Microsoft’s Xbox Is On Its Last Life

(Originally published here.)

As Bloomberg View’s official video game correspondent, it’s my duty to inform you that Sony Corp. is crushing Microsoft Corp. with sales of its latest generation of consoles — and Microsoft’s plan to turn things around seems likely to fail.

In the U.S., Sony’s PlayStation 4 system is outselling Microsoft’s Xbox One by more than 2-to-1. Both companies sell their systems at a lossbut make up for it by selling games and downloadable content over proprietary networks, so the difference in market share matters a lot.

The basic problem is that Microsoft’s system costs more ($499, to the PlayStation’s $399) because it has a lot of features that have nothing to do with gaming. Despite the higher price, the Xbox is less powerfulthan the PS4, with many games offered at a lower resolution. Even worse, basics such as the ability to access videos from Netflix Inc. aren’t accessible without paying $60 a year for an Xbox Live Gold subscription.

Now Microsoft hopes that one exclusive title — “Titanfall,” which I admit looks pretty cool — will be enough to generate millions of additional U.S. sales for the Xbox One. (The game comes out tomorrow.) “It’s hard to overstate the importance of Titanfall to the Xbox One release this year,” Yusuf Mehdi, Microsoft’s head of strategy and marketing for devices and studios, told Bloomberg Businessweek.

Taking him at his word, that’s bad news for Microsoft. I’d bet that most people who have been anticipating “Titanfall” already bought their system months ago, because the exclusivity of the release wasn’t a secret.

The Xbox One’s troubles remind me of Sony’s missteps when it released the PlayStation 3 eight years ago. Back then, Sony was committed to creating a multipurpose entertainment platform, not just a powerful box for playing video games. (Sound familiar?) I bought one, because it seemed like a good way to get a Blu-ray player bundled with a game console, but the system was a commercial disappointment compared with its predecessor, the PlayStation 2, especially in the U.S.

The big problem was price. Even though Sony lost hundreds of dollars on each console it sold, the cheaper version of the PS3 cost $499 at launch. By contrast, the Xbox 360 debuted at just $299, with a fancier model costing $399. Combined with Microsoft’s yearlong head start, the net result was that many Americans switched consoles, and many game-makers that had long been exclusive to Sony felt compelled to design versions of their games for both systems, which was a huge blow to Sony’s competitive advantage.

Sony’s experience eight years ago suggests that Microsoft’s gaming unit could be in for more trouble than its leaders let on. There are already rumors that Electronic Arts Inc. may release a version of “Titanfall” for the PS4, and it is highly likely that the game’s sequels will be available on both systems.

Microsoft has the potential to repair the damage from its initial mistakes, but one good game probably won’t be enough.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter at @M_C_Klein.)

To contact the writer of this article: Matthew C. Klein at mklein62@bloomberg.net.

To contact the editor responsible for this article: Christopher Flavelle at cflavelle@bloomberg.net.

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About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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