`Halo' Effect
HIGH HOPES: GAME'S SUCCESS CRUCIAL TO XBOX PROFITABILITY.
By Dean Takahashi
Mercury News
Sometimes the video game hardware wars are decided by how fans react to a single game.
Or so hopes Microsoft. On Tuesday, the software behemoth releases ``Halo 2,'' the much-anticipated sequel to its popular video game and its bid to catch up to rival Sony in the video game console battle. The result of three years of work by Microsoft's Bungie Studio, the science fiction-themed game for the Xbox console will be sold in 27 countries and in eight languages.
The game's success is crucial to Microsoft as the company has yet to make any money on the Xbox. If ``Halo 2'' helps win fans from rivals, then Microsoft will be in a better position to make its play for leadership in the next generation of video game consoles due to arrive in 2005 and 2006.
``It is important to us in a lot of ways,'' said Robbie Bach, chief Xbox officer at Microsoft.
In the most recent quarter, the company reported an operating loss of $273 million in the division that includes Xbox sales. But analyst Michael Pachter of Wedbush Morgan says that ``Halo 2'' could make the division profitable, at least for a quarter.
Pachter figures that ``Halo 2'' will sell at least 5 million copies, generating at least $200 million in sales for Microsoft. The game has already pre-sold 1.5 million copies at $50 each. If more than half of all Xbox owners buy ``Halo 2,'' sales could reach $400 million. One limited edition version of ``Halo 2'' sold on eBay Thursday for $265.
The first ``Halo'' was a single-player game where the player is a human soldier whose job is to discover the secrets of a mysterious ring-like planet called Halo and to keep it from falling into the hands of enemy aliens. It had the right combination of story, good music, great graphics, fast action, and variety of weapons, vehicles and enemies.
Up to 16 players
But ``Halo 2'' includes a multiplayer game where 16 players can fight at once. As such it might drive subscriptions to Microsoft's Xbox Live online gaming service. Xbox Live has 1 million paying subscribers, but many Xbox owners have been awaiting ``Halo 2'' for online play.
On the other hand, just one game won't achieve any miracles for Microsoft, which is a distant second to Sony in the video-game business. In the United States, Microsoft has 23 percent market share for the Xbox, while Sony has 58 percent and Nintendo 18 percent. Worldwide, Microsoft is in third place, with poor sales in Japan.
Microsoft Chief Executive Steve Ballmer said in an interview that he was heartened at the progress the Xbox has made in gaining market share this year against Sony.
``There are some countries in Europe where we're No. 1,'' he said. ``We've been gaining market share against an entrenched competitor. That's no small achievement.''
Bach, the Xbox chief, said the original ``Halo'' drew a fanatical audience and became a cultural phenomenon as it inspired everything from celebrity challenges to Xbox ``system link'' parties where players squared off against each other with multiple television sets. Celebrities such as ``The O.C.'' 's Benjamin McKenzie, singer/actress Hilary Duff and rapper Snoop Dogg bragged that they were ``Halo'' fans, and Microsoft marketed ``Halo'' toys, books and other paraphernalia.
But the popularity of the ``Halo'' franchise is dwarfed by the Sony PlayStation 2's ``Grand Theft Auto'' series from Take-Two Interactive. The latest version of that series, dubbed ``Grand Theft Auto: San Andreas,'' made its debut in October and could sell 14 million units worldwide, according to analyst Pachter.
``Microsoft's strategy is Halo, Halo, Halo,'' said Kaz Hirai, president and chief operating officer of Sony Computer Entertainment America in Foster City. ``We have a broader number of choices out there.''
Nintendo's sequel
Nintendo, meanwhile, is shipping something of a rival to ``Halo 2'' with ``Metroid Prime 2: Echoes,'' another sequel on a well-known science fiction franchise where players can roll themselves up into a metal ball and ``bowl'' over their enemies. But the company is pinning most of its hopes on the Nov. 21 launch of its new handheld Nintendo DS.
Priced at $149, the gadget has two touch-screens that enable a new kind of game play. George Harrison, senior vice president of marketing communications, says Nintendo is aiming at older gamers than the ones who buy its GameBoy Advance handheld. That's why the company is spending $41 million on an ad campaign for the DS that includes sexy ads with the theme, ``Touching Is Good.'' Analysts view the ads as Nintendo's attempt to stay relevant in a market that is skewing toward older games with mature themes, more violence and more sex.
If Nintendo can capture the attention of gamers with its new gadget, then it can hold off Sony, which is planning to enter the handheld market itself in December with its PlayStation Portable in Japan. And Nintendo won't have to worry so much about losing console share to Microsoft.
But the more Microsoft closes the gap with its rivals with games such as ``Halo 2,'' the more it will be considered a force to be reckoned with when it comes out with its next-generation console in the next year or so.
