REDMOND, Wash. – Microsoft Corp. (MSFT) says its next version of Xbox will thrill hard-core gamers with mind-blowing graphics and lure in newcomers with free online games, slideshows, music and video chats with friends.
Xbox 360 (search) looks nothing like its bulky, black predecessor. It's sleek and white, and it can stand on one end like a book or lie flat like a DVD player. Its 20-gigabyte hard drive and three powerful processors will enable high-definition graphics and surround sound, making games seem more like movies.
Mike Sabine, a market analyst with International Development Group, raved about the lifelike look of a war game he saw in a recent preview offered to analysts and reporters.
"I actually expected to be a little underwhelmed," he said. "I expected it to be a leap or two better (than the original Xbox), but I was very impressed."
Another game Microsoft demonstrated featured NBA star LeBron James (search), his muscles flexing and his shiny tank top rippling in the light of a street lamp as he dribbles and shoots.
"Honest to goodness it was almost as good as video," said Van Baker, vice president and research director for Gartner Inc.
Though Microsoft had planned on giving consumers their first peek at Xbox 360 in a half-hour MTV special Thursday night, some of the 200 people who attended the show's taping a week ago leaked pictures and specs on gaming Web sites and blogs last weekend.
The MTV debut is part of Microsoft's strategy to outshine rival Sony Corp. (SNE), which is not expected to release the next version of PlayStation (search) until next year. Sony is expected to unveil a working version of PlayStation 3 and announce launch plans at the Electronic Entertainment Expo gaming trade show in Los Angeles next week.
Microsoft says Xbox 360 will arrive in North American stores around Thanksgiving and in Europe and Japan by year's end. Analysts said several months of lead time could help the new Xbox close in on the market-leading PlayStation, but they're waiting to see what Sony rolls out before making any bold predictions.
"I think clearly this is going to be a horse race," Baker said.
Sony now has 43 percent of the U.S. video game console market with PlayStation 2, compared with Xbox at 19 percent and GameCube (search) at 14 percent, according to Jay Horwitz, an analyst with Jupiter Research. He predicts the new Xbox will grab 38 percent of the U.S. market by 2010, overtaking PlayStation 3 by 6 percentage points.
Microsoft has said gamers can expect 200 new Xbox titles by the end of the year, but hasn't said how many will be designed for Xbox 360 and whether the new machine will play games designed for the old model.
There's also no word yet on cost. The current Xbox sells for $149.99.
Many Xbox 360 features are designed for non-gamers: watching movies, playing music, viewing slide shows or holding video chats. It has three USB ports to connect digital cameras, music players and other devices.
While current Xbox owners need to buy an attachment to play DVDs, Xbox 360 supports DVD playback out of the box.
Microsoft is hoping its online gaming service, Xbox Live, will grow in popularity with Xbox 360.
Xbox Live gamers who can already talk to one another during game play will also be able to see their buddies and competitors in video-chat windows off to one side of the screen. A small video camera for such chats will be sold separately.
"Gamer guides" will let players introduce themselves to others, making it easier for people to find competitors at their skill level. That could make online gaming seem a lot less intimidating to novices, analysts say.
"We truly believe the future of gaming is online, ... bringing together massive communities from around the world to play or just to hang out," said Peter Moore, a Microsoft vice president in charge of Xbox marketing.
For casual gamers, Microsoft plans to include some free online games like checkers or bingo, though the company hasn't said how many will be offered.