Microsoft’s CES stumble

Microsoft came to the Consumer Electronics Show with the first of the next-generation video game consoles under its belt and all the bragging rights and confidence that entails. But a weak launch lineup and system shortages have put a damper on the 360 party, and the CES seemed like a perfect place to get some of that momentum back.

So here’s the big news from Bill Gates: The Xbox 360 is getting an external HD-DVD player and Street Fighter II will be available this year on Xbox Live Arcade. And there was much rejoicing.

Except there wasn’t. It’s hard to think of a worse move for Gates and Co. than to enter the next-gen DVD wars after deciding the fight wasn’t important enough to include an HD-DVD or Blu-Ray player in the 360 from the start. First, an external drive defeats the purpose of the 360 as all-in-one home entertainment center. With any add-on peripherals, the 360 would lose some of its aspirations toward entertainment convergance; with the first HD-DVD players sure to be bulky relative to regular DVD players, it will lose even more.

Second, Toshiba also made an announcement at CES: It will release its first HD-DVD players in the U.S. in March, for $500 and $800. So either Microsoft sells each HD-DVD add-on at a huge loss — it’s already losing money on each 360 sold — or gamers have to somehow be convinced that a nongaming HD-DVD add-on is worth several hundred more dollars. Had Microsoft gone with an internal HD-DVD player from the start, it would still have lost money on each drive but would have benefited from the economy of scale. As an add-on likely to attract very few initial buyers, that’s no longer the case. Even if Microsoft figures out a way to get the cost way down, a price tag no less than $300 seems likely. At that price, no gamer would pick an HD-DVD drive that a)doesn’t have many movies available yet, b)might be obsolete in a year if Blu-Ray comes out on top, c)won’t add anything to the standard TVs that most people still have, and most importantly d)costs about the same as a PlayStation 3. With $300 to spend, who would possibly pick a souped-up DVD player over another game system that includes a souped-up DVD player in that price?

As for the Street Fighter II news, whee. Microsoft could have announced a bold, genre-defying, online-game-redefining title that would give people a reason to subscribe to Xbox Live. (They were crowing about Xbox Live numbers at CES, but Joystiq posts here why this is just some spin.) Instead the company has decided to give the fanboys another taste of nostalgia. Not only that, but as a marquee Xbox Live Arcade title, Street Fighter II is sure to cost at least $15. So you can pay $15 to play the original game, or you can pay $20 for Street Fighter Anniversary Collection, which gives several versions of the series and also features online play. So Microsoft is reaching out to a narrow segment of gamers and shafting them at the same. That’s the way to expand your audience!

The only consolation for Microsoft: Sony’s PS3-free presentation was even worse.

— January 5, 2006

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