NEWS - Tuesday, December 6, 2005

Xbox 360: The Japan Problem

Despite the strong debut of its Xbox 360 in the US, Microsoft Corp is likely to struggle to displace well-entrenched incumbents in the Japanese video-game console market when it launches the Xbox 360 here at the weekend, analysts said. Microsoft will start selling the Xbox 360 here on Saturday at 37,900 yen. The game unit of Sony Corp plans to launch its own next-generation machine, PlayStation 3, next spring. Since the Xbox 360 went on sale in the US on Nov 22, Microsoft has said it is on track to meet its 90-day target of selling 2.75-3.00 mln worldwide. Despite its good initial sales, Microsoft faces a lawsuit in the US alleging that the Xbox 360 has a design flaw that causes it to overheat and freeze up. The suit further alleges that Microsoft was so intent on releasing the Xbox 360 before Sony Computer and Nintendo Co could launch competing machines that it sold a ’defectively designed’ product. Microsoft is hoping that being first in the market with next-generation consoles will help it penetrate the home market of Sony and Nintendo. ’Japan is a very important market for our global strategy, and launching our console ahead of rival platforms will give us a certain advantage,’ said Yoshihiro Maruyama, head of the Xbox division at Microsoft KK, the Japanese unit of Microsoft. ’Unless we achieve meaningful success here, we cannot say we are a winner in the next-generation console battle,’ Maruyama told a news conference. But analysts are doubtful about Microsoft’s chances. ’No one -- consumers or software makers -- has been talking about the Xbox 360 lately, although we only have a couple of days before the release,’ Tokai Tokyo Research Center analyst Nobuyuki Kawamata said. ’Given also the fact that basic functions of Xbox 360 are inferior to Sony’s next-generation machine, and that there are not many newly-developed titles ready for the Japanese launch, Xbox 360 is not likely to become a must-buy console here in Japan,’ Kawamata said. Hirotoshi Murakami, an analyst at Mitsubishi UFJ Securities, also believes the Xbox 360’s prospects here are gloomy. ’We had previously thought that Xbox 360 could gain a major share of the Japanese market by taking some market share from front-runner Sony Computer,’ Murakami said. ’But we now think that such a prospect may not be realized, given the limited attractiveness of its titles and its lukewarm functions.’ ’Given declining enthusiasm for the Xbox 360 by Japanese players and software makers, it would be almost impossible for Microsoft to overtake Sony or even Nintendo,’ said Shinko Securities analyst Yuichi Kobayashi. ’Even from the global viewpoint, unless Sony fails to bring the next-generation PlayStation 3 consoles to the market on time, Microsoft appears to have almost no chance to be the industry leader,’ he added. While Japanese game publishers are counting on the Sony’s PlayStation 3, Microsoft’s Xbox360 and Nintendo’s Revolution to help perk up the shrinking game market here, analysts are warning that they face a continued challenge. According to the most recent survey by the Computer Entertainment Suppliers’ Association, the computer game market last year was only 60 pct of the size it was at its peak in 1997. ’Given the likely slow start-up of Xbox360 and uncertainty over the launch of PlayStation 3 and Revolution, this year is not likely to be a turnaround point for Japanese software makers,’ said Tokai Tokyo’s Kawamata. ’Besides, most makers are still seem to be struggling to find a fresh and commercially feasible approach to making better use of the advanced functions of game machines,’ he added. Kiyoshi Komatsu, president of game developer Koei Co Ltd, said rising development costs have become a big challenge for most game developers. ’If development costs continue to rise sharply, some game developers may face serious difficulties in developing game software for next-generation game consoles,’ Komatsu said.

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