Console Wars: Sony Fights Back

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Scott Orr, president of developer D2C Games, and the creator of the blockbuster John Madden Football game in the '90s, says publishers including Activision ATVI, Electronic Arts (ERTS), and THQ (THQI) are also taking a closer look at Nintendo. "There's definitely a heightened interest in the Wii compared with last summer," he says. "Publishers who were sitting on the sidelines at the beginning are ramping up to support it by this Christmas."

Multiple Processing Problems

Even Electronic Arts, the world's largest video game publisher and a Sony stalwart whose EA Sports games helped propel sales of past PlayStation platforms, is hedging its bets. The company acquired Headgate Studios, makers of the Tiger Woods PGA Tour and Madden NFL games, on Nov. 30 to bolster its Wii portfolio.

Sony's predicament is partly its own doing. Both the PlayStation 3 and Microsoft's 360, which debuted a year earlier, use chips with multiple processing cores: IBM's Cell chip powers the PS3, and Xbox uses IBM's PowerPC (see BusinessWeek.com, 11/22/06, "PlayStation 3: It's Got Game"). The processors can handle many more simultaneous sets of software instructions than the chips in previous consoles could, but accessing all that oomph isn't easy.

"It's been a lot of learning," says Pandemic's Goldman. He says Microsoft has an edge with developers because they've had a year to learn 360's ins and outs.

At Half the Price

At Atari, Bonnell says creating a PS3 game costs "easily" 30% to 40% more than designing the same title for Xbox. In an industry where budgets for top titles can run $10 million to $20 million, that isn't chump change. Releasing more developer tools to harness the Cell chip's power is a step in the right direction, he says. "The fact that Sony realizes this is good news."

Nintendo's machine includes a unique controller that responds to users' hand and arm motions (see BusinessWeek.com, 11/22/06, "Nintendo Wii: One Ferocious Underdog"), and it costs less than competitors' consoles. Wii sells for $250, compared to PlayStation 3's $500 or $600 price tag, depending on the model, and $300 or $400 for Microsoft's two versions of Xbox 360.

Microsoft, too, is reaching out to programmers as it tries to steer its money-losing games division to a profit in the fiscal year that starts July 1. On Mar. 4, Microsoft released three new, free programming tools for the 360 that hobbyists can download from the company's Web site. Microsoft also announced a $10,000 prize for the best amateur game created with the tools.

Looking for Broader Appeal

Later this year the company plans to let Xbox aficionados who use its free programming tools share their results with other users, says Chris Satchell, a general manager at Microsoft. The moves could increase the 6 million customers who pay $50 a year to play on Microsoft's Xbox Live online network. Microsoft, on Jan. 25, said it expects to ship 12 million Xbox units by the end of its fiscal year on June 30, down from a previous forecast of 13 million to 15 million units, because of unsold inventory at stores.

Sony's not just trying to woo developers. It's also looking to appeal to a broader audience than bread-and-butter hard-core gamers at a time when the industry faces inroads from NewsCorp's (NWS) MySpace, Google's (GOOG) YouTube, and other sites with a wider appeal. To that end, a PS3 version of Sony's SingStar vocal competition game due this fall will let players share videos of themselves singing to pre-recorded music through Sony's online PlayStation Network, and rate one another's chops.

An online virtual world called Home set to launch this fall echoes the popular Web world Second Life, letting PS3 players interact through avatars and challenge one another to games. And a game due this fall called LittleBigPlanet embeds game-creation tools right into the software.

Building online communities "is a watchword we're seeing in game development," says Harrison. And if Sony hopes to slow the Wii juggernaut and generate more excitement for its new system, development is paramount.

Ricadela is a writer for BusinessWeek in Silicon Valley.