sales of $1.28 billion. In the period a year earlier, the home and entertainment unit lost $180 million on sales of $833 million.

On a micro level, investors "don't like it because they lose money on every piece of hardware they sell," said Michael P. Wallace, a video game industry analyst at UBS Warburg. But, he added, "on a macro level, they're in the No. 2 spot."

In addition to overtaking Nintendo, which makes the GameCube console, as the second-place console maker, Microsoft has put itself in a position to compete with Sony for years to come, Mr. Wallace said.

When Microsoft introduced the Xbox in January 2001, it promised to put $2 billion into the product — $500 million in advertising alone. It may well need to spend it all. In 2002, according to UBS Warburg, Sony sold 18.3 million PlayStation 2 consoles, while Microsoft sold 5.2 million Xbox machines and Nintendo sold 4.7 million GameCubes. These figures reflect consoles sold to consumers, not consoles that the manufacturers ship to wholesalers or retailers.


THE good news for Microsoft is that industry experts expect it to widen its lead over Nintendo this year. Electronic Arts, the world's largest game maker, is projecting that in North America in 2003, Sony will sell 9 million to 10 million PlayStation 2's, Microsoft will sell 2.5 million to 3 million Xbox consoles and Nintendo will sell 2 million to 2.5 million machines.

Electronic Arts also projects that Microsoft will beat Nintendo in Europe, the second-biggest market after the United States. Still, Microsoft is particularly struggling in Japan, where it has been virtually shut out of the market, selling a mere 300,000 consoles, according to the company. Throughout all of Asia, Microsoft has sold only 500,000 Xbox consoles, according to UBS Warburg, compared with Sony's sales of 3.67 million PlayStation 2's.

Microsoft officials say they are hampered in Asia because Sony and Nintendo, both Japanese companies, have entrenched positions and great control over distribution and sales channels there. But industry analysts say Microsoft should come up with more than excuses.

"If Xbox has any chance of closing the gap against PlayStation, Microsoft is going to need a better Japanese strategy," said Michael Gartenberg, an analyst at Jupiter Research. He said it needed to have better games and to burrow into the Japanese distribution channel.

Microsoft said it was already making progress on games, introducing in Japan a game called DOA Xtreme Beach Volleyball. The 80,000 games sold out within two days.

Robert J. Bach, a senior vice president for the home and entertainment division, acknowledged that the Xbox was continuing to lose money, but he said that such losses were natural with a new business. A better picture of the situation, he said, is how the company is performing relative to its business plan. "We're doing very well on that basis," he said.

Analysts said Microsoft must also persuade video game makers to produce versions of their products for the Xbox. According to figures provided by Microsoft but compiled by NPD Funworld, an industry research group, there are 458 games available for the PlayStation 2, versus 207 for the Xbox and 168 for the Nintendo GameCube.

Microsoft faces a chicken-and-egg problem: makers of video games won't make versions of their games for a given console unless the machine has a wide installed base, but it is hard to build a base without a lot of games.

Some big game makers have made versions only for the PlayStation 2. Most notable has been Grand Theft Auto, the most popular game the last two years. Microsoft said it is in discussions with the game's maker, Take Two Interactive, to persuade it to produce a version for the Xbox.

Xbox also suffers because video game publishers will sometimes release a Play- Station 2 version of a game first, then deliver an Xbox version months later. That happened last year with Medal of Honor, a top-selling game from Electronic Arts that came out some six months earlier on the PlayStation 2. Jeff Brown, a spokesman for Electronic Arts, said, however, that the company was increasingly releasing games concurrently for the two platforms.

Industry analysts like Mr. Wallace of UBS Warburg said Microsoft needed to find video game makers that would produce hit titles exclusively for its console.

To bolster its game portfolio, Microsoft has been in discussions to buy Vivendi Universal Games. Microsoft would not comment on the issue.

In the meantime, Microsoft has quietly begun to make inroads with a feature that cuts across individual games: Xbox Live. This is a $50 attachment that lets console owners play games against one another over the Internet. Microsoft, citing figures from NPD Funworld, said it sold 350,000 Xbox Live kits since introducing the service in November. Sony has sold 438,000 of its own online kit, said Microsoft, citing NPD Funworld figures, but Sony has been selling its kit for almost twice as long, since August.

Mr. Bach said that these kinds of numbers showed that Microsoft, by sticking to its plan, could succeed, and he has said so to Microsoft's chairman, Bill Gates, and its chief executive, Steven A. Ballmer. "In the conversations I have with Bill and Steve, they want to know where we are on that plan," he said. "We're on that plan."

The question is whether Brian Green and other gamers are on board, too.

I do not know what the analysts expect out of Xbox, but for a first timer competing with established players, MS has done very well.

It got the graphics right, it got the online going and it got the cool exclusive games. I think Xbox is on course to close the gap with Sony. Yesh yesh! So PS2 is still outselling Xbox but the gap will close, it will! I say it will!

Next generation wil be interesting! Will Cell be Sony's own undoing? Will MS still reigns supereme with the hardware? Will Nintendo still be in it

[_phil_]

saddly,the perceptive xbox succes (mostly) exist comparatively to the gamecube "failure" (withch is not really a failure since big N market and business approach is very different).

[Deepak]

Originally Posted by chap

Next generation wil be interesting! Will Cell be Sony's own undoing? Will MS still reigns supereme with the hardware? Will Nintendo still be in it

SONY's plan (read hardware) is pretty much finalised, MS and N...hmmm! One thing is sure MS will continue to have a PC like architecture (so that they can have backward compatibility...so expect NV??)...it will be interesting to find if IBM will have any relationship with N (GC2), considering the fact they are working with SONY on PS3...

[Crazyace]

That article reminds me of scooby doo...

<Bill Gates> I would have done it too, if it weren't for those pesky games....

[Magnum PI]

i'm very surprised this article claims microsoft is second to sony.

worldwide, i would think that nintendo is second. (because of japanese sales)

[Blade]

If MS is second, it's by a very small margin.. and they only got there by giving away free games everywhere in desperation.

Me = liking my Xbox for certain things, but I'm not going to deny MS' cheap tactics. Of course, now Nintendo is wise to th' whole matter and they're giving away games too. (SMS bundle = $160, plus the free game w/purchase of GCN thing)

[DVFtaxman]

I must admit that it never ceases to amaze me how well the PS2 continues to sell in view of the "technically" superior and cheaper rivals! I have no doubt that they will continue to do so for the whole of 2003, but surely they've got to reach a ceiling some time soon? They've got to get to a point where everyone that wants a PS2 is already going to have one. You've just got to sit back and admire SONY's marketing of this machine as it is just phenominal and I hope they pay them some kick ass bonuses as they deserve it. People have been predicting the downturn in SONY's sales since before the launch of XB and GC, but it just seems to go on getting better and better.
Nintendo worries me as I have always loved they're games, but I can't help feeling that they are beginning to get VERY marginalised and they also always appear to be 1 step behind the game as far as promoting and marketing their machine goes. I also hate the way they delay european release dates by so long - surely as the 2nd largest market they'd be rushing them through as a priority as its a minimum effort, maximum gain situation?
I'm not really too sure what to make of M$. I have all 3 consoles and I find the XB to be by far the most accomplished machine, but do they really have the support that the other 2 can muster? A lot of the games on XB at the moment are exactly the type of games that I've been whinging about SONY for the last 18months about! I think financially the XB deficit has been widely exagerated, but they sure do need something along the lines of GTA series to really get them motoring.

[Teasy]

Heh, I like the way it includes GC sales against XBox sales when GC has sold less (in the U.S) but doesn't even mention GC sales in Japan where GC is killing XBox. Not very consistent is it.

[Qroach]

Nintendo is second if you include Japan, but why would EA or any game company outside of japan mention the sales in that region, when it's almost impossible to sell software that isn't made in that region?

In other words, why cheer for sucess in a market segment you can't sell to? Can anyone explain this to me? becuase I certianly can't see any logical reason why EA or other would do that.

[marconelly!]

They've got to get to a point where everyone that wants a PS2 is already going to have one.

Yes, and by that time, everybody will be ready for PS3

You've just got to sit back and admire SONY's marketing of this machine

There's nothing really too much to admire. When you have so many games that people want, marketing goes easy...

[Teasy]

Quincy

Nobody said anything about EA not mentioning Japan AFAICS. The article is about the world market not just markets important to certain developers like EA.

Also what I was saying is that when the article mentions the U.S it gives GC and XBox sales. Yet when the same article mentions Japan it gives only XBox number. Its a little inconsistent, that's all I was saying. Just an observation.

[wazoo]

Originally Posted by Qroach

Nintendo is second if you include Japan, but why would EA or any game company outside of japan mention the sales in that region, when it's almost impossible to sell software that isn't made in that region?

In other words, why cheer for sucess in a market segment you can't sell to? Can anyone explain this to me? becuase I certianly can't see any logical reason why EA or other would do that.

I agree, GC sales in Japan are only important for us gamers.

The problem is that news is not focusing on Us only and jump from worlwide info to US info and vice versa IMO.

[Glonk]

Originally Posted by Teasy

Heh, I like the way it includes GC sales against XBox sales when GC has sold less (in the U.S) but doesn't even mention GC sales in Japan where GC is killing XBox. Not very consistent is it.

Why does it need to mention specific GC sales in Japan? Japan is now the third largest gaming market behind North America and Europe.

It gives Xbox sales and PS2 sales for the region, and mentions the Xbox is very far behind GCN and PS2 in that region -- and you still WHINE about it?

Jeez Teasy. If I were you I'd be whining about how the NYT doesn't give a damn about the GCN, they print lots of article about the Xbox and how it's doing and how the GCN doing worse than the Xbox is mentioned in passing. What does that say about the GCN's future outside of Japan?

[marconelly!]

Throughout all of Asia, Microsoft has sold only 500,000 Xbox consoles, according to UBS Warburg, compared with Sony's sales of 3.67 million PlayStation 2's.

Only 3.67 million PS2 sold in Japan and the rest of Asia during the whole last year? That's less than christmas sales in US alone...

[Teasy]

The article mentions XBox and PS2 sales for Japan (although the PS2 sales are quite clearly wrong). So obviously they think Japan is worth mentioning despite it being the third largest market.

It gives Xbox sales and PS2 sales for the region, and mentions the Xbox is very far behind GCN and PS2 in that region -- and you still WHINE about it?

Actually no it never says at any point that XBox is very far behind GC in Japan AFAICS. Where does it say that?

Who's whining here?, look in the mirror for the answer. I made a small observation that the article is not very consistent in pointing out sales numbes. Why are you whining about that?

Jeez Teasy. If I were you I'd be whining about how the NYT doesn't give a damn about the GCN

I have no idea what articles the New York Times prints and doesn't print. But if they don't care about XBox, as you say, then that's obviously the reason for the inconsistency I mentioned. So what exactly are you complaining about in my post again? Or did you just feel the need to use your favourite roll eye's face?

[Qroach]

wah wah wah... quit crying about it.

[Teasy]

Heh, great come back Quincy :P I may quote you sometime

BTW Quincy I suppose this is your idea of participating in a discussion? Practice what you preach you hypocrite.

[Glonk]

Originally Posted by Teasy

Actually no it never says at any point that XBox is very far behind GC in Japan AFAICS. Where does it say that?

It doesn't spell it out, but people with an IQ above 50 should be able to figure it out:

Still, Microsoft is particularly struggling in Japan, where it has been virtually shut out of the market, selling a mere 300,000 consoles, according to the company.

and

Microsoft officials say they are hampered in Asia because Sony and Nintendo, both Japanese companies, have entrenched positions and great control over distribution and sales channels there. But industry analysts say Microsoft should come up with more than excuses.

I made a small observation that the article is not very consistent in pointing out sales numbes. Why are you whining about that?

The article is about the Xbox, in particular how it's competing with Sony, and you thought it was relevant to whine (yes, whine) about how they didn't mention specific Gamecube numbers in Japan.

I have no idea what articles the New York Times prints and doesn't print. But if they don't care about XBox, as you say, then that's obviously the reason for the inconsistency I mentioned. So what exactly are you complaining about in my post again? Or did you just feel the need to use your favourite roll eye's face?

The article is from the NYT...it's talking about the Xbox's fight with the PS2 instead of the Gamecube's. That should be the basis of your complaint. They ignored specific GCN figures for the most part because they're not relevant to the article. "pointing out" that they're missing it comes off as whiney to me.

And I'm a tad bit sick of it.

[Qroach]

BTW Quincy I suppose this is your idea of participating in a discussion? Practice what you preach you hypocrite.

Oh I "AM" participating. Not unlike yourself in the other thread. Oh, I got another line for ya...

"baby want a bottle?" That's a personal fav of mine.

[V3]

Nintendo is second if you include Japan, but why would EA or any game company outside of japan mention the sales in that region, when it's almost impossible to sell software that isn't made in that region?

In other words, why cheer for sucess in a market segment you can't sell to? Can anyone explain this to me? becuase I certianly can't see any logical reason why EA or other would do that.

If that's the attitude than it would be very hard to crack Japanese market.

[Teasy]

It doesn't spell it out, but people with an IQ above 50 should be able to figure it out:

It doesn't spell it out or say it at all. It says XBox is struggling then shows PS2 numbers, which gives the impression that its only struggling against PS2. I don't see how anyone who doesn't know sales numbers would have any idea if GC is ahead at all never mind sold almost 10 times more units then XBox. Do I care about that? Nope, I never said I did and I didn't give any indication that I did either. But that doesn't change the fact that their use of sales numbers is inconsistent, that's all I said and its true, so what are you complaining about?

The article is about the Xbox, in particular how it's competing with Sony

If its only focused on XBox and PS2 then why does it mention XBox and GC numbers for the U.S then? Once again I said its use of sales numbers was inconsistent. Can you actually argue with that? If not then why are you arguing?

The article is from the NYT...it's talking about the Xbox's fight with the PS2 instead of the Gamecube's. That should be the basis of your complaint. They ignored specific GCN figures for the most part because they're not relevant to the article. "pointing out" that they're missing it comes off as whiney to me.

Oh so showing U.S GC, PS2 and XBox numbers is relivant to the article but showing Japanese GC numbers, along with the Japanese XBox and PS2 numbers they showed, isn't relivant?

And I'm a tad bit sick of it.

Then why do it yourself? Your the whining champ in this thread

[Teasy]

Quincy

Nah it takes more then one sentence consisting of only 5 unique words to participate in a dicsussion.

I really must have pissed you off in that last thread. Because your quite obviously sulking about it in this thread. Never mind snucums, you just lose that pet lip and dry those tears. I'm sure you'll feel better after you and your boyfriend have had some icecream and braided each others hair

[Glonk]

Originally Posted by Teasy

It doesn't spell it out or say it at all.

Err...okay, Teasy, but I think you're insane.
It mentions the Xbox is doing very poorly in Japan, and mentions the reason why they're doing poorly is because Sony and Nintendo are "entrenched". I don't know about what "entrenched" means in the UK, but here across the pond it implies they're in a solid position...

If its only focused on XBox and PS2 then why does it mention XBox and GC numbers for the U.S then?

It's quite simple. Focused doesn't mean "only about". And to the New York Times' readers, the US numbers matter, while Japanese numbers are somewhat unimportant...

Oh so showing U.S GC, PS2 and XBox numbers is relivant to the article but showing Japanese GC numbers, along with the Japanese XBox and PS2 numbers they showed, isn't relivant?

Is the New York times a US publication or a Japanese publication? I'm so confused.

The article is mainly about Xbox vs PS2, or MS vs Sony. It mentions specifically the current state of the entire console market in North America because, well, the NYT is a North American publication! They only mentioned the PS2 and Xbox numbers for Japan because the specific numbers for the GCN don't mean anything -- it mentions that it's "entrenched" which is all they need to say.

You're really starting to remind me of the kids on the IGN boards, which are actually whining about the Japanese GCN numbers missing, because it's the only region in the world where the GCN is outselling the Xbox. They look high and low for any positive, concrete sign of the GCN's success, and whine when the NYT thinks it's unimportant to their article.

Whine is absolutely the correct word. And yes, I'm whining now, but I've got a reason for it! It's like kindergarten.

[Teasy]

I was going to reply to your whole post point by point, until I realised how utterly pointless it was given the irrelivance of it. I'll say this once again just to counteract your reading difficulties. I said that the articles use of sales numbers was inconistent. Showing PS2, Xbox and GC numbers when talking about the U.S and then only mentioning PS2 and XBox when talking about Japan is an inconsistent use of sales numbers is it not? You yourself already mentioned how in love with XBox the NYT is so I don't see why you have to defend them so feverishly here. Or maybe I just answered my own question there

You're really starting to remind me of the kids on the IGN boards, which are actually whining about the Japanese GCN numbers missing, because it's the only region in the world where the GCN is outselling the Xbox.

Your the initiator of this discussion, whining and complaining about my original comment in this thread. You've obviously got your knickers in a twist because you think I might be defending GC or Nintendo. Probably a sin in your little Xbox religion.

BTW where are your numbers to show that XBox is ahead of GC anywhere but in the U.S? fantasizing again Glonk?

Whine is absolutely the correct word. And yes, I'm whining now, but I've got a reason for it! It's like kindergarten.

Well I'm glad you at least admit that your a whiner. What reason do you have to whine? Because you feel all hot and bothered because you think I'm defending GC?.. grow up.