Microsoft enlists Electronic Arts to make Xbox games

With Sony in its sights, Microsoft weighs entry into game machines
Ray Allen, right, of the Milwaukee Bucks, watches Earvin 'Magic' Johnson play Microsoft's 'NBA Inside  Drive 2000' in this file photo. Microsoft will need all  of its marketing prowess and video game experience  to take on Sony.
Microsoft Corp., determined to head off Sony  Corp. in the battle to control digital entertainment,  is considering a move that could shake up the  video game market, industry executives said.	By Dean Takahashi  THE WALL STREET JOURNAL
In a bid to steal the spotlight from Sony’s forthcoming  Playstation 2 system, the new Microsoft game system  is expected to go on sale in the fall of 2000, the  industry executives said.

MICROSOFT MAY POUR billions of dollars over four years into developing and promoting a home video game console, code-named X-Box, said one person who has been briefed on Microsoft’s plans. Microsoft’s proposed machine, a hybrid akin to a PC that plugs into a television to play games, is expected to be manufactured to the company’s specifications by PC makers or subcontractors.

In a bid to steal the spotlight from Sony’s forthcoming Playstation 2 system, the new Microsoft game system is expected to go on sale in the fall of 2000, the industry executives said. Sony’s Playstation 2 is expected to be launched in Japan in March and in the U.S. in the fall of 2000. It isn’t clear when Microsoft plans to announce the new system.

The Playstation 2 is the focus of a multibillion-dollar investment by Sony and could become potent competition for consumer PCs that use Microsoft software and also digital boxes on top of TV sets, such as Microsoft’s WebTV system. Sony’s machine will be able to run high-quality three-dimensional animations, play digital video disks, connect to the Internet and store data in accessory hard disk drives. The new Microsoft console is expected to play standard PC games, also with movie-quality animations.

The brewing battle between the two companies reflects a growing convergence of industries, as game systems grow up to be full-fledged computers and PCs try to break into the living room. With all of Playstation 2’s new capabilities, Microsoft is believed to be worried about possible defections by PC-game developers, some of whom could shift plans for new products to the Playstation 2.

“Microsoft needs to make a statement to keep the game developers and PC consumers loyal,” said Rick Doherty, an analyst at Envisioneering Group, a Seaford, N.Y., consulting firm. “Everyone can see there are 60 million Playstations out there and 20 games apiece that go with them. Sony has proven that the video game business model works tremendously.”

A Microsoft spokesman and Sony spokeswoman declined to comment.

Whether Microsoft’s box would be marketed by the company under its own brand name, that of manufacturing partners or both isn’t clear. Executives at software makers and PC manufacturers said they have been briefed by Microsoft on the X-Box but knew of no hardware companies that have decided to make or sell it.

It is possible that Microsoft, which has mounted abortive efforts to get into home entertainment devices before, could back away from the idea. In August, one Microsoft executive, who requested anonymity, said X-Box may be killed because of the “opportunity to lose hundreds of millions of dollars in the hardware business.” Still, Microsoft has continued to pursue the project.

At an expected price of about $299, the X-Box seems based on the premise that fast-falling prices of PC components can offer more bang for the buck than Playstation 2. The Microsoft features may include a DVD player, a hard disk drive and extra circuitry suited to fast-moving games and connections to a TV set display.

A software executive Monday described the device as “a console machine with PC innards.” People familiar with the situation say Microsoft has decided against using microprocessor chips from Intel Corp., the company’s longtime partner in PCs, and is strongly considering using Advanced Micro Devices Inc.’s Athlon microprocessor. Athlon promises comparable performance to Intel’s fastest chips at a significantly lower price. Officials of AMD and Intel declined to comment.       The Microsoft machine also is expected to use a graphics processor called GeForce, from Nvidia Corp., a Santa Clara, Calif., chip maker. A Nvidia spokesman declined to comment.

Instead of a conventional PC operating system, Mr. Doherty believes that X-Box will use a new hybrid of Windows 98 and a variant of Windows NT that Microsoft designed for non-PC applications. Notably absent is Windows CE, a widely promoted operating system for hand-held computers and other devices that is being used by Sega Enterprises Ltd. in its rival to Playstation 2, the Dreamcast device.

UPDATING MACHINES

One key difference between the X-Box and PCs is that the X-Box’s basic components and features won’t be modifiable. In the PC business, consumers can update their machines with add-ons that software developers target with new products.       On the other hand, game developers might have an easier time developing for the X-Box since the specifications aren’t expected to change constantly. Moreover, such a machine could become much easier to use than a traditional PC, said Omid Rahmat, a games analyst at Doodah Marketing in San Rafael, Calif.

The potential competition with Sony has been building for months. Ken Kutaragi, president of Sony Computer Entertainment, has touted the upcoming Playstation 2 not as a simple video game machine but as a connected device that can handle Web surfing, electronic commerce and other chores and that is easier to use than a PC. In one recent speech, Mr. Kutaragi said Sony’s future lies in “networked digital entertainment.”

One person briefed by Microsoft said the company hasn’t taken Sony’s possibilities lightly. “The X-Box is a frontal assault on a very big threat,” he said.

Publicly, Microsoft games managers have noted that PC and video games appeal to two different audiences. Most video games are played in groups in the living room, while most PC-game action takes place closer to users’ faces. About a third of U.S. households own game consoles, compared with about half owning PCs. But the PC share of the market has been steadily declining during the past couple of years.

Building a fourth major contender in the game business — alongside Sony, Nintendo Co. and Sega — would require a huge marketing effort. Sega, for example, remains a distant third despite $100 million in U.S. advertising for Dreamcast. One industry executive said Microsoft has considered earmarking as much as $6 billion for its effort, but another person close to the company said that figure is incorrect.

At one point, Microsoft Chairman Bill Gates was expected to reveal the project next month, at his keynote speech at the Comdex computer trade show, where Sony CEO Noboyuki Idei also is speaking. But other people briefed by Microsoft said the company won’t announce until next year.

For years, the soothsayers have prophesized The Great Convergence - the time when
consoles and PCs merge into one, and console gaming as we know it comes to an end. Older
generations of gaming machines showcased technology specifically developed for the
console as the PC hunkered along with subpar graphics and keyboards meant for writing
papers, playing strategic games, and filling in spreadsheets.

With the latest generation of consoles, one would think that convergence is fairly close.
Since the early days of gaming, PCs have since featured increasingly more powerful graphics
and sooner or later console developers had to tap into this wealth of PC technology. The
Dreamcast for instance boasts technologies first developed for PC devices. It uses a
Microsoft-developed operating system (Microsoft's Windows CE); a Hitachi SH-4
microprocessor designed for Microsoft's Windows CE; and a VideoLogic PowerVR
graphics chip developed originally for the PC. Even Nintendo's next-generation machine will
use a processor designed by Big Blue itself - IBM. By doing the math, you can figure out who
is beginning to emerge as a potential threat - Microsoft. And so the rumors began at ECTS in
London that Microsoft was creating a new console, code-named X-Box (the "X" no doubt
being a reference to Microsoft's popular gaming API - DirectX).

Few specifics exist right now, as the company has yet to confirm the existence of the X-Box
reference platform. Yet, in the current issue of Games Business, an article about the X-Box
asserts that development on the X-Box has long been in development. And Sega of America's
Charles Bellfield is quoted in the article as saying, "We've known about this [X-Box] for
ages." However, Bellfield claims that the X-Box will not be in direct competition with Sega's
Dreamcast console. He also told Games Business, "The way we're going [with the
Dreamcast] is very different. We are not a digital home-network entertainment-center company.
The [X-Box] is aimed at a different market, at a higher cost. It's targeting the PlayStation2."

As ZDNN revealed on Tuesday morning, the X-Box hardware is likely being developed by
WebTV engineers - the same crew that originally worked on the failed 3DO hardware and the
cancelled M2 project. After a period of lackluster sales with its 3DO console, 3DO sold its
hardware division to Samsung, which then named it CagEnt. After negotiations fell through
on a project with Nintendo, Samsung then sold the group to Microsoft's WebTV division. "Those
guys are still there," said Hugh Martin, former CEO of 3DO Systems. "They are inside WebTV
in Palo Alto (Calif.)." Martin went on to say, "I guarantee you that if there's a group that knows
how to build a video-game machine, it's the one inside WebTV."

Because of Sega's close ties with Microsoft (its Dreamcast console has more than 70 titles in
development under the Windows CE environment), the company's X-Box develoment
comes as a surprise. ZDNN posed the question, why would Microsoft want to pursue a new game
console when its partner, Sega, has already created a successful one? "[The] Dreamcast
meets all the goals they [Sega] would set for such a device," said Peter Glaskowsky,
graphics guru at chip-technology researcher MicroDesign Resources Inc.

As for developer support, several companies admitted to having spoken with Microsoft about
the X-Box platform. One in particular, SquareSoft, (maker of the popular Final Fantasy
series on the PlayStation), told Bloomberg News last week that, "The biggest player cannot ignore
this market anymore." Yoshihiro Maruyama, the vice-chairman of Square Electronic Arts
commented, "If they decide to come in, their commitment will be very firm. They could
potentially be the biggest competitor to Sony."

The word on the street is that a Pentium III 450MHz level CPU, from either Intel or AMD, will
power the console. For graphics, the X-Box will boast an Nvidia GeForce 256 graphics
processor. Recently, Nvidia has hinted that its new graphics processor will help developers
build console titles for the likes of Sony's PlayStation2. Statements like this may have
been hints that the company has been looking into console development. Microsoft was once
developing a graphics technology called Talisman, which hasn't been talked about in
years. Since Nvidia's introduction of the GeForce 256, there has been talk that the chip
was developed with Microsoft's Talisman technology. Because Nvidia produces what is
arguably the fastest DirectX chips currently available, a Microsoft and Nvidia partnership
appears possible. And rather than release the system on its own, Microsoft will allow PC OEM
companies like Gateway and Dell to build their own devices based on the X-Box reference
platform.

Regardless, when Microsoft makes an official announcement regarding the platform and its
plans to take on the console world, all eyes will undoubtedly be watching. For now, we can only
ponder the possibilities of such a system. Microsoft is planning to release the X-Box in late
2000, clearly going head to head with Sony's launch of the PlayStation2. Will the X-Box shake
up the console world? We'll be hunting for answers to those questions throughout the next
few weeks.
 

Here's what has been speculated about the system so far:
 

What is the X-Box? A set-top game console from Microsoft based on a modified version of the Windows 2000 operating system. (Although it hasn't been indicated if it will be the consumer or the true 32-bit workstation version)	What will be inside? An Intel microprocessor as powerful as the chip inside Sony's PlayStation2, a DVD-ROM drive, a graphics chip supplied by Nvidia, and a sizeable (upward of 4GB) hard drive.
What software will it support? CD-ROM and DVD-ROM formats.	How will it control? X-Box will make use of USB controllers; four controller ports are likely since Sony's decision to use only two ports with the PlayStation has been hotly debated by gamers.
What will it offer? The ability to play PC games with no hassle, online gaming through the MSN Gaming Zone, DVD movie playback, TV viewing functions (such as taping television shows to the hard drive), WebTV-based e-mail, and other Internet functions.	How much will it cost?  Sources speculate between US$300 and $350.

By Micheal Mullen and Sam Kennedy,  videogames.com

Creating a customized Windows operating system for Sega’s 128-bit Dreamcast game console was only the first step in Microsoft’s entry into the console game business. Now, with Sega’s new system on store shelves, Microsoft is preparing to launch a game console of its own.

MICROSOFT HAS NOT FORMALLY announced its new console, which is currently referred to as X-Box. But a few analysts and software publishers were invited to attend highly secretive demonstrations of the new system last week during the European Computer Trade Show in London.  According to sources who attended those closed-door sessions, X-Box will feature a 500-megahertz Intel processor backed by the nVidia GeForce graphics chip — an innovative graphics chip that reportedly generates 3-D graphics without tapping into the main processor. Though X-Box will feature a DVD drive, no one has mentioned whether it will have the navigational software needed to run DVD movies. 

According to several reports, Microsoft will follow the business model developed by 3DO. Instead of manufacturing the system itself, Microsoft is turning to Dell, Gateway and Samsung, and will supposedly make its profits through royalties on software.

Microsoft’s formal introduction of X-Box is not expected until the Fall Comdex show in November. Industry analysts were just starting to sort out whether the video game business has enough room for three competitors when Microsoft jumped into the fray.  As somebody who underestimated Sony during the introduction of the PlayStation, I have learned that outsiders can successfully enter the video game market provided they have good hardware, some marketing expertise and a huge wad of cash. Microsoft has all of these and more software successes than Sony had at the time it launched PlayStation. On the other hand, adopting the 3DO model seems ill-advised. One of 3DO’s biggest shortcomings was the lack of first-party software. 3DO founder Trip Hawkins decided that the best way to attract new publishers was to create an open field in which outside publishers would not have to compete against in-house games. That translated into very few system-specific games.

The only reasons for purchasing a Nintendo 64 are Super Mario 64, The Legend of Zelda, Wave Race, Donkey Kong 64 and Goldeneye 007. These games are made by Nintendo, and you can bet you will never see them legally marketed for any non-Nintendo systems in the near future. Sony has not released PC versions of Crash Bandicoot and Gran Turismo for the very same reason. If you want the games, you have to purchase the system. The only way X-Box will succeed is if it has great games that are only available for X-Box, not X-Box and PCs.  Microsoft is a wealthy and savvy company that does not part with its money easily. Chances are that several high-ups have studied the failure of 3DO closely and determined how to avoid its mistakes.  If Microsoft comes in with a fast machine that is well-supported with proprietary games, it will carve some of the market away from Sony, Nintendo and Sega. If Microsoft comes in with a powerful machine and stacks of familiar PC titles, look for X-Box to go the way of 3DO.