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Xbox 360 Changing the Home Entertainment Game

Posted on: Monday, 5 December 2005, 07:00 CST

SAN FRANCISCO -- With its new Xbox 360 game console, Microsoft is hoping to change the face of digital entertainment.

Introduced November 22nd in the United States, the new unit is the first of a series of next-generation gaming consoles to hit retail shelves, and quickly sold out before the Thanksgiving holiday sales rush even started. In some places, overzealous fans lining up outside retailers the night before prompted a police presence to maintain order.

The much-anticipated Xbox 360 strives to take gaming to a new level with a unique mix of style, connectivity and services. With it, Microsoft hopes to revolutionize the home entertainment environment in much the same way that Apple Computer revolutionized portable music with the iPod.

The Xbox 360 is at its core a videogame system and initially is being marketed as such to the hardcore gamer to drive early sales. Exact Thanksgiving-weekend sales figures were not available at press time, but analysts say all of the estimated 400,000 consoles that made it to U.S. stores by the launch date have been sold. A total of 1 million units are expected to ship in the United States by the end of the year. The console bows December 2 in Europe and December 10 in Japan.

MUSIC-BIZ OPPORTUNITIES

But focusing on gamers is just a beachhead strategy. Already Microsoft is positioning the system as a hub for digital entertainment discovery and acquisition, opening new doors to a music industry hungry for additional channels of promotion and sales.

With this new platform, games could evolve from a one-way medium for previewing and promoting music to a multimedia bazaar where music and other content can be bought and sold -- even updated -- interactively. But just like the Internet before it, these new doors open to a maze of questions about business models and digital rights management.

That videogames are an important marketing channel for music is nothing new. According to the NPD Group, 20 percent of consumers who buy videogames also buy the music featured in the game.

"If you want to reach this consumer, consider videogames as one way to do it," says Anita Frazier, an NPD Group analyst. "It's a terrific vehicle."

The new Xbox aims to make this vehicle even more effective.

"We're trying to build the right entertainment platform for the digital generation," says David Hufford, group director of Xbox 360 platform and games for Microsoft. "The iPod has shown the way that when you bring together the hardware, the software and the service, you can really capture the imagination of people in new, profound ways."

Xbox 360 owners can use the console to stream music from any Windows XP-powered PC, play or rip CDs directly into its hard drive and connect with an iPod or other digital music device -- essentially unifying the home theater experience.

MARKETPLACE OPEN FOR BUSINESS

The new Xbox also adds another dimension -- the ability to download a variety of content via the Internet. Broadband Internet connectivity is already a staple feature of gaming consoles in order to support online gameplay, but only hardcore gamers have been willing to pay the $50 yearly fee to use the Xbox Live service for this purpose.

Along with the Xbox 360, Microsoft has launched a content portal called the Xbox Live Marketplace, where users can go to download all sorts of game- and non-game-related content. Basic access to the Marketplace is free, with a paid subscription needed only for online gameplay.

At launch, the Marketplace contains 400 types of content, some free and some for sale. Included amid the game-related material are free music videos from Franz Ferdinand and Audioslave and 12 songs from a variety of artists -- the first steps to what Microsoft hopes will be a new channel to sell digital entertainment content like movies, music and video.

Labels interested in marketing to the gamer crowd can partner with Microsoft to add promotional content to the Marketplace, which gamers will see when logging in and can then download for free or at a price.

VIRTUAL SHOPPING

Although this function is not yet available, the Xbox has the potential to let gamers make purchases from directly within the game. At some point -- it is unclear how soon -- gamers could be able to select a song from the soundtrack while playing and connect to the MSN Music Store or Xbox Marketplace to buy the track. In-game advertising is expected to evolve to the point where gamers will be able to select a billboard ad in a game's cityscape background to link to a Web site for more information, all from within the console.

"The game is going to become a primary interface for all sorts of stuff, giving games the opportunity to become a starting point, not an ending point," says Vince Broady, senior VP of games and entertainment for Gamespot.

This is the big-picture vision, and game publishers are excited about its possibilities. But they also will want a cut of any transaction taking place as a result of in-game discovery. Little progress is expected on this front until a business model can be worked out with the music industry.

Record companies so far are excited about the possibilities and have shown a willingness to experiment with the new platform.

"It has a lot of potential," says Christina Zafiris, senior director of new media and strategic marketing at TVT Records, which contributed the song "Band-Girls-Money" by Czar to the music shipped with the console. But, she adds, "A combination of technical and business (solutions) are needed to get that interoperability. It's a very complex issue."

And it is an important issue, considering that Xbox 360 games provide more than three times the storage capacity of current-generation games, with greater support for sophisticated sound systems.

LOADED WITH EXTRAS

Games will ship with extra features such as video footage of bands performing the original music created for the game. Some will have a soundtrack playable as a separate option, similar to what the "50 Cent: Bulletproof" game offers for existing consoles.

Additionally, games will ship with even more content that can be unlocked only if the gamer pays for it via the Marketplace. A band with only one song in the soundtrack could add the full album as a locked element, for instance.

According to Microsoft's Hufford, the company hopes to engage the music industry even further to develop additional opportunities.

As an industry betting its future on digital consumption, the music industry has a lot riding on whether the Xbox 360 can deliver on its promise.

Today's gamer is considered the digital consumer of the future. According to a recent Nielsen Entertainment study, households with videogame consoles represent only one-third of the U.S. population but are responsible for the highest adoption rates of consumer electronics devices and services.

Gamespot's Broady thinks the advanced Xbox 360 user will presage the entertainment consumer of the coming decades. "They're just a different kind of person than who we've been selling to all these years. That's the sign of things to come."

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On the Net:

http://www.xbox.com

Source: By Anthony Bruno/Reuters

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