OT...from NY Times
March 22, 2004
Game Wars 2: Battle for the Living Room
By JOHN MARKOFF
AN FRANCISCO, March 21 - The consumer electronics and personal computing industries are supposedly rushing toward a grand digital convergence.
Maybe it is actually a divergence.
Even as the Intel Corporation and the Microsoft Corporation, whose chairman is Bill Gates, are pushing a digital future in which they hope that the personal computer will be the hub for a variety of home entertainment devices, the computer game industry is pointing to a fundamental flaw in that vision: game software has largely driven PC growth among consumers.
"This kind of thing drives me crazy,'' said Alex St. John, the founder of a game software publisher, WildTangent Inc. He challenged Intel at a recent industry forum on the digital home, arguing that personal computer makers are about to lose out to the video game industry, which is waiting on a new generation of game consoles that also aspire to be home digital media hubs.
"If the game console makers want to own the living room,'' Mr. St. John said in a subsequent telephone interview, "they're in a better position to own it than Intel.''
Intel executives responded at the meeting and said they felt there was a market for interactive television in the home.
Microsoft is in a different position, having hedged its bets by continuing its two-decade-old alliance with Intel in producing software and microprocessors for PC's while turning to I.B.M. to develop the chip for its next-generation Xbox game player. In its first Xbox, Microsoft chose an Intel processor, but it plans to use a version of I.B.M.'s Power microprocessor family in future versions.
The decision was a coup for I.B.M., which already had commitments from the Sony Corporation and the Nintendo Company, the other makers of game players.
Still, Microsoft is not necessarily in the driver's seat, either, since it is far behind Sony in the game player market. At Sony, Ken Kutaragi, the person widely credited with the creation of the PlayStation, has been made an executive deputy president to reassure investors that company intends to press its advantage.
With so much in flux, the visions for the future of home computing may become more sharply defined this week in San Jose, Calif., where 10,000 software game developers are scheduled to attend the annual Game Developer's Forum.
Sony and Microsoft, which The Wall Street Journal disclosed on Friday plans to cut prices by $30 on its Xbox to $149, are both expected to mount major efforts to woo the developers, who actually create the games to be played on their machines. It is a challenging time in the game business, though, because neither Sony nor Microsoft is ready to unveil their future machines, the PlayStation 3 and Xbox 2. They are not expected to reach the market until late 2005 at the earliest.
As a result, sales of consoles and software have been flat lately. NPD Group, a market research company, reported in January that console sales fell last year by 2.7 percent, to $10 billion.
The prospect of digital convergence has prodded Sony and Microsoft to weigh how many interactive media and digital video recording features they can add to their next-generation players without making them too complex or pushing prices beyond the relatively low cost that most users expect.
But should they fail to push their products in a multimedia direction, some analysts say, it will open the door for Intel, which is attempting to reshape the PC into a entertainment-oriented multimedia computer that will fit more comfortably into the family room. As Intel pushes ahead with those plans, I.B.M. is hoping to leverage its alliance with the game console makers into an advantage providing software and servers to connect game players in a vast network of online gaming.
"Two years ago, we started explicitly focusing on a massively scaleable online gaming market,'' said Steve Canepa, vice president for I.B.M.'s global media and entertainment industry business.
The company cites estimates from DFC Intelligence, a game industry research firm, that the online gaming business will grow from an $875 million today to $5 billion in five years. By 2006, the number of online gamers is expected to more than double to 114 million from 50 million.
But will the computer game market really grow that fast?
Sony executives are betting on a dramatic demographic and sociological shift from passive television watching to interactive game play. They cite a report by the Nielsen Media Research firm last September of an 8 percent decline in television viewing among males aged 18 to 34. The Sony executives assert that the young men may be playing video games instead.
Both Sony and Microsoft are hoping to introduce hand-held devices that they say will serve the same function as the various small devices that the computer industry is counting on to help revive its fortunes.
Last year in Los Angeles at the E3 game show, the annual event at which new games are introduced, Sony announced its new PSP, a portable PlayStation that it plans to start selling late this year. At the Consumer Electronics Show in Las Vegas in January, Microsoft showed what it is calling the Personal Media Center, a hand-held video and audio player.
Both companies hope that their hand-held gadgets will be "iPod killers,'' referring to Apple Computer's popular device that plays music. Sony has hailed the PSP as the "Walkman for the 21st Century.''
By contrast, Nintendo, which dominates the hand-held game market, is planning to stick to a pure game platform with its new Gameboy DS, which will contain two screens so that a player can view two aspects of a game simultaneously. Nintendo seems to believe that the hand-held game market will remain in the clutches largely of younger players.
Meanwhile, the rest of the game industry is hoping that mobile gaming will jump-start growth while it awaits the next generation of consoles.
But in challenging the premise of Apple's iPod, the gaming industry may be running the risk that Steven P. Jobs, Apple's chief executive, will return the favor by extending his own digital hub concept into the living room. Apple briefly experimented with the idea of a Macintosh-based interactive television and video-game system in 1997.
More recently, Mr. Jobs has been highly critical of attempts to add video and gaming features to hand-held devices that compete with the iPod. The success of the iPod, he argues, rests on the idea that it allows users to do other things while listening to music on a portable device built to do nothing other than produce excellent sound.
If Mr. Jobs can reinvent the home-computer-as-entertainment-and-information-hub the way he led the creation of a seamless way of delivering digital music, analysts say, he could shake up the plans of all the other more powerful corporate interests trying to figure out what consumers want.
"Steve Jobs has a better chance than many of the others to rethink the idea of personal media in the living room,'' said Richard Doherty, president of Envisioneering, a computer industry research and consulting firm. "I know his iPod design team has been busy working on new products.''
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