Out of the Box

FT.com is reporting that Sony is talking with Microsoft about the possibility of Blu-ray drives on the Xbox 360. This could come in two forms, of course — a new SKU with an integrated Blu-ray drive or an external drive similar to the one Microsoft offered for HD DVD. The case is tough for either one, though.

If Microsoft thought there was value in adding a high-definition or high-capacity disc format to the 360, it had a choice of two during its development before Microsoft had kicked HD DVD evangelism into high-gear. Of course, after Microsoft did that, it still didn’t add an internal HD DVD drive to the 360, citing concern about not forcing such a drive on consumers. Especially now, with a significant title library out there, it doesn’t make any sense to add cost to a home console. The 360 is clearly competitive as is.

Then there’s the external drive scenario. It made more sense for Microsoft to offer an external drive when there wasn’t much choice for HD DVD drives at retail. Microsoft was able to deliver a low-priced option by piggybacking onto the console. While I’m sure an add-on Blu-ray drive for the 360 would cost less than the standalone players out there, there are many more companies offering Blu-ray players, and now that there is no direct format rivalry, the number is bound to increase while the average prices decrease, further removing the incentive. Without an evangelism imperative, Microsoft can now focus on other means of getting high-definition video to its game console.

Are there any Xbox 360 owners out there who want an external Blu-ray drive for their console?

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In speaking with several reporters about the victory, I noted NPD’s research last year that found satisfaction with existing DVD players to be a more common reason for abstaining from the high-definition disc market than the format war with HD-DVD. As digital media gadfly and PR veteran par excellence Andy Marken notes, “The difference is now the BD folks won’t be able to blame Toshiba for holding back the success of high def disc sales.”

Blu-ray was the second must-win AV standards war after LCD vs. plasma that the company has won in the past few years by leveraging selective specification superiority — curious for the consumer electronics company that is so frequently identified with being a lifestyle brand. Blu-ray’s main technical difference vs. HD-DVD was that it offered 50 GB per disc as opposed to 30 GB.

Sony and the BDA didn’t make the capacity argument directly to consumers as much to the trade media, particularly before studio support became more relevant. However, Sony was the first company to proselytize 1080p or “full HD” to consumers, which has helped to give large-screen LCD the upper hand.

Further momentum behind BD can only help promote 1080p TVs (not that they seem to need much help). It will also be very interesting to see how much the standardization of Blu-ray now helps sell the PS3 after the PS3 was kind enough to do the same for Blu-ray since 2006. Sony’s content holdings may not have been enough to overcome the challenges of UMD as a movie format, but the virtually guaranteed support of Blu-ray by Sony Pictures was a validation of Sony’s integration of hardware and content. Of course, the equal loyalty of Disney and Fox was critical as well.

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Rumors are circulating that Bill Gates will announce in what may be his final CES keynote that Microsoft will add HD-DVD to the Xbox 360. Microsoft has presented arguments against doing so in the past, offering that game players should not have to pay for a technology that they don’t need. At the same time, though, Microsoft has gone upmarket with the the 360 Premium configuration, and the addition of a larger hard drive contributes no more to the Xbox gaming experience as an HD-DVD drive would. Microsoft has already reduced the price of the external drive; an integrated one would be a logical next step as the component costs have come down.

There’s also the factor of how many external Xbox HD-DVD drive buyers would have preferred to have the internal drive rather than add another box to a crowded home theater, or how many are resisting purchasing an external drive for that reason. Furthermore, while the tie ratios of Blu-ray movie titles to the PlayStation 3 can be debated, there is ample evidence that many PS3 buyers are purchasing at least a few movies, and the HD-DVD camp simply can’t ignore the high volumes of the PS3 Trojan horse. Integrating an HD-DVD drive into at least one 360 Premium configuration is an opportunity for Microsoft to put its machines where its mouth is.

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A little more than half a year after its launch, Sony has already cut a PS3 configuration, lowered the price of the former high-end, and introduced a new model with a larger hard drive and a free game. I’m sure the 60 GB PS3 will get a lift from dipping below the $500 mark. The 20 GB model didn’t fare well there, but that product missed key components such as the memory card reader, Wi-Fi and, perhaps most importantly, HDMI.

Now there is far less difference between the low-end and high-end configuration than there was last November. The incremental value of another 20 GB of disk space is more questionable so I expect that the new low-end will become the more popular model, signalling a reversal from the PS3’s launch. The real issue facing the PS3 is a dearth of compelling titles, so I don’t see the price cut so much as a strategic move per se but really more priming the pump for what Sony says should be a stronger holiday portfolio.

Let’s get ready to rumble.

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At Engadget, Ryan Block writes about Qigo, a system for enabling access to premium online content via physical keys. As Apple has proven with the iPod and iTunes store, it’s still a lot easier to sell atoms than bits, and Computer Associates will soon offer its Internet security software on a 2 GB USB flash drive that pops into a credit card holder.

While most kiddie gadgets are modeled after their adult counterparts, the Qigo concept seems similar to the Tiger Net Jet.

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Sega sent out a release today that it will be creating video games featuring Marvel characters Captain America, The Incredible Hulk and Thor. These will be released in coordination with new movies starring the superheroes. At least the first two have some strong potential. In fact, I wouldn’t be surprised if a Captain America movie does boffo bucks as Variety would say. But hearing about a new Hulk movie reminded me of my favorite Onion article ever. Congratulations, big guy!

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Nintendo has been a bit cagey picking and choosing its convergence, or at least non-gaming functionality, battles. Today the company announced the “final” version of the Wii Web browser, including functionality that has struggled as a standalone device (or maybe it’s been that subscription-fee bugaboo again). The Wii may even be muscling in on MSN TV’s core audience.

On the other hand, while the company has offered limited photo viewing via its SD card slot, there are no DMA features, which the Xbox 360 is including as an obvious Trojan Horse play. Wii has all the hardware on board to be a decent DMA though I doubt we’ll be seeing the “Wii Elite” (Weelite?).

Of course, at the other end of the horsepower spectrum, Sony has eschewed DMA features on its PS3 as well. This could also be remedied with a simple firmware update, but Sony has shied away from streaming from its PC to the television (but is going the other way), going straight to the Internet in terms of its upcoming Bravia module. On the other hand, Sony’s PC line is now unusual in that it makes only laptops and media center PCs intended to be directly connected to televisions.

Incidentally, Next Generation reported yesterday in the continuing consumer frustration with Wii supply despite its retail success. You heard it here first, folks.

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This week’s Switched On takes Nintendo to task for the “Wii supply” of its popular game console, particularly given that the company has commended itself on the launch. I suspect that some will counter that Nintendo executed perfectly well and the “problem” that no company could anticipate is overwhelming demand. (This is in contrast to Sony, which encountered blue diode manufacturing issues. I also recall that Microsoft encountered some manufacturing issues at the launch of the Xbox 360, perhaps around heat dissipation, but that Peter Moore announced at CES 2006 that it had brought on a third manufacturing partner to finally resolve supply constraints. Now that’s transparency.) Either way, supply and demand are just two sides of the same shortage problem. Certainly the impact to the consumer is the same.

A close friend once asked me whether I thought that companies “manufacture” manufacturing shortages for PR hype. I don’t think so for a few reasons. First, shortage PR is, at best, two-sided. Second, it would be outweighed by the positive word-of-mouth from actual customers (assuming a product is genuinely good). Third, the value of such PR would be outweighed by PR resulting from higher adoption numbers. And finally, it’s hard to conceive of any PR outweighing the top-line value of incremental sales. This advantage is magnified when the product is in an extremely competitive segment and especially so when that segment is a new platform vying for developer support.

One could argue that Microsoft and Sony have some interest in selling consoles later in the cycle when they can reduce costs and subsidization, but Nintendo makes money on its hardware.

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Last year, the Xbox 360 had the limelight all to itself as the first “next-generation” console to hit the market. This year, though, the console has fought to stay in the zeitgeist, crammed between the novelty of play driven by the Wii and the hard-to-find horsepower of the PlayStation 3.

Microsoft’s promise that it had a lot of tricks up its sleeve for this holiday season held true enough. Most of the news out of the Xbox group this fall has been aimed more directly at competing with Sony — the graphically rich grit of Gears of War, the enhanced network play of the wireless headset, the downloading of movies via Xbox Live. support of 1080p, and the availability of the external HD-DVD drive And yet, the whole doesn’t seem more than the sum of its parts.

Microsoft may simply be falling victim to the attention around the PlayStation shortages, a phenomenon that it experienced firsthand last holiday season. Such shortages drive a lot of PR in the short term, but hurt a brand if they go on too long. In contrast, while there has been some scarcity associated with the Wii, most of the attention on the product itself and even the launch titles has been positive. It seems like anyone who wants a Wii by a tree will be able to get one without resorting to desperate measures.

One way the Xbox group could steal a little bit of thunder back would be to release a hard drive upgrade for the 360. Of course, this wouldn’t do much for gaming, but it would enable Microsoft to position the 360 as both a hub and a great Media Center extender client.

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Plug and play videogames — starting with the Atari 2600 game pack in a facsimile controller popularized by Jakks Pacific a few years back — have become a phenomenon. Games integrated into controllers have resurrected many classic game collections from Activision, Konami, Sega, Intellivision and Namco to name a few. The controllers have also progressed far beyond retro to highlight primarily kids’ media properties such as Marvel and DC Comics heroes as well as Spongebob Squarepants.

As an Intellviision fan, I was a bit disappointed with the plug-and-play units despite their strong sales, although the second generation offering includes a decent edition of Deadly Discs, one of my favorite games for the original console. At last year’s E3, I spoke with Blue Sky Ranger Keith Robinson about doing an Intellivision version of something like the Atari Flashback 2. Keith told me that he would love to do it and that an engineer has it ready to go, but it’s all about making the business case.

The new generation of these devices, though, have integrated LCDs so you can play them on the go without the television. Retro brand Coleco currently has several of these at Target, and Performance Designed Products is expanding its VGPocket line to include a few products downmarket from the VGPocket Max that’s recently been price-reduced at Radio Shack. In addition to two Disney-themed products, the Tablet ($29.99) and Caplet ($39.99) will include 25 and 35 games respectively and both can connect to a TV for big-screen viewing Each also has some classic arcade games included. I’m looking forward to trying

Even low-end products eventually go mobile, and these products are good enough to give a Game Boy Micro a run for its money. It will be very interesting to see what Nintendo has up its sleeve for that franchise after the Wii dust settles next year.

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