Next for Microsoft Xbox: winning casual gamers

SAN FRANCISCO (Reuters) - Microsoft Corp (MSFT.O) has cemented its reputation among hardcore gamers with the launch of alien shoot-out "Halo 3," but it is still struggling to attract the mass market audience that has flocked to Nintendo Co Ltd's (7974.OS) Wii console.

Widely expected to be one of the top-selling games of the year after its Tuesday debut, "Halo 3" should help Microsoft sell more of its Xbox 360 gaming machines and finally turn a profit in its entertainment division this fiscal year.

"I think that you will have a lot of people begin to look at the Xbox 360, especially for holiday purchases," said Van Baker, an analyst with market research firm Gartner, citing the strong reviews for "Halo 3," which starts at $60.

Microsoft has said it had 1.7 million advance orders for the game in the United States, but it won't release actual sales figures for a few days.

Deutsche Bank said checks carried out ahead of the game's launch indicated stronger-than-expected demand that could mean revenue from "Halo 3" this fiscal year may be as much as $430 million, nearly 80 percent higher than previous estimates.

"We believe demand for 'Halo 3' could drive EDD to profitability," analyst Todd Raker wrote in a note, referring to Microsoft's Entertainment and Devices Division.

The Xbox 360 leads the current-generation console market, with nearly 12 million units shipped globally by the end of June, compared with more than 9 million for the Wii and over 4 million for Sony Corp's (6758.T) PlayStation 3.

But the Wii, which launched a year after the Xbox 360, has outsold rivals every month this year and may soon overtake the Xbox 360 in terms of total worldwide sales.

Not only does the Wii offer the lowest price -- $250 versus $280 for the cheapest Xbox and $500 for the cheapest PS3 -- it also features an innovative motion-sensing controller that lets players act like they are really swinging a sword or rolling a bowling ball.

An emphasis on simple games that get players off the couch has made the Wii attractive to older people and women, customers outside the base of young males.

LIVING ROOM HOPES

Microsoft knows it must attract casual customers as well if the Xbox 360 is going to be a living-room fixture.

"That's the biggest challenge Microsoft has. They were never able to do that with the original Xbox and they will be hard-pressed to do it with the 360," said Todd Greenwald, an analyst with Nollenberger Capital Partners.

Microsoft has praised Nintendo for "expanding the market", but so far its attempts to attract a broader audience have met with mixed results.

Last year's "Viva Pinata," a kid-oriented game in which players tend to a virtual garden inhabited by colorful pinata animals, saw only lackluster sales despite critical praise.

But Microsoft is nothing if not persistent, and a second "Viva Pinata" game is in the works for this holiday featuring a collection of simple "party games" meant to be played by several people at the same time.

A lot of the problem is image.

The huge buzz around games like "Halo 3" obscures the fact that Microsoft's Xbox Live Arcade has about 100 games available for download. These range from arcade classics like "Pac-Man" to popular card games like "Texas Hold'em".

"They need to take their lowest-priced model and push it with a combination of games they have with Xbox Live. It's not games coming out of Activision (ATVI.O) or EA (ERTS.O), it's the $5 to $10 games on Live," Greenwald said.

Baker said he expected Microsoft to ramp up marketing aimed at casual gamers in another month or so.

"They've got a pretty good offering for casual gamers with Xbox Live Arcade, but the problem they have is they are not perceived as a casual gamer platform," Baker said. "They have to do some messaging and marketing to that consumer to let them know the Xbox 360 is viable."

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