Sony is counting on Home to improve the fortunes of its struggling video games unit. The unit, which is in charge of the PlayStation 3 business, has been a huge drag on earnings, losing roughly $3.8 billion over the past two years. Credit Suisse has predicted that Sony’s gaming unit could eke out a profit this year, but that’s less than certain in the face of a long recession and an unfavorably strong Japanese yen.

Sony officials say they don’t expect an immediate payoff from Home. Their plan is to offer Home as a free software download to all PS3 users, and to charge gaming companies and other brands to create shops, sell goods, host events and advertise. “We think that Home will increase the opportunities for gamers to find each other,” says Ryoji Akagawa, Home senior producer. “That, in turn, will increase the total number of people playing games, which is a key mission for us.”

Home marks the latest phase of a rollout of online services for the PlayStation 3. Recently, Sony added video downloads to the PlayStation Network, which, according to Sony, has attracted 15 million subscribers worldwide. But rival Microsoft still has the lead in offering a full range of online gaming and video-download services, and Nintendo is tops in game console sales. In October, market researcher NPD said Sony sold just 190,000 PS3s in the U.S., compared to 803,210 Nintendo Wii consoles and 371,000 Microsoft Xbox machines. (Since the PS3’s release in November 2006, Sony had sold more than 16.8 million units globally. Nintendo launched its Wii that same month but has sold 34.5 million units.)

It’s unclear what impact the delays will have on Home. The original plan was to have Home ready by autumn 2007. Sony Computer Entertainment chief Kaz Hirai announced the first delay in October, 2007. The company had expected Home to be ready by April of this year, but instead announced another delay. In late August, the company started inviting a limited number of users for a trial.

The NRDC’s study found that Xbox 360, PlayStation 3 and Wii machines in the U.S. use about as much electricity in a year as every home in San Diego combined. Much of the energy comes from machines that are left on, but not in use, the NRDC said. Of the three consoles, Sony’s PS3 was the biggest energy hog, followed by Microsoft’s Xbox 360. Nintendo’s Wii is by far the most energy efficient--and even uses less electricity than its predecessor, GameCube.

With more efficient devices and by utilizing existing power-saving features, consumers could save more than $1 billion a year on utility bills and reduce as much global warming pollution per year as the tailpipe emissions from all the cars in San Jose. Specifically, automatic power-down features – which shut off devices if they are left idle for a certain amount of time – are big energy-savers. The feature exists in the Xbox 360 and was recently added to the PlayStation 3, but it is rarely used and leaves room for improvement.

Check out the report: http://www.nrdc.org/energy/consoles/contents.asp

Boot up. Log in. And, hop into a virtual world. Sound familiar? The proliferation of virtual worlds and massively multiplayer online games from Second Life to World of Warcraft hasn't stopped eager entrepreneurs from putting a new spin on the now well-known concept.

Enter Derrick Morton. Morton's Seattle-based FlowPlay started up in January 2007. Morton's company created ourWorld, a virtual world that can be accessed through a browser. "We saw there were about 100 million people each month playing games but by themselves, a very isolated experience," says the 50-year-old Morton. His first thought, "what the market really needs is a place where people can play games together in a community."

Launched in April, the browser-based ourWorld lets users create their own avatars and play games, go to restaurants, shopping, or to a movie theater to watch YouTube videos with other virtual friends. And, even over the din of the crowded virtual worlds space, ourWorld has garnered attention. Late last year, TechCrunch selected it among the 40 hottest startups in the world. FlowPlay has also been backed by a group of angel investors that put $3.7 million into it in December 2007 with Skype's creators and Intel Capital among them.

Intel may be interested in tapping into ourWorld's target audience: teenage girls. About 60 percent of ourWorld users are girls between 13 and 17 years old. "They are targeting a unique, under tapped audience older than Club Penguin and younger than Second Life," Intel spokeswoman Amy Kircos wrote in an email.

David Cole, a chief analyst with market researcher DFC Intelligence, says targeting a specific demographic and offering multiple business models could prove a strategic advantage. "It's probably an underserved target. I don't think there is going to be as much competition there," says Cole. "There is some potential to carve out a leadership position."

Morton said he wants FlowPlay to swing to a profit by the third quarter of 2009 and hit $9 million in sales by the end of next year. To reach that figure, 50 percent of ourWorld's revenues come from subscription and the other 50 percent from micro transactions. Even though users can play for free, they still need to pay $5.99 a month to enjoy certain features, such as having their own virtual apartment where they can meet up with their friends.

Ian Bogost, founding partner of Persuasive Games and Associate Professor at the Georgia Institute of Technology, says it is possible that virtual worlds with a business model like ourWorld can succeed "if they offer something people want to spend a few dollars on a regular basis. [But] there is going to be some kind of saturation point. The number of virtual world companies is increasing. It is very risky."

Of course, the current financial crisis has put the future of some startups in question. "The prospects for lots of these emerging technologies have taken a significant dent over the last two or three weeks," notes Paul Jackson, a principal analyst at London-based Forrester Research. "A lot of these [startups] are still in a second round of funding and still rely on available money to keep going," he adds.

Still, FlowPlay's Morton is optimistic. Agreeing that the environment to find capital is getting tougher, he says Intel's support provides a buffer. "There is a lot of nervousness in the investment community today. Luckily we have Intel Capital as an investment partner," Morton said.

The sophisticated software tools used by game-makers are surprisingly similar to those used by engineers and architects to create all manner of suspension bridges and high-rise towers that don’t fall down. Now a company called SoftImage, a division of Avid, has put up a rather in-depth and technical case-study of how designers created the innovative visuals for Konami’s mega-hit Metal Gear Solid 4. The case study isn’t for the faint of heart, but utterly worth checking out.

No surprise, then, that Square Enix is exploring acquisitions of its own. On Aug. 29, the Tokyo company offered to buy Japanese rival Tecmo, a deal that’s worth more than $100 million. At a press conference, Square Enix’s Wada said his company’s role-playing fantasy games such as “Final Fantasy” and "Dragon Quest" and Tecmo’s expertise in fighting games (“Ninja Gaiden”) would make a good match.

Wada repeatedly stressed that the offer was for a “friendly” takeover. He hopes to buy all of the company’s shares but, if that’s not possible, said he would settle for a majority. “I’m awaiting a response [from Tecmo’s management],” he said. “I believe it will happen. I’m praying.”

Square Enix has offered to pay 920 yen ($8.44) for each Tecmo share, which amounts to about a 30% premium. It has enough cash on hand to pull off the transaction without relying on outside financing, Wada said. Square Enix shares ended the day up 2.6%, while Tecmo’s finished 14% higher.

At ease, worrywarts. Nintendo just revised upward its financial forecasts for the fiscal first-half through September and year through March 2009, and the gains aren't trivial.

The company now expects operating profit to jump 34% to 650 billion yen ($5.96 billion) on a 20% gain in sales to 2 trillion yen ($18.3 billion), vs. last year, and it estimated that the annual dividend payout would be 1,680 yen ($15.40), up 22% from an earlier forecast. Its previous predictions were for a 8.8% rise in operating profit and a 7.6% uptick in sales.

Powering the gains were better-than-expected sales of both the Wii and DS, and favorable foreign currency swings, the company said. That prompted Nintendo to revise upward its forecasts for gaming hardware and software unit shipments to:

April Forecast August Forecast
DS hardware: 28 million 30.5 million
DS software: 187 million 197 million

Wii hardware: 25 million 26.5 million
Wii software: 177 million 186 million

Last week, at the Leipzig games convention, Sony unveiled a redesigned PlayStation Portable, the PSP 3000. Yawn. Sure, the new PSP, which goes on sale in October, has a better screen and a built-in mic that makes the gizmo a Skype-ready Net-connected phone when there’s a Wi-Fi wireless network nearby. (Personally, I’d love to see motion-sensing added to the PSP, which would add another dimension to gaming and location-based services.)

But cramming more features into the PSP isn’t as important as beefing up the online offering of videos, games and other features. The PSP Online Store already lets you download both low-cost PSOne games and new PSP titles via a PC so you don’t have to connect to (or own) a PlayStation 3. In Japan the only videos I can get are game teasers and other promos. But in the U.S., the PlayStation Network's video service now has close to 300 movies and 1,200 TV episodes. And the offerings aren't only from Sony Pictures Entertainment. Sony also signed up 20th Century Fox, Lionsgate, MGM, Paramount Pictures, Sony Pictures Entertainment, Warner Bros., and The Walt Disney Studios.

I had previously asked why Sony wasn't lining up TV shows and movies for the PSP like Apple does for its lineup of video iPods. But I was wrong; Al de Leon, of Sony Computer Entertainment America, pointed out my error (check out the last paragraph of the release).

Still, I wonder: Why not let PSP owners customize what goes onto their PSPs, like Apple has done with the iPhone App Store? Sony officials bristle whenever someone compares them to Apple. But instead of getting defensive they should just recognize when Apple has a good idea and borrow it.

Some fanboy sites have blasted Sony for omitting the new features from the previous version of the PSP. Others suspect Sony is trying to stay one step ahead of modders who tweak their PSPs to do things the company’s engineers never intended for it to do. My guess is that Sony’s decision boils down to simple economics. It’s trying to squeeze more mileage out of the PSP by offering consumers a souped-up version and without jacking up the price. (In terms of affordability it doesn't get any better than this: The $199 price of the PSP 3000's starter pack in the U.S. is actually lower than the PSP’s $249 launch price in 2005.) That explains how it expects to sell 15 million PSPs this fiscal year on top of the 37 million it had sold from December 2004 to March 2008.

In many ways, Apple’s iPhone was the sleeper hit of E3, the gaming industry’s big summer convention. More importantly, the iPhone may be the most disruptive innovation in gaming in years. Yes, even more so than the Nintendo Wii. After the failure of the GameCube, everybody expected Nintendo to sink or swim this cycle but, aside from fanboys pleading for Apple to get into gaming, no one was seriously predicting the company would. It’s apparent now, that it has stepped into the ring a major, industry-shifting way.

Apple released the second generation iPhone along with upgraded iPod touch and iPhone 2G firmware as well as the iTunes-based AppStore just in time for the opening of E3 this week. But despite not having a big presence at the show, iPhone buzz was rampant thanks to several announcements and unexpected revelations at the show and online throughout the week. So what happened to fan the fire?

Firstly, during the company’s Tuesday presentation, Electronic Arts executives made it clear that ‘real’ games would be coming to the platform, not just bargain-bin mobile titles. Aside from the already-announced Spore, EA is planning versions of its lucrative Tiger Woods and Need for Speed for the handheld. A transcript of the even it available here.

Then, SEGA of America president Simon Jeffery sounded off on Wednesday, asserting that the iPhone is about as powerful as the company’s defunct gaming console, the Dreamcast. That statement further underscored what a lot of users and reviewers have been wondering out loud as they wade into newly published and surprisingly polished games. Jeffery also detailed how the company plans to take advantage of what he suspects could be major new platform. Video of his talk is available here.

And finally, blog TechCrunch posted tantalizing gameplay video of Star Wars: The Force Unleashed, an as-of-yet unknown title due in September that sports cutting edge graphics and – apparently from the demo – innovative gameplay. (Check video out here.) The title’s sophistication, beyond anything available so far, in effect legitimated all the high-flying rhetoric swirling around the show. Expect September to be a big month for the platform, with a number of triple-A titles due.

Xbox Interface Re-Design
The slick new interface, the so-called dashboard, not only represents a major leap forward for the Xbox’s user experience but is a sign that Microsoft is serious about putting up a fight with Sony. Even if Xbox’s Dashboard ’08 is a lot like Apple’s iTunes Cover Flow ’06, the update (which will be available this fall) is a welcome refresher. Click here for more info.

Final Fantasy XIII for Xbox
This isn’t altogether that surprising since this generation of consoles seems to have mostly done away with platform exclusives, but Square Enix announced the long-awaited sequel for be multiplatform. Metal Gear Solid 4 aside, Sony has one less exclusive title to crow about – and a big one at that. Click here for more info.

KOTOR, the MMO
Executives confirmed that famed developer BioWare is indeed developing a massively multiplayer online role playing game based on its hit Knight of the Old Republic Star Wars title. This long-rumored title is one of the most heavily anticipated games of the past three years, period. Click here for more info.

Wii Innovations
Nintendo’s console has surpassed Sony’s and Microsoft’s in sales. And, at E3 the company showed the elements of its strategy for staying number 1: Wii Music, a music-making game; Wii motion plus, an adaptor extending the console’s motion-sensing ability; and, Wii Sports 2, a follow up to and expansion of the most-popular game on the system. Click here for more info.

Sony Video Rentals
Sony opened its own digital rental store which is already up and running in the U.S. It wasn’t the first, but it is by far the best, rivaling even Apple’s iTunes. Click here for more info.

Obviously E3 is a massive show and played stage to many other, equally important announcements. But, for my money, these five will have the most impact in the coming months as the big three ramp up for the holidays.

Lively is a mash up of instant message, chat room, virtual world, and Web page. Think: Second Life in a web browser. Rooms, like the avatars that represent the users within, can be customized and individually linked to. "If you enter a Lively room embedded on your favorite blog or website," Google's Niniane Wang said in the announcement post, "you can immediately get a sense of the room creator's interests, just by looking at the furniture and environment they chose."

Lively is a 20% project, still in Beta, and it shows. Even on a powerful machine the performance is clunky and, for the moment, it’s Windows only. (Mac and Linux clients are on their way.) However, the user interface is refined and, in general, the idea has a lot of merits. Lively rooms are so easy to embed on pages, requiring only Flash and a lightweight plug-in. Lively promises to packaged the wildly popular environments and interactivity of games like The Sims and virtual worlds such as Second Life into a simple, easily accessible web experience.

The Creature Creator isn't so much of a demo or a beta of Spore as it is a major component of the game, ripped from the rest, and released for free. Players can pick from various body parts -- stretching, molding, and modifying each -- to tweak virtual creatures. Nearly every detail is up for grabs, from how many mouths the critter has to its coloring. (I dubbed this one Mr. Stick; see the video below.) Depending on the character's shape, the game automatically computes how it moves, sounds, and behaves. My initial impression: nearly endless customization. And fun.

EA's strategy here is a smart one. This is the best demo for Spore possible. Instead of a same-old, same-old one or two-level taste, the Creature Creator is a fully baked product. The gamelette even allows you to upload videos of your creatures to YouTube as well as create FaceBook-like profiles for them. And, this isn't the first time EA has previewed a highly anticipated game with a free preview of one component. It did something similar with The Sims 2, its best-selling people simulator, by releasing the game's character customizing module early.

BW: Spore Creature Creator from Matt Vella on Vimeo.

For those keeping score, EA’s third deadline was today. Newsweek, Forbes, and the intrepid Leigh Alexander over at games blog Kotaku round out the coverage of the possible twists and turns of the deal going forward. But for now, the stalemate seems to be destined to continue. This morning EA extended the deadline for its acquisition until July 18th. Despite the success of Grand Theft Auto IV, which Take-Two publishes, EA is not upping its offer price. Strauss Zelnick, Chairman of the Board of Take-Two, meanwhile, shot back this morning, issuing a statement saying “Their proposal still significantly undervalues Take-Two, a fact that is reflected in the overwhelming number of stockholders who still have not tendered their shares."

And on it goes…