Video-game publishing giant Electronic Arts (EA) has agreed for the first time to support Microsoft's Xbox Live online gaming service. EA's decision, a major vindication for Microsoft's online gaming strategy, results from the growing popularity of the Xbox console, demonstrated demand for online sports games, and strategic moves by Microsoft. The company also previewed some forthcoming Xbox games, but it is staying silent about the successor to the console.

Why EA Changed Its Mind

The EA deal, announced at the May 2004 Electronic Entertainment Expo (E3) conference, represents a major win for Microsoft. EA, which dominates video game publishing (22% of all PC and console video games shipped in North America are EA titles), already offers online-enabled versions of several games for Sony's PlayStation 2 (PS2), including its popular Madden NFL Football title. Although EA has released offline-only versions of Madden NFL and many other games for Xbox, the publisher declined to support Xbox Live out of concern that it would dilute the EA brand without contributing much to EA's revenue. (Microsoft collects and keeps subscription fees from Xbox Live users, although publishers may charge users extra for items such as downloadable content.) EA also believed that its cross-platform dominance would let it create successful online services without catering to Xbox users.

Now, EA has announced that it will release at least 15 Live-enabled games by the end of 2004, including Madden NFL and other games in its popular EA Sports franchise, which currently accounts for 60% of all sports-related video games sold. In addition to supporting all Xbox Live features, including voice communications in every game, the games will also support the EA Messenger instant messaging (IM) service, which enables users to text-message one another from within games. (Xbox Live does not offer text-based IM, although users can send one-way game challenges via Microsoft's .NET Messenger IM service.)

Both companies cited widespread calls from gamers as the reason for their partnership, but several other factors probably contributed:

Sales trends favoring Xbox. Xbox is increasing its market share at the expense of both PS2 and Nintendo’s GameCube. Even before a North American price cut from US$180 to US$150, Xbox console sales increased slightly in Feb. 2004 compared with the same month last year, while PS2 sales were down 29% and GameCube sales down 18%. The price cut in March caused Xbox sales to spike even further, and the console now has 30% market share in the United States, compared with 22% at the same time last year, according to NPD. Because PS2 is farther along in its life cycle than Xbox and is closer to market saturation, this trend is likely to continue through the 2004 holiday season, meaning that EA could no longer limit its online-enabled console games to PS2.

Online sports demand. Madden NFL on PS2 proved popular, garnering more than 200,000 online players in less than three months. EA now hopes to extend this demonstrated demand to its EA Sports titles on Xbox.

XSN. In 2003, Microsoft launched its own Live-enabled sports franchise for Xbox, XSN Sports. The games sold poorly during the holiday season, and Microsoft subsequently admitted that the first versions were not competitive on a feature-for-feature basis with EA Sports titles (or Sega's ESPN titles) and cancelled the 2004 versions of the series to concentrate on 2005. Despite these first-year stumbles, EA may have been concerned that XSN would eventually become feature-competitive, at which point EA's lack of Xbox Live support would have been a liability. (Now that EA Sports titles will support Xbox Live, it's not clear whether Microsoft will continue with XSN at all, although the company has not made any official announcement on the subject.)

Xbox Live moving to PC. Although EA has had some successes with online PC gaming, it's also had some troubles. In particular, The Sims Online, launched in Dec 2002, was expected to gather 200,000 subscribers in its first three months, but has gotten less than half that many to date. Meanwhile, Microsoft has announced plans to make full Xbox Live functionality available to PC games as part of its XNA initiative. (For background on XNA, see "Game Development Platform Planned" on page 25 of the May 2004 Update.) By partnering with Microsoft, EA could use Xbox Live to online-enable PC games without building expensive game-specific services itself.

Other E3 News Focuses on Games

Microsoft made several other notable announcements at E3:

• Sigil's Vanguard: Saga of Heroes, a massively multiplayer online role-playing title, will be the first PC game to tap into the Xbox Live APIs, in this case to support voice communications and notifications via the .NET Messenger service
• A Japanese pilot program slated for summer 2004 will enable up to five players to conduct video chats via Xbox Live (users will be able to plug in a special camera to the console)
• Halo 2, the successor to the best-selling game on the Xbox platform so far, will be released on Nov. 9, 2004
• The company is planning Xbox Live Arcade, a set of card games, board games, and classic video arcade games (such as Galaxian) that will be accessible from within the Xbox Live interface for an additional fee (pricing and the delivery method have not yet been finalized).

However, Microsoft did not comment on rumors regarding the successor to the Xbox (code-named Xenon), including recent reports that Microsoft is committed to beating Sony's next console to market and may release the next Xbox as early as the 2005 holiday season. Nor did the company display any titles meant to increase Xbox's capabilities as a digital media device, as it did in 2003 with Xbox Music Mixer, suggesting that Microsoft's digital media strategy is focused on the PC, while the Xbox is reverting to its original role as a gaming device.