Microsoft to spend $1.15 billion for Xbox repairs

LOS ANGELES: In what may be one of the costliest consumer warranty repairs in history, Microsoft announced on Thursday that it would spend up to $1.15 billion to repair failing Xbox 360 game machine consoles.

While the company would not say how many units were failing, Robbie Bach, president of Microsoft's entertainment and devices division, said that there have been an "unacceptable high number of repairs." The majority of Xbox 360 owners, he said, have not experienced hardware failure.

Company officials said that Microsoft had sold 11.6 million Xbox 360 units by the end of June, shy of the 12 million units the company had predicted. The Xbox 360, which first went of sale in November 2005, is currently the best-selling game machine in the United States, according to NPD, a market research firm.

The size of the anticipated repair bill suggests that a third to as many as half of the machines are flawed.

Microsoft, based in Redmond, Washington State, said it would take a charge of $1.05 billion to $1.15 billion against earnings in the quarter ended June 30. Consumers know they have a problem if three red flashing lights appear on the console. Gamers on online forums have been referring to the event as "the Red Ring of Death" because the machine then shuts down.

Thecompany declined to explain the nature of the failure, but said that it was not caused by a single problem in the console, which it said contained 1,700 components and 500 million transistors. The company also said there were no health or safety concerns involved. The problem began to appear over the last three to four months, Bach said, after "significant usage" of the consoles. He said the company has taken steps to correct the problem in new devices.

Microsoft said it would extend the warranty of the game console to three years to customers worldwide. Previously, products sold in the United States were covered by a one-year warranty, while Xbox 360 units sold in Europe had a two-year warranty.

In addition, customers who have had their consoles repaired because of the "three flashing lights" problem will be reimbursed for the cost of the repairs.

Microsoft has succeeded in establishing the Xbox brand against the better known Sony PlayStation and other game machines. The Xbox and its successor, the Xbox 360, was the software maker's first major foray into hardware. Although sales are small relative to the rest of Microsoft's revenue, the Xbox has been an important venture for the company and was viewed by many analysts as Microsoft's attempt to compete with the likes of Sony and Apple for control of electronics and entertainment within homes.

The device can be used to access the Internet and view movies. Microsoft said its entertainment and devices division reported an operating loss of $315 million on $929 million in revenue for the three-month period that ended in March, and analysts have estimated that the company lost about $6 billion getting a foothold in the game machine industry.

A new Xbox 360 with a 20-gigabyte hard drive sells for about $400, but other versions cost about $300.

The announcement comes on the eve of the E3 Media and Business Summit, the video-game industry's major trade show, to be held next week in Los Angeles. "This is bound to affect discussions between Microsoft and its developers and retailers," said Richard Doherty, a partner in the research company Envisioneering Group.

Sony alters price and power of PlayStation 3

Sony on Monday cut the price of its current PlayStation 3 by $100, or 16.7 percent, and introduced a high-capacity model in an effort to spur sales of the struggling video game console.

Sony also said it would offer a model with a bigger hard drive for storing downloaded content like video games and high-definition movies in the United States and Canada for $599 starting in August.

There are no plans so far to offer the new 80-gigabyte PS3 in Japan, Nanako Kato, a Sony Computer Entertainment spokeswoman, said.

Effective immediately, the current 60-gigabyte model will cost $499, down from $599.

The new PS3 also includes a retail copy of the online racing title "MotorStorm," a company spokesman said.

The new machine supports the company's strategy of eventually of offering downloaded high-definition movies, video games and movie trailers, a Sony spokesman, David Karraker said.

Karraker said further details on high-definition movies for download would be released at a later date.

The announcement comes two days before the E3 Media & Business Summit in Santa Monica, California, where dozens of industry heavyweights including Sony's rivals, Microsoft and Nintendo, are expected to show off their latest games and related products.

Sony has said it sold 3.6 million PS3s in the fiscal year ending March 31 and expects to sell another 11 million in the current fiscal year. Microsoft said in its most recent quarterly earnings report filed in April that it had shipped 11 million Xbox 360s.

Nintendo, meanwhile, claims it has sold nearly 6 million Wiis worldwide as of March 31, and more than 40 million Nintendo DS handhelds.

The company has predicted it will sell another 14 million Wiis and 22 million additional DS systems by the end of the current fiscal year.

The Wii and PS3 were released within days of each other late last year. Microsoft had a head start in the current generation of consoles, having introduced its Xbox 360 in 2005. Last week, the software company announced an extension of the warranty due to the high number of systems suffering from hardware failure.

In April, Microsoft began selling a version of its Xbox 360 with a 120-gigabyte hard drive and a souped up high-definition video connection.

Called Xbox 360 Elite, the black-colored system sells for $479.99.

Xbox gamers who already own the $399.99 20-gigabyte model can buy a snap-on 120-gigabyte hard drive for $179.99.

Karraker said Sony would use the E3 show to focus on two areas: ways to increase the number of consumers who own PS3s and other products like the PlayStation Portable handheld system, and expanding the system's library of available games.

He said Sony would be releasing 100 new video games during the current fiscal year, including 15 titles that are exclusive to the PS3 like the hack-and-slash action title "Heavenly Sword."

Microsoft to cut price of Xbox 360 to compete with Wii game console

LOS ANGELES: Microsoft plans to cut the price of its Xbox 360 game console to compete with Nintendo's top-selling Wii.

The company needs to lower the price of the Xbox, which retails from $299 to $479, to increase sales and lure customers who are not interested in traditional combat and racing video games, said Shane Kim, vice president of Microsoft Game Studios.

He declined to say when a price cut might be announced, but added that it would not happen at the annual Electronic Entertainment Expo, or E3, game conference in Santa Monica, California.

"We need to compete effectively for that customer, and part of that is getting to the mass market price point for the console," Kim said Tuesday. "We definitely are working on that area."

The Xbox 360 has trailed the $249 Wii in sales since Nintendo introduced the player in November.

This week, Sony lowered the price of the PlayStation 3 console, which has lagged behind both Xbox and Wii, by 17 percent to $499 from $599 in the United States. Microsoft has vowed to make its video-game business profitable by next year.

"A price cut would give the Xbox 360 an advantage over its rivals, particularly in North America where you have a choice of consoles to play the same game," said Etsuko Tamura, an analyst at Mizuho Investors Securities in Tokyo. "There's a lack of Xbox titles in Japan, so a price cut here would have no effect."

In fiscal 2006, the games unit lost $1.26 billion on sales of $4.26 billion. David Hufford, a director of Xbox product management, said last month a price cut was needed to persuade parents to buy the machine for their children.

Microsoft also said that Walt Disney would offer films for rent through its Xbox Live online service. Warner Bros. and Paramount studio already sell and rent movies on Xbox Live.

Video-game makers attract wider range of players

SANTA MONICA, California: Nintendo expects its popular Wii game machine will continue to be in short supply, while Sony said it was already seeing increased sales of its PlayStation 3 after announcing a price cut Monday.

The two Japanese video-game console makers presented an outlook of their business to game developers and industry executives at the E3 Media and Business Summit, the major video-game trade show in the United States.

Reggie Fils-Aimee, the president of Nintendo of America, said, "Wii has effectively been sold out for all 33 weeks." Nevertheless, he said, Wii "is poised to become the No. 1 platform worldwide very soon."

The Wii, which uses a hand-held motion-sensitive controller, has been a success in another way. It has attracted a significant number of older gamers, Fils-Aimee said. In Wii households, he said, one in eight men over 50 regularly use the console. He said that was a first in video-game history.

"Our next challenge is to destroy the psychological barrier that separates veteran gamers from novice players," he said.

To broaden Wii's appeal, in 2008 Nintendo will introduce Wii Fit, a game that encourages physical fitness. Bundled with a Wii balance board, players stand on the platform to register their body mass index, and then head-butt virtual soccer balls, twirl a virtual hula-hoop and perfect their balance.

Fils-Aimee, who would not state a price for the new bundle, said that the board would be used as a control device for future games as well.

The company also introduced the Wii Zapper, a $20 frame that holds the Wii's existing controllers in a combination that creates new types of game moves and weaponry.

Besides the 60 games available for the Wii, 100 new titles will be available by the Christmas holiday season. The Nintendo DS portable system will have an increase in the number of game titles to 440 by the end of the year, from 300 now.

Jack Tretton, president of Sony's computer entertainment division, said that cutting the price of the 60-gigabyte PlayStation 3 to $500 had already doubled sales at its top five retailers. Analysts had said that the console was too expensive to attract a wide audience.

The Nintendo Wii, which costs $250, and Sony's PlayStation 3 were introduced in November, but Nintendo has sold 2.8 million machines, twice as many as Sony.

The price cut "bodes well for us," said Peter Dille, senior vice president of marketing for Sony Computer Entertainment America.

Sony demonstrated its newest PlayStation 3 titles, as well as games for its older PlayStation 2 and PlayStation Portable, or PSP, platforms.

It also introduced a number of first-person shooter games and several aimed to appeal to wider audiences, including "LittleBigPlanet," a game in which players create their own elements in a virtual world, interact with them, and then share them with friends online using Sony's PlayStation Live service.

"We will have 200 games for the PlayStation 3 worldwide this year," Dille said. "Everyone is very confident."

The E3 event this year has been greatly reduced after criticism that it attracted more video-game obsessed adolescents than business people. Still, Sony, as well as its chief rivals, Microsoft and Nintendo, used colored lights, smoke, and deafening sound effects to present their new games to smaller audiences.