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News > Technology
Battle of game consoles
May 17, 2001: 11:31 a.m. ET

Microsoft, Nintendo try to flank Sony's PlayStation 2 as video game champ
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Six months after its launch, sales of Sony's PlayStation 2 remain brisk as a chip shortage that delayed shipments has mostly worked itself out. However analysts are now eyeing new offerings from Nintendo and Microsoft, both of which aim to overtake Sony as the best-selling game console.

PlayStation 2 will be difficult to catch since it will have been on the market a full year before Nintendo's GameCube and Microsoft's (MSFT: Research, Estimates) Xbox appear, analysts said. But with competition tight, the fight for No. 1 in the $10 billion a year video game industry will ultimately boil down to who's got the most fun games.

"I suspect that software is going to drive this generation of products much as it drove the prior generation," said David Leibowitz, an analyst with Burnham Securities. "Nintendo has proven itself a master of coming up with software that has play value."

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  I would suggest that both Nintendo and Microsoft are going to be very formidable opponents  
     
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  David Leibowitz
analyst
Burnham Securities
 
Although there's no doubt PlayStation has popular games, its rich graphics and sleek design may not be enough to overcome the long-lasting popularity of such Nintendo icons as Mario and Pokemon. In fact, on a list of the 20 best-selling video game titles in 2000, Nintendo titles occupy 11 of the spots, including the top four, according to the Interactive Digital Software Association, an industry trade group.

"Sony is one of the most interesting media companies in that for all its movie studios and music properties, it has not been able to produce too many icons for its video platform," Leibowitz said. "Nintendo has Mario, Donkey Kong, Zelda, and Pokemon, and having these icons will make the introduction of their product that much easier."

But Jack Tretton, senior vice president of Sony Computer Entertainment of America, said the PlayStation platform is a proven brand, having first entered the market six years ago, and that games for the new PlayStation 2 will prove exciting to gamers.

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"I think the thing that we're most proud of is that we've sold a ton of software," Tretton said. "Anybody that's gotten a look at our software knows what to expect. If you look at our history, sales of software on our platform have greatly dwarfed sales of other competitive platforms."

Tretton also noted that PlayStation 2 will play games designed for the original PlayStation. He also points out that more than three million PlayStation 2 units have already sold, a solid head start on its competitors.

Though Microsoft is untried in video games, it may still prove formidable because it struck a deal in which Sega Corp. will produce 11 titles for the Xbox. Though Sega was forced out of the console business, it has shifted its focus to the production of software.

The company has been holding strategic sessions with veteran game developers, getting feedback on what consumers really look for in a video game.

"With the Xbox, we offer an unparalleled commitment to delivering great games, to how we build the box and what we put into it," said John O'Rourke, marketing director for the Xbox. "It's very much a collaborative effort. That's why we put a hard drive in every box. They (game developers) told us to do that. It enables consumers to have better graphics, better sound, better game experiences."

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Nintendo's GameCube packs a lot of high-tech graphics into a little package (Source: Nintendo)
Still, Nintendo, which has had tremendous past success, threatens to snatch customers away from Sony, which has made millions from the PlayStation.

"Really it comes down to exclusive games," Nintendo's director of marketing George Harrison said. "Who's got games you can't get anywhere else? We have strong internal development resources, and the combination of familiar character franchises in a new environment with completely new games for the older audience, and innovative types of game play. Everyone's going to have pretty graphics. That doesn't necessarily make the entertainment more compelling."

Web access also a factor

Another front on which Microsoft will do battle with Sony is in online gaming. The Xbox was the first to announce it will feature Web access to online games. On Wednesday, Sony said it would follow suit, releasing a network adaptor for the PS2 for both dial-up and broadband users. Additionally, Sony as teamed up with America Online to provide the PS2 with its own Web browser.

Web access allows multiple players to play against one another from virtually anywhere in the world.

Nintendo also announced Wednesday that the GameCube would come equipped with an adapter for a 56K modem, and that it would also include broadband connections.

Microsoft announced in March that the Xbox would offer Net access, a feature it hopes will give it an edge against Sony. The company teamed up with Internet services company NTT Communications Corp. to bring Xbox online in Japan.

"The key part of the deal is enabling online gaming," Robert Bach, chief Xbox officer in charge of Microsoft's new gaming platform, said at that time.

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The Xbox, Microsoft's first game console, features Web access (Courtesy: Microsoft)
Analysts are skeptical about the advantages of online gaming as a driver of sales since the medium remains relatively new.

"It is one thing to say you're going to introduce online gaming, but it is another thing to say it's really fun to play with," said John Taylor, a video and computer game analyst with Arcadia Investments. "Just because a console's Web-enabled doesn't mean it's fun to play with. Somebody's got to come up with an online game that people want to play."

It's in the chips

A shortage of graphics chips last September caused Sony to delay and trim the number of initial PlayStation 2 shipments, leading to lost profit during the crucial holiday season.

On April 27, the company reported an 86 percent decline in profits for the year ended March 31, in part because of the PlayStation 2 glitch.

Demand for the units was intense, but with no one able to predict when more might be shipped, some retailers refused to keep reservation lists.

"We had rather boldly stated that we hoped to have a million units for sale in North America on October 26," Tretton said. "In reality we were only able get half a million to market. That's a significant shortfall. But if we had it to do over again, I think the news that we brought half a million to market would have been very compelling."

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Demand for Sony's PlayStation 2 remains high (Courtesy: Sony)
Yet what units did reach the market sold out almost before they hit the store shelves, and an announcement late last year by rival Sega that it would stop production of the Dreamcast console, after taking huge losses, helped keep PlayStation 2 alive and more than kicking.

"I think Sony's made huge strides in the course of the last month to ramp up delivery of PlayStation 2," said Taylor. "Not only are people in the channel telling me the flow has dramatically improved, but they are seeing them in the stores. I don't think anyone's building inventory yet, but they're getting them on the shelves."

Just as Sony is getting over its supply problems, Nintendo announced problems of its own. The company said on April 18 that it would delay the Japanese launch of GameCube to September 14, from July and U.S. shipments until November, because of parts shortages likely to affect shipment of 50,000 units.

"As with all of our launches, it's always about making sure product is finished and as good as it can be," said Nintendo's Harrison.

Rumors had been circulating that Microsoft would have to delay the Xbox, launch, but spokesman John O'Rourke said the console was on schedule.

Taylor believes Sony will remain the market leader since, despite the supply shortage, consumers will have snapped up five million PlayStations by the time Xbox and GameCube hit the shelves. But depending on how consumers react to Xbox and GameCube, that could all change in the next few years.

"What's extremely important is that Sony is out there now and is delivering increasing quantities of product," Taylor said. "It's pretty clear to me that if you look at the 128-bit segment, Sony is going to go up and everybody else is going to go down, only because Sony has a 12-month head start. But when you look into the next year, that could change depending on who's got which software."

But no matter what issues arise between now and when the consoles hit the shelves, be it production glitches or online gaming, analysts agree that whoever's got the titles will likely lead the pack. And at this point, it's just too close to call.

"I would suggest that both Nintendo and Microsoft are going to be very formidable opponents," said Leibowitz. "In the case of Microsoft, given the size of the corporate treasure chest, whatever it takes will be spent to move the product." graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.