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X-Box Opens Living Rooms To Microsoft

If a device is created by Microsoft, powered with an Intel processor, is Internet ready and has a DVD-ROM drive, it must be a computer.

Not according to Microsoft, which insists its X-Box console is just an ordinary consumer electronics device on which a person can play video games, watch DVD movies and access the Internet. But it also happens to be a product that will establish itself as a key player in the video game field against Nintendo, Sega and Sony when it comes to market in 2001.

The X-Box will use a watered-down version of the Windows 2000 operating system and will have 64MB of RAM, an Nvidia graphics processor and an 8GB hard drive.

Industry analysts believe the X-Box will be a formidable game-playing device. Stephen Baker, PC Data’s director of hardware analysis, said he was certain it would be a viable game platform, particularly when it receives the financial support Microsoft is capable of providing.

Gerry Kaufhold, principal analyst with Cahners In-Stat Group, said the X-Box has every chance of being successful and making a place for itself. The addition of Microsoft to the category, however, does not spell the end for one of the three current players, he said, as each has carved out a specific customer niche for itself. The X-Box, depending on the games developed for it, could take a small piece out of each company’s share.

The analysts had mixed ideas as to how consumers will view the device. Baker said, “It seems unlikely that people will think of it as a second PC, it seems that they [Microsoft] will be going to great lengths to have it not identified as a PC. Given that they will be putting some type of stripped-down, altered OS in there it would be dangerous to market it as a PC since standard PC games and other titles may not work on the product.”

Kaufhold called the X-Box Microsoft’s Trojan horse to get a PC-type device into consumers’ living rooms. The X-Box is distinct enough from a game console, he added, that it will not compete against Nintendo, Sega and Sony.

Sega also does not see the X-Box as a competitor, but for different reasons. A Sega spokesman said consumers are attracted by game software and not hardware and pointed to the years Sega has had to develop both games and a large customer following.

“This is Microsoft’s paranoid reaction to Sony’s PlayStation II. This industry is not about technology but about gaming, and Microsoft will not have a product out for 18 months,” the spokesman said. Despite this strong statement, he said Sega and Microsoft have been and will continue to partner on game technology development. Nintendo and Sony declined to comment.

The biggest unknown concerning the X-Box is whether Microsoft will go with the royalty-based licensing system that is used by all the game console vendors for software publishers or the open format used by the PC side. Kaufhold believed Microsoft will require developers to pay a royalty and make the games proprietary to the X-Box format – a move likely to cause a huge uproar in the developer community.

Unlike their PC counterparts, console hardware makers take greater care in ensuring that the number of game developers for a specific game type is limited, Kaufhold said.

This accomplishes two tasks, he said. It allows for greater quality control so games hit the streets with fewer bugs, and it keeps the market from being flooded with games so companies that do release a game are more likely to make money.

“There are 6,000 titles made for the PC, but only about 100 break even, he said. “Meanwhile, there are only 800 titles for the PlayStation and 100 for Nintendo 64, and those are almost all profitable.”

The royalty charged by the hardware company is the primary limiting factor and will eliminate many small game developers that do not have the deep pockets to bring a console game to market.

Microsoft, Kaufhold believes, will demand a royalty for its games and then court the more successful PC game creators to port their PC games to the X-Box format. The fact that Electronic Arts and Acclaim attended Microsoft’s X-Box launch is a prime indicator for such a move.