Let the games begin: The 3-way race is on

If it were a character in a video game, Microsoft's Xbox would have been out of power boosts after the Electronic Entertainment Expo. At the industry's biggest convention in May, the video-game machine's marquee video game, "Halo," kept tripping and crashing. The game controller felt about as ergonomic as holding a Hush Puppy in your hand.

On the other side of the convention hall, gamers lit up like a supersized Mario over the games Nintendo had unwrapped for the GameCube console. At a news conference attended by more than 500 people, fans pumped their fists into the air as each new title was announced.

Since May, Microsoft's troops pressed reset and went back to work. The console is winning over some reviewers in the trade press. Nintendo, on the other hand, has lost a few energy tokens after failing to sell out during its September launch in Japan.

Now, the two companies are about to engage in the next level.

After two years of anticipation and delays on both sides, Nintendo and Microsoft are about to launch next-generation video-game consoles in North America: Microsoft on Thursday, Nintendo next Sunday. Along with Sony's PlayStation 2, which has enjoyed the stage pretty much to itself for the past year, the two new machines are about to enter what may be the most bruising competition in the industry's history.

Who will win — and whether there will be one winner at all — won't be clear for another 12 months, when first-year sales are in. But the entry of Microsoft and Nintendo, whose North American headquarters are also based in Redmond, makes for three well-heeled players chomping at an industry that made $6 billion in sales in 2000.

"The bottom line is, as a retailer you will sell whatever consoles you can get" this holiday season, said Jeanne Meyer, vice president of corporate communications for Toysrus.com. "The real test will come next year when the pipeline of games becomes more substantial and the base moves beyond the early adopter gamer that buys everything."

The X factor

For now, Microsoft's chances are about as certain as Michael Jordan's with the Washington Wizards.

"They really are the wild card," said Schelley Olhava, an analyst with IDC, a research company. The company, after all, is new to this business, though it has devoted considerable attention to it.

"We used to say we never give up, but in some senses I think the more important thing is we set big bets ... ," Microsoft Chief Executive Steve Ballmer told shareholders last week. "We'll reach out and dive into this video-gaming industry with something like Xbox. It's a big, bold goal with long-term payback that gets us excited."

Until the game expo in May, Microsoft had little to market except the promise that the best graphics processor and sound processor would translate into movie-quality games. At the expo, critics say Microsoft's booth felt corporate and the games were less than mind-blowing.

"Most of the games were me-too games," said James Lin, analyst with Jefferies & Co. "(People) expected games to be revolutionary, rather than evolutionary."

The company listened to the backlash, came back to Redmond, shut up and finished the games.

"People became skeptical," said Seamus Blackley, chief technology officer of Xbox. "We decided we're not going to show it until it's done."

Blackley, who was previously in charge of the mass-development group, became an evangelist, traveling the globe showing games to analysts, media and gamers.

"I think they've recovered a little," said Peter Moore, president of Sega, which shut down its console business last year and is now concentrating on game development.

"The important thing is that they do learn from their mistakes and they take comments and criticisms very well as a team."

Microsoft suffered another blow when it delayed its U.S. launch by a week and the Japanese introduction by two months. It won't comment on the reasons behind the delays except to say that the new American launch date, "is just one day and the launch is the holiday period," said John O'Rourke, vice president of marketing.

The company also remains mum about the number of units it will ship for the first day. Analysts are expecting about 300,000 to 350,000, compared with the 600,000 to 800,000 the company promised in May.

It also hired Solectron to oversee repairs and returns, which alarmed some observers because a consumer electronics machine like the console should work right out of the box. The company said it's just trying to be prepared, but Olhava said, "That raised a lot of bells in my mind. That implies that maybe Microsoft has some quality-control issues."

Content is the issue

Even if the logistical issues are ironed out, Microsoft still has to prove it has the content to win buyers to the Xbox. More than 200 third-party developers are making games for Xbox, but many of them are developing games for all three consoles — what Perrin Kaplan, vice president of corporate communications at Nintendo, called "comparing apple, apple, apple."

What distinguishes one platform will be the exclusive agreements it can land with third-party developers, such as the arrangement Microsoft has with Sega for "Shenmue II," as well as the first-party games it develops in-house, like "Halo."

Another issue may be the experience the developers have with video games. "If you look up and down Microsoft's first-party list, the bulk are PC developers," said Jefferies' Lin.

Robbie Bach, chief Xbox officer, said he's well aware of the importance of next year's lineup. "We're already doing planning to make sure every week, every month there's some exciting game coming out," he said.

And even if Xbox doesn't succeed, the company has a Sisyphean history of going back to the drawing board with failed projects and reworking it.

"This is a marathon, not a sprint," Bach said. "And Microsoft is one of the world's best marathon runners."

The Nintendo approach

Not if Nintendo has anything to do with it. The company, which used to be the Microsoft of the video-game world until Sony's PlayStation came along, has a strong franchise among younger players, and it dominates the handheld market with the Game Boy.

But things have changed for the company. With the popular original PlayStation, Sony began to sell double the number of consoles Nintendo did.

The PlayStation succeeded largely because it used CD-ROMs instead of the cartridges Nintendo preferred, cutting development costs and winning over hordes of third-party game developers.

The aging Nintendo 64 console has been relatively successful, but not as dominant as the Japanese company's history may have suggested. "We're doing this (GameCube) a little more right," Kaplan said.

Instead of cartridges, Nintendo chose a proprietary 3-inch optical disc format for the GameCube that costs much less to produce. It's also pricing the consoles $100 less than PlayStation 2 and Xbox.

Although Nintendo has secured a relationship with sports-title developer Electronic Arts, third-party developers have not flocked to the platform. Those developing games exclusively for Nintendo are targeting younger players, as Sega is doing with "Sonic the Hedgehog."

Still, IDC's Olhava said, "Nintendo is a fairly proven commodity. There's this magic about their games that other developers have struggled with."

A big head start

The third piece of the puzzle is Sony and the enormous lead it already has over Nintendo and Microsoft. The company has shipped 20 million PlayStation 2s worldwide since they were introduced last year, and Sega's Moore says Sony has been selling 60,000 to 70,000 units a week.

"Sony clearly has such a huge head start and great momentum, and they're now getting software to console that was sadly lacking at launch," Moore said. "Clearly there was no great game for PlayStation 2 that was a must-have that you buy that hardware. Then along came 'Gran Turismo 3,' which drove a lot of hardware. ... "

PlayStation 2, launched in North America about a year ago, has close to 150 titles in North America and is set to have 280 games by the end of the year. Sony is still supporting the first PlayStation, found in one in three households in North America, and it plans to spend $250 million over the next year for promotions.

Nintendo and Microsoft plan to counter with close to $1 billion on marketing in the next 18 months — $500 million from Microsoft, $475 million from Nintendo.

A truck tour dubbed the Xbox Odyssey is traveling the country, setting up a 3,500-square-foot gaming space in 40 cities. Nintendo is countering by building temporary Cube Clubs around the country and has staged a Hollywood red-carpet event with 'N Sync and Leonardo DiCaprio.

Recently, Nintendo had a "What Would YOU Do for a Nintendo GameCube" competition. One woman ate a replica made from Spam, chocolate syrup and cat food. Another contestant painted a Nintendo logo on a tapestry with his tongue. One man dressed up as Mario and dressed his girlfriend as Princess Peach to propose to her.

Microsoft has partnered with SoBe drink company and Taco Bell. Nintendo has recruited Dr Pepper and Starz Entertainment as its advertising allies. Both are installing kiosks in stores, and Microsoft is training 15,000 salespeople a week on Xbox arcana. An advertising blitz will rain down on magazines, television, billboards and movie theaters.

Observers say the marketing probably won't alter what history has proved in each console generation. Having three players in this business is like a love triangle — one participant gets ignored.

As a casualty of the console business, Sega's Moore said unless there is clear differentiation, the market won't support three. "Retail is not going to keep that shelf space for three consoles," he said. "I don't see why three consoles can survive."

Sharon Pian Chan can be reached at 206-464-2958 or schan@seattletimes.com.