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Microsoft Unveils New Xbox in Bid to Lead Home Entertainment

May 21, 2013

Microsoft Unveils New Xbox in Bid to Lead Home Entertainment

Don Mattrick, president of Microsoft Corp.'s Interactive Entertainment Business, reveals Xbox One, the all-in-one games, TV and entertainment system, at the company's headquarters in Redmond, Wash. on May 21, 2013. Photographer: PRNewsFoto/Microsoft Corp.

Microsoft Corp. (MSFT) (MSFT) unveiled its first new Xbox in almost eight years, seeking to position the console at the center of games and home entertainment against a growing roster of competitors that includes Apple Inc. (AAPL) (AAPL) to Facebook Inc. (FB:US)

The device is called Xbox One, Don Mattrick, president of Microsoft’s Interactive Entertainment division, said today in Redmond, Washington, where he unveiled the product. The player, set to go on sale later this year, will use voice commands and motion sensing to recognize users and let them switch seamlessly between games, live TV and Skype video calling.

Microsoft, the top seller in U.S. consoles for more than two years, faces fresh competition from Sony Corp. (6758)’s PlayStation 4, also set for release near year-end, and Nintendo Co. (7974)’s Wii U, introduced last November. It must fend off Apple, Facebook (FB), Google Inc. (GOOG:US) and Amazon.com Inc. (AMZN:US), which all now offer an array of entertainment services, software and products.

The new machine marks the first time Microsoft “has not introduced a console that is first and foremost about gaming,” said Ben Bajarin, an analyst at Creative Strategies Inc. Exclusive content deals could help the company sell more players even as the traditional game audience fragments onto mobile devices, he said.

To underscore the broader approach, Microsoft said it will produce a live-action TV show based on its best-selling “Halo” alien shooting game. Director Steven Spielberg, famous for films such as the “Indiana Jones” series and “Jaws,” will have a role in the production, the company said, without providing details.

Fantasy Football

Microsoft also struck a deal with the National Football League, letting the company develop applications like fantasy football games for use on the Xbox and mobile devices. The NFL will give players and coaches Microsoft products such as the Surface tablet for use on-field.

“Team Xbox is on a new mission: design and build an all-in-one system to light up a new generation of games, TV and entertainment,” Mattrick said. “It’s the one system you’re going to use and love every day, the place where your games and entertainment come alive.”

The company calls the new features “intelligent TV.” Prices won’t be revealed today, according to David Dennis, a spokesman. Games from the current model, which sells for $180 at Amazon.com, won’t work on the new Xbox, Dennis said. The company will allow trade-ins and resales of games for the new player.

Kinect Included

The Kinect controller will be included with each Xbox, the company said, allowing Microsoft and developers to create products around the device’s motion, voice and visual recognition capabilities. The Kinect will recognize users and show them a customized TV guide and a dashboard with the last five things they’ve done on the device.

Kinect has been improved to operate better in low light, the company said. It uses a custom chip developed in Microsoft’s Mountain View, California, office and employs technology the company calls “time of flight” that works by tracking the speed of photons bouncing off the user to a sensor.

The new machine is black and horizontally oriented. It is eight to 10 times more powerful than the Xbox 360 and will run on an 8-core system-on-a-chip processor from Advanced Micro Devices Inc (AMD). The Xbox One will include 8 gigabytes of random access memory and a Blu-ray disc player, the company said.

Microsoft fell 0.7 percent to $34.85 at the close in New York. The stock has risen 30 percent this year, compared with a 17 percent gain for the Standard & Poor’s 500 Index.

Mobile Market

Shifts in the market, especially in mobile, are pressuring Microsoft to make the new Xbox capable of delivering more entertainment and services, moving further from video games.

U.S. retail sales of packaged video games fell 21 percent last year to $8.9 billion, according to researcher NPD Group, while revenue from games downloaded to computers and mobile devices rose 16 percent to $5.9 billion.

“This has to last them in the living room for four to 10 years,” said Brian Blau, an analyst at Gartner Inc. in San Francisco. “They have to think about what’s coming in five years and compete against the two generations of tablets which will come out during that time.”

Activision Blizzard Inc. (ATVI), the largest U.S. game producer, provided a first look at “Call of Duty: Ghosts,” the next version of its top-selling game franchise. Downloadable content for the game will be available on Xbox first.

Fresh Titles

Microsoft also announced a strategic partnership with Electronic Arts Inc. (EA), the second-largest U.S. video-game maker. The Redwood City, California-based game publisher will supply exclusive content from its soccer, football, basketball and fighting titles next year, Andrew Wilson, executive vice president of EA Sports, said at the briefing.

Microsoft said it plans to offer 15 exclusive games in the first year, including eight completely new titles.

The Xbox is one of Microsoft’s better-performing businesses. Sales in the entertainment and devices unit, including Xbox, rose 56 percent in the quarter that ended March 31. Operating income totaled $342 million, compared with a loss a year earlier.

In fiscal 2012, the entertainment unit saw sales increase 7.6 percent, while revenue in Microsoft’s Windows division dropped 3.4 percent.

Industry leadership is no guarantee of future success. In November 2005, when Microsoft took the wraps off the Xbox 360, Sony led in console sales, only to came up short with the PlayStation 3 after Nintendo’s Wii upended the market with a motion-activated controller.

U.S. Sales

Nintendo has sold 41.2 million of its first-generation Wii players in the U.S., compared with 39 million Xbox 360 consoles and 24.2 million Sony PlayStation 3s, according to NPD Group Inc., the Port Washington, New York-based researcher.

This time Xbox comes in with 28 months of market-leading sales in the U.S., according to NPD, outgunning Sony and the Wii-U, which is selling below Nintendo’s projections. Microsoft has sold 76 million Xbox 360 consoles worldwide and has 46 million subscribers to the Xbox Live online service.

Worldwide the video game industry generated hardware and software sales of $37.4 billion last year, according to Gartner.

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net


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