Microsoft Counting on Xbox Live for Revenue

Published November 08, 2006

| Reuters

Microsoft Corp.'s (MSFT) ability to convert occasional players of online video games into regular gamers is key to growth for the next-generation Xbox 360 console, a company executive said on Tuesday.

He was speaking at a conference a day after the software giant announced the debut of a video download service for its Xbox Live online service that will make some television shows and movies available in high definition video by November 22.

"The real growth here is getting to that moderate gamer. We need to bring them to the box," Peter Moore, vice president of Microsoft's entertainment and devices division which oversees Xbox, told investors at the BMO Capital Markets conference in New York.

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Moore was referring to users who occasionally play video games online but have yet to spend at least $400 to buy the Xbox for their homes.

Microsoft's new video service, which will start initially offering about 1,000 hours of movies to rent and shows to buy, is designed to keep existing Xbox customers glued to the screen and places the video game machine at the center of the living room media hub.

Moore told Reuters in an interview that it was likely the service would announce more programming partners, but he did not give any further details.

"I guarantee you that if I had three more weeks (before announcing the launch), I would have 15 logos up there," Moore added, referring to the logos of programming companies that have struck video deals with Xbox. They currently include Time Warner Inc.'s (TWX) Warner Bros. movie studios and Viacom Inc.'s (VIAB) MTV Networks.

The service is designed to play up the lifestyle aspects of owning a game console, which mainly appeals to gamers seeking better graphics and more in-depth games.

Although videos purchased or rented on the service will not immediately be viewable on Microsoft's upcoming Zune portable media player, Moore told Reuters that Microsoft had not ruled that out.

"Zune -- that is in the future," he said, adding that there were no immediate plans.

Microsoft's Zune, which hits store shelves next week, is designed to compete against Apple Computer Inc.'s (AAPL) popular iPod music and video player.

Moore said Microsoft's head-start in connecting video game consoles to online gaming through its Xbox Live service should prove an advantage in tapping future growth.

He cited data from tracking firm DFC Intelligence that forecast the number of video game consoles connected to the Internet to quadruple by 2010.

Console-connected online gaming services are opening up new revenue streams, such as advertising and additional content sales for device makers and video game publishers.

Microsoft has 4 million Xbox Live subscribers, who can download game demos, chat and compete with friends, buy new maps and weapons and, soon, download TV shows and movies.

Rival Sony Corp. (SNE) said 3 million of the 106 million PlayStation 2 owners use its online service. The company is revamping the service, called PlayStation Network, for its PlayStation 3 console that makes its U.S. debut on November 17.

Moore confirmed Microsoft's expectation that Xbox 360 shipments would reach 10 million by the end of 2006, and 13 million to 15 million by the end of its 2007 fiscal year.

The software company's fiscal year ends June 30, 2007.

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