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Last Updated: Thursday, 3 November 2005, 23:21 GMT
Microsoft's big games gamble
By Andy Webb
BBC Money Programme

Xbox user drives his car through Westminster
The race is competitive in the gaming world
The first shots in a new video games battle will be fired in November when Microsoft launches its new Xbox 360 console in the shops.

The video games industry is the fastest-growing part of the entertainment business - and Microsoft is determined to conquer it with the Xbox 360.

Described by Microsoft UK boss Neil Thompson as "the most powerful console ever seen on the planet", it will cost upwards of 200, and boasts new generation graphics, and a range of new features.

The new console is Microsoft's second attempt to topple Sony's dominant PlayStation video games brand and this time they'll have a head start over their rivals.

Not top dog

Microsoft's original Xbox console first came into the games business in 2001 and was a mixed success.

Xbox executive Robbie Bach
Xbox executive Bach says the investment has been massive
Though big and clumsy in comparison to Sony's sleek Playstation 2, it proved popular with hardcore gamers, selling more than 20 million units worldwide.

This made Xbox number two in the market, overtaking long time player Nintendo.

However, Microsoft's Xbox remained a long way from the top.

Sony's PlayStation 2 outsold it by four to one.

Large investment

This time around, marketing boss Peter Moore is adamant they won't repeat any mistakes.

Xbox 360
Microsoft's move out of its software comfort zone is a bold step

Key strategies are a radical redesign and making sure they beat Sony's next offering into the shops.

They believe this can make the Xbox 360 a success.

And it needs to be.

Microsoft's chief Xbox officer Robbie Bach acknowledges that so far the console has cost a fortune.

"It's difficult to put that in cumulative terms, but it's certainly in the billions of dollars of investment that we've put into the product."

Into the living room

With so much money put into the Xbox project, Microsoft needs the new console not only to appeal to gamers, but to move beyond them to a bigger, more general audience.

Xbox executive J Allard acknowledged that until now, gaming has been "banished to the basement or the bedroom".

The big hope for the new console is that a host of new features - like being able to connect to a home computer, or an MP3 player - will attract new audiences and help bring video gaming into the living-room.

But Microsoft believes that changes in technology in the home will eventually justify their investment, as people can increasingly connect different devices, and put them online.

They're convinced that getting their console into the living-room will pay dividends in future, providing the gateway to the entire world of digital entertainment.

As Mr Bach puts it: "Ten years from now, the way people experience entertainment will be fundamentally different and we intend to be a driving force behind that."

Number one gift

The priority right now is to sell as many units as possible over Christmas, traditionally the games market's strongest time of year.

However it isn't going to be a clear run.

Although it's likely that Sony's next console, the PlayStation 3, won't be seen in the UK until next summer at the earliest, they have recently released their PlayStation Portable (PSP) handheld console in Europe.

Sony's Phil Harrison is confident that this device will damage Microsoft's launch.

"Yes, I think that we could see that, and certainly PlayStation Portable is going to be the number one gift at Christmas."

A tough race

For Microsoft, there are other problems.

Xbox's Mr Moore says "we're not overly concerned about the PSP".

The real concern is getting enough units produced and shipped.

Indeed, manufacturing delays have meant Microsoft has already had to tell retailers they aren't going to get the stock they need to meet demand on day one.

It's probable that the new consoles from Sony and Nintendo are some way off.

If Microsoft can get enough consoles in the shops this winter, it could be that the gamble to get their product out first pays off.

The Money Programme - Microsoft's Big Games Gamble: BBC TWO at 7pm on Friday 4 November.

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