Xbox struggling with math test

LOS ANGELES--For the software publishing industry, video games are a numbers game. And for now, Microsoft is on the losing end.

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That's the upshot from the Electronics Entertainment Expo, the game industry's main trade show, where new games for Microsoft's Xbox have largely been limited to "me too" titles--games already appearing on other consoles. Microsoft has said it expects to have more than 200 games for the Xbox by the end of the year, but less than two dozen of those will be exclusive Xbox titles from third-party publishers.

Sony, by contrast, is touting high-profile exclusives from game publishers. "Grand Theft Auto III," the top-selling video game for the past few months, will remain available only for Sony's PlayStation 2, with publisher Take Two Interactive Software scrapping previous plans for an Xbox version. New versions of Eidos' "Tomb Raider" and Electronic Arts' "Medal of Honor" franchises will also be available only for the PS2, as will upcoming online and offline updates of the "Final Fantasy" series from longtime Sony booster Squaresoft.

Game publishers say it's a simple matter of economics. With Sony having sold more than 30 million PlayStation 2 units worldwide and the Xbox just edging up to the 4 million mark, they have to put their money where the market is. The result is that even the biggest Xbox supporters are producing two PlayStation 2 games for every Xbox title.

"We love the Xbox; we love Microsoft," said Jeff Brown, vice president of corporate communications for leading games publisher EA. "The worst thing that could happen to EA is to wake up one day to find Sony out there by itself. But when you make decisions short term, you have to look at the installed base. It's pretty clear if you're running a business selling games, you're simply going to sell more units on the PS2."

Console makers can try to tip the balance by offering marketing assistance to game publishers and even helping to pay development costs, but such efforts only go so far, said Luc Vanhal, president of Vivendi Universal Publishing. Vivendi earlier announced that "Malice," a game Microsoft touted as an exclusive at the Xbox's public unveiling, will also be available for the PS2.

"Microsoft is much more aggressive going after exclusive deals," Vanhal said. "They realize they really need to give an incentive to publishers to focus on the Xbox.

"But it still comes down to economics," Vanhal said. "It costs quite a bit of money to develop a game. I need to recoup that money, and it's easier to do that when you're selling to a market of 30 million."

Kaz Hirai, president of Sony Computer Entertainment of America, said publishers have found it more expensive than many had expected to produce multiple versions of a game.

"There's a significant investment to having multiple retail packages," said Hirai, who kept E3 buzzing by declaring victory in the console wars. "At some point you have to say, 'Time out: Does it make sense for me to do a PlayStation exclusive? How much value do I get from doing other versions?'"

Publishers say the recent round of console price cuts will help Microsoft build an installed based for Xbox more quickly. Leading retailers have reported sales increases of up to 800 percent for both consoles since the Xbox and the PlayStation 2 were each lowered to $199.

But Microsoft also needs to break out of the commodity market that game consoles have become, they say. Despite clear technological advantages enjoyed by the Xbox, especially its built-in hard drive, Xbox games so far have pretty much played like those for competing systems.

"I believe the marketing mistake has been in letting people believe the Xbox is the same product as the other consoles," said Bruno Bonnell, president of Infogrames. The game publisher recently dealt another blow to Xbox by announcing plans to publish a PlayStation 2 version of its upcoming game based on "The Matrix," despite Microsoft having invested $1 million in recent Infrogrames acquisition Shiny Entertainment to fund development of the game.

"Xbox has a lot of features nobody's really taken advantage of yet," Bonnell said. "If someone built a game that fully utilizes the hard drive, the voice capability, people would see there's a real difference. The best evidence is the price: Microsoft knew they couldn't get people to pay extra for better technology, because they don't have a case yet for how that improves the games."

Don Coyner, Microsoft's director of marketing for Xbox, said it's typical for developers to need time to fully exploit a new console. He's confident that "Blinx," a Microsoft-created jump-and-run game that allows players to record and replay segments, will show developers how a hard drive can improve game design.

"'Blinx' is really the first game that takes full advantage of the hard drive," Coyner said. "Console developers are not used to working with a hard drive. It takes awhile for a developer to think about what it can do, and it takes someone who sees the potential to take advantage of it and really push gaming concepts forward."

Nintendo's survival strategy has been to come up with its own system-selling franchises, including characters such as Mario, Pokemon and Zelda. Perrin Kaplan, vice president of marketing and corporate affairs for Nintendo of America, said Microsoft could learn a thing or two from the Nintendo approach.

"We're worried about Microsoft," Kaplan said. "They've spent all this money building an online network, and they've lost focus on the games. Microsoft is doing technology, versus investing in content, and content drives this business."