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Game console industry on the rise

Microsoft and Sony will go head-to-head for the same game enthusiasts, which could lead to significant changes in the console market.

With the launch of Microsoft's Xbox and Nintendo's GameCube on deck, research firm Gartner expects worldwide game console shipments to jump nearly 41 percent next year.

In a report published Thursday, Gartner projected console shipments will reach 49 million in 2002, up from 29 million units in 2001.

While Sony and its PlayStation 2 system hold the top spot now and will likely be the dominant system for some time, the vast majority of new console sales will come from new systems from Microsoft and Nintendo, Gartner analyst Andrew Johnson said.

On Thursday, Microsoft launched its first gaming console, the Xbox. Nintendo is set to release its new GameCube system on Sunday.

Johnson said GameCube addresses a younger crowd and will therefore not go after the same consumers as Microsoft and Sony. But Microsoft and Sony will go head-to-head for the same enthusiasts, and that will lead to changes in the console market.

Typically, console makers leave a system on the market for five years. Shipments are at their highest during the first two years and then taper off, as software sales carry the majority of revenue. But that is likely to change, and product life cycles are expected to shorten as Sony and Microsoft vie for the distinction of most powerful gaming system.

"In 2002 and 2003, Sony and Microsoft will be in a fierce battle over early adopters with their current systems," Johnson said. "Then we're likely to see new consoles in 2004, as Sony tries to one-up Microsoft in the power gamer segment."

Also on Thursday, Gartner released a report on the future of online gaming.

According to the report, the online gaming market is expected to increase from $138 million in revenue in 2002 to $2.3 billion in 2005.

Sony and Microsoft have touted the online capabilities for their game systems, but Gartner analyst P.J. McNealy called the market a long-term bet.

"Online gaming has to overcome many broadband obstacles, mainly wide distribution of high-speed access," he said, "But we'll have a better idea of how this market is going to shape up next year, when the consoles have been out awhile."