• Chart: Xbox 360 vs. PS3

Momentum, rather than surprise, characterized Microsoft's announcements at the May 2006 Electronic Entertainment Expo (E3). The company announced long-promised PC connectivity to the Xbox Live online gaming service and an add-on HD DVD player for the Xbox 360, along with upcoming game titles and a vague plan for mobile gaming. Meanwhile, Sony's revelation that the PlayStation 3 (PS3) will cost at least US$100 more than the Xbox 360 could help Microsoft keep its early lead among next-generation consoles, while Nintendo's demonstration of its upcoming Wii (pronounced "we") reminded onlookers that consoles are still a three-player game.

PCs Go Live

E3 is the gaming industry's highest-profile event, a showcase for the coming year's products. With Microsoft's Xbox 360 console now available in more than 30 countries, Microsoft's announcements this year were meant to show continuing momentum, while competitors Sony and Nintendo focused on new consoles they will release later in 2006.

Microsoft's announcements included the following:

Live Anywhere. Under an initiative dubbed Live Anywhere, Windows Vista (the next version of Microsoft's desktop OS, which is expected in early 2007 for consumers) will be able to connect PCs to the Xbox Live gaming service, and expanded Xbox Live functionality for mobile devices will be available sometime later.

Vista access to Xbox Live will allow PC gamers to have a consistent online experience across platforms (e.g., the same user identity and achievements), exchange voice communications with other gamers on the service, and play games with teammates or opponents across platforms. Microsoft Game Studios will release the first multiplatform PC and Xbox 360 game, Shadowrun (based on an offline role-playing game), at the same time as Vista.

The idea of PC-Xbox connectivity is not new: Microsoft first promised PC access to Xbox Live at the spring 2004 Game Developers Conference, and announced that a forthcoming game, Vanguard: Saga of Heroes, would be cross-platform. However, that game's development was delayed, and in May 2006, the game's developers (Sigil) announced plans to buy back the publishing rights for Vanguard from Microsoft and enter a publishing agreement with Sony instead.

Microsoft also announced that gamers with mobile devices will be able to send instant messages on Xbox Live (mobile users can receive messages today), and download items, such as mobile versions of arcade games or modifications to console games (e.g., an upgrade to a car in a racing game), from the Xbox Live Marketplace onto their mobile phones. Microsoft promised that the service would be accessible from phones running platforms other than Windows Mobile (such as Java and Qualcomm's Binary Runtime Environment for Wireless, or BREW) and would be available by the 2007 E3. However, many details, such as pricing and whether the service will be limited to certain cellular carriers, were not announced.

Peripherals. Microsoft announced several new hardware add-ons for the Xbox 360, as follows:

• A player for HD DVD high-definition video disks, although some disks might not play at full resolution because the Xbox 360 lacks a High-Definition Multimedia Interface (HDMI) output, which might be required by the copy-protection technology on some disks (the PS3 will have a built-in player for disks in Sony's competing Blu-ray format)
• A video camera that allows gamers with Xbox Live Gold (US$50 per year) subscriptions to engage in video chat, send photo messages, and customize their gamer picture
• A wireless steering wheel for racing games
• A wireless headset (the current headset must be connected to the controller)
• A 256MB memory unit for storing saved games, profiles, Xbox Live Arcade titles, and other content (currently, only a 64MB memory unit is available).

Games. Microsoft Game Studios demonstrated more than 10 upcoming games for Xbox 360, while third-party publishers showed many more. Highlights included the following:

• Halo 3, the next iteration of the franchise that gave the first Xbox its two most popular games, will be released by Microsoft Game Studios for Xbox 360 in 2007
• Fable 2, the sequel to a 2 million-selling Xbox game, will be created by Lionhead Studios, which Microsoft acquired earlier in 2006 (see "Fable Developer Acquired" on page 27 of the May 2006 Update); no release date was announced
• Grand Theft Auto 4, the next release in a series that has been extremely popular on Sony's PS 2 and is credited with driving sales of that console, will be released simultaneously on Xbox 360 and PS3 in late 2007
• Classic video arcade games from Namco Bandai (Pac-Man, Galaga, Dig Dug), Konami (Frogger, Scramble), and Midway (Defender, Ultimate Mortal Kombat 3) will be available for download from the Xbox Live Arcade.

State of the Competition

Taking a page from the Xbox 360 playbook, Sony will release two versions of the PS3, each of which will cost US$200 more than its Xbox 360 counterpart. PS3 customers will get more features for the extra money: both versions of the PS3 will include a Blu-ray high-definition DVD drive, a hard drive (which the low-end Xbox 360 lacks), and full backward-compatibility with PS2 and PS1 games. (For a more detailed comparison, see the chart "Xbox 360 vs. PS3".)

Even so, the price might limit the PS3's initial market, especially given that the Xbox 360 will have a one-year lead and approximately 150 available games by the time the PS3 emerges in Nov. 2006. Even with the price premium, Sony will be losing an estimated US$200 or more for each console it sells, making this an expensive war for the company to wage; Microsoft is also losing money (perhaps US$100) on each Xbox 360, but says it will break even on the hardware over the next five years and begin turning a profit on the overall Xbox business (hardware, software, and Xbox Live subscriptions) by July 2007.

Nintendo, meanwhile, is taking a different approach: instead of emphasizing processing power, PC-like peripherals, and home entertainment features (such as high-definition DVD playback), the company is focusing on innovative gameplay at an affordable price. The Wii, expected in late 2006, earned high praise at E3 for its unique motion-sensitive controllers, which will allow users to play games with a variety of realistic hand motions—for example, gamers can swing the controller like a tennis racket during a tennis game, or draw one controller back toward the other like a virtual bow-and-arrow during a fighting game as a speaker in the second controller makes a noise like the bowstring being drawn back. Nintendo has not announced pricing for Wii, but has suggested it will be less expensive than its competitors (widespread rumors place the price at US$249). With its long history of game development, devoted fan base, and lower price, Nintendo could remain a formidable competitor through the third generation of consoles.