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Microsoft's Xbox goes on sale in the US this week as the three video game industry heavyweights look to win the hearts of shoppers this holiday season.
On Thursday Xbox hits the stores in America followed by the official launch of Nintendo's GameCube the following Sunday. Both will be waging a war against each other and against the already established and highly popular Playstation 2 from Sony as the three firms vie for the lion's share of a USD20 billion industry.
The two highly anticipated launches, in conjunction with the widespread and already established appeal of PS2, have inspired analysts to say that the competition is expected to fire a five-year growth cycle in the video game industry.
Some early indications of the potential of the video games boom can be seen in the stock market share value of the makers of the games themselves: values have surged in recent months despite the general malaise in the markets. Activision, which has contracts to build new games for all three of the top console makers, has seen the value of its stock double in 2001. Meanwhile Electronic Arts, Take-Two Interactive Software and THQ have climbed 36 percent, 60 percent and 94 percent respectively since the start of the year.
Predictions vary on the potential for growth in the industry. But Jack Ripsteen, senior research analyst at J.P. Morgan H&Q, told SmartMoney.com that software sales in the sector should expand from last year's USD10.7 billion to USD16 billion by 2003.
The companies' recent results are also some indication of their success in the year and potential successes yet to come.
In its second quarter, THQ posted net income of USD0.15 a share, soundly beating estimates by USD0.02. Revenue for the smallest of the three companies surged 70 percent over the year-earlier period to USD55.2 million, and analysts expect earnings of USD1.45 a share in 2001, 13.3 percent higher than last year. EA, most well recognised for its sports-based games, expects to be profitable for the current fiscal year and 2002 revenues are due to be around USD1.61 billion, up 22 percent from 2001. In Activision's second quarter revenue grew a massive 31 percent over the year-earlier period, to USD110.6 million, and analysts expect earnings to grow by 16 percent.
Both new software and new consoles will drive the growth. The launch of Xbox and GameCube in the coming days is expected to be followed by an advertising campaign that will increase in intensity as Christmas approaches and will drive demand further. Microsoft alone has said it will spend as much as USD500 million on the initial marketing for Xbox.
Nintendo's GameCube will hit shelves with a cost of around USD199. From the day of its launch, however, users can expect to have access to only around seven games. Its 485MHz PowerPC processor by IBM and its 40MB of RAM however will certainly prove to be stiff competition for the incumbent PS2.
Playstation has the poorest specifications of the three in terms of computing power and also carries one of the highest price tags. It will sell for USD299, and despite speculation the company said it would not cut its price. The PS2 carries a 295 MHz chip by Sony with 32MB RAM, but its 175 games will be a true selling point.
Xbox will sell for around USD299 with between 15 and 20 games available by Christmas in the US. It carries a 733 MHz Pentium III processor by Intel and a massive 64 Megabytes of RAM.
While both GameCube and Xbox are expected to sell out fast, Microsoft may take the hardest hit from the war. Analysts have said it could lose as much as USD1 billion on Xbox before breaking even in fiscal 2004. The product is due to launch in Europe in March 2002.
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