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Originally published Monday, November 17, 2008 at 12:00 AM

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New Xbox Experience hopes to win over more than hard-core gamers

As the competition for holiday sales heats up against a dismal economic backdrop, Microsoft is releasing a major software update Wednesday meant to make it easier for console users to access features like downloadable movies and TV shows, photo sharing, online "parties" and other social content.

Seattle Times technology reporter

Who's winning the console race?

THE NINTENDO WII OUTSOLD the Microsoft Xbox 360 and Sony PlayStation 3 combined for the eighth month in a row in October. U.S. sales figures:

Wii: October: 803,000, life to date: 13.4 million.

Xbox 360: October: 371,000, life to date: 11.6 million.

PS3: October: 190,000, life to date: 5.7 million.

Source: NPD Group

For two years, Microsoft has steadily added new features to its Xbox 360 console and Xbox Live online service, expanding their capabilities far beyond video games.

As the competition for holiday sales heats up against a dismal economic backdrop, the company is releasing a major software update Wednesday meant to make it easier for console users to access features like downloadable movies and TV shows, photo sharing, online "parties" and other social content.

"This is a social-media hub, not just a social-gaming hub," said Marc Whitten, general manager of Xbox Live.

Microsoft hopes its New Xbox Experience, along with a price cut it was able to make ahead of its competitors, will drive more console sales to a mainstream audience (analysts say the company has nearly saturated the hard-core-gamer market) and generate more revenue from Xbox Live through subscriptions and content downloads.

Of course, competitors Sony and Nintendo are not resting on their laurels.

Sony is enhancing the PlayStation Network, its competitor to Xbox Live.

Nintendo, meanwhile, is pushing its advantage — its Wii console has outsold the Sony PlayStation 3 and Microsoft Xbox 360 combined for eight months running — by making sure retail supplies are adequate, according to industry scorekeeper NPD Group.

In general, NPD analyst Anita Frazier says, the video-game industry is faring well despite the economic downturn — so far. U.S. sales of all three current-generation consoles in October outpaced their performance from a year ago, even as sales of portable game players and accessories have softened.

"With 10 months under its belt, the video-games industry is still poised to top $22 billion in annual sales in 2008," Frazier said in an e-mail last week. That would be growth of 22.6 percent from 2007.

Downloads Wednesday

Microsoft previewed the New Xbox Experience, NXE, at a major game-industry event in the summer. It will be downloaded to Xbox 360 consoles connected to the Internet beginning Wednesday.

Whitten said it is a substantial rewrite of the code that runs the game console, making it more flexible and taking better advantage of the Web.

From a design standpoint, the focus of NXE is on "simplicity and approachability and on really being this social-meeting portal in the living room," Whitten said.

To start, new visual guides and menus introduce the console's capabilities and help users to connect to the Internet — something that has been challenging in the past, Whitten said — and to set up an account on Xbox Live.

Visual presentation

The emphasis on visual presentation permeates the new interface, with much less text than the console software has currently.

The video- and games-marketplace channels, for instance, allow you to scroll through box-art images rather than a text-based list of titles.

The NXE incorporates new "avatars," animated characters similar to the "Miis" users make on the Nintendo Wii.

The Xbox avatars — which can be customized with millions of combinations of body types, hairstyles, clothes and other attributes — expand on Gamertags that players use to identify themselves and track their achievements.

They will also be an individual's visual representation in friends lists, online chats and parties and certain games. When a friend is not online, his avatar appears to be sleeping.

Matt Rosoff, an analyst with Kirkland-based independent research firm Directions on Microsoft, said the update helps avoid a risk Microsoft faced with the Xbox: packing it so full of features that it became another PC in the home, rather than a fun, approachable game — something Nintendo nailed with the Wii.

With the update, the Xbox 360 looks "less geeky and more entertaining," he said.

Business benefits

It's hard to predict whether the update will drive Xbox 360 sales to mainstream users, who are probably less familiar with the relative merits of game-console firmware.

But if they do buy, many of the NXE features will channel them toward Xbox Live, which could have important business benefits for Microsoft.

Billy Pidgeon, games-industry analyst for IDC, estimated last year that revenue from connected game consoles could reach $10.5 billion by 2011, representing 18.6 percent of total video-game industry revenue. That potential is not lost on Microsoft.

"It's a recognition that Xbox Live is one of the strongest, if not the strongest, aspects of Microsoft's console. It's the real differentiator," Pidgeon said. "So they've tried to make that less of an insider, gamer thing and ... more open to people who aren't as familiar with gaming."

Microsoft said in July that its online network brought in more than $1 billion in revenue in the past 2 ½ years, through subscriptions and content purchases. Microsoft has more than 14 million Xbox Live users.

Different user profile

The mainstream users Microsoft is hoping to draw into the fold may have a different buying profile than hard-core gamers.

Microsoft has regularly touted the "attach rate" for its consoles: the average number of games purchased for each console sold.

Last month it was 8.1, ahead of its competitors. It's an important statistic because most of the industry's profits come from games, and consoles tend to lose money, particularly early in their life cycle.

But the mainstream consumer "is far less voracious when it comes to the game content," Pidgeon said.

However, that person is likely an additional user of the Xbox in a household that already has one, and maybe another console.

That could increase Microsoft's revenue per console because the new user — a mom, perhaps — buys video content and online games for herself, and she becomes more familiar with the console and more comfortable buying Xbox games for her kids.

Nintendo has been successful in this regard, attracting more people in each household to the Wii with approachable motion-sensing controllers.

"I'm more excited about that user," Pidgeon said.

Longer-term, Xbox Live could allow Microsoft to retain its users for the next-generation console.

"Xbox Live is overlooked as a separate platform at competitors' peril," Pidgeon said.

Sony has made substantial strides this year with its PlayStation Network.

Eric Lempel, director of network operations, said new-console registrations on the network have grown 136 percent this year. The company counts more than 14 million registered PSN accounts.

In 2008, Sony redesigned the PSN content store; allowed players to communicate with friends on the network without leaving games; added "trophies" (similar to the gamer scores and achievements long a part of Xbox Live); and launched a video-distribution service.

"Over this past year, we've done a lot of things to really bring our network into the next phase," Lempel said.

Before the end of the year, he said, Sony will open a test version of PlayStation Home, an online virtual world that will offer many social features.

He also pointed out that unlike Xbox Live, everything on the PlayStation Network and Home, except downloadable content and other accessories for Home, is free.

Console pricing

But Microsoft has the upper hand when it comes to console pricing.

In September, Microsoft cut prices on its entire line, including $80 off the low-end Xbox Arcade console. Now, at $199.99, it's the lowest-price current-generation console, a title previously held by the Nintendo Wii, which sells for $249.99. Sony's lowest price PlayStation 3 is $399.99.

Microsoft's Whitten said the $199.99 price, which Microsoft reached first, in part because it had a one-year head start in the market, is "incredibly important."

"What you see is that a majority of sales in a console generation tend to happen at a price point below $199," he said.

It costs more to get all of the additional features. For example, the new Netflix instant-watch service requires a "Gold" subscription to Xbox Live, $50 a year, plus a Netflix subscription.

The Arcade package lacks a cable for high-definition output, a headset for chatting and a hard drive for storing downloaded video and games.

The NXE update requires 128 megabytes of available memory.

The Arcade comes with only 256 megabytes and Microsoft recommends people have a hard drive — which costs $99.99 for a 60-gigabyte drive as part of an accessory bundle or $149.99 for a 120-gig drive — "for the best experience."

The lack of a hard-drive on the Arcade system is a negative for Microsoft, Pidgeon said, because it is a barrier to use of Xbox Live for downloading content.

Rosoff said despite the add-on costs to use all the features, Microsoft's price advantage is significant with people weighing spending carefully.

"Given the way the economy is right now, a game console is a pretty luxurious item for a lot of families who two years ago wouldn't have considered it that big a deal, and so price is definitely going to be a huge factor," he said.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

Copyright © 2008 The Seattle Times Company

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