Study: Microsoft To Dominate Next Generation Of Video Games, Market To Achieve Critical Mass

Microsoft's Xbox 360 is poised to take an early lead in the market of next-generation console-based video game systems, and the flood of titles for all three systems--Xbox 360, Sony's PS3, and Nintendo Revolution--will drive the U.S. market for console software to more than $8.1 billion by 2008, according to preliminary projections of a study scheduled to be released next week by Kagan Research. By 2010, Kagan estimates that 54 million U.S. households will own at least one console system, and most will own both a fixed and portable system.

Xbox360, Kagan projects, will capture a majority of the initial market share among the next-generation consoles, due to its early release date--the console is expected to be out late this year, with the Revolution slated for an early 2006 release and the PS3 following in Spring '06.

The study predicts that in 2006, the Xbox 360 will have a market share of 54 percent, followed by the PS3 at 27 percent and the Revolution at 19 percent. In 2007, however, the Xbox 360 will lose its lead to the PS3, dropping to a market share of 37 percent, with the PS3 capturing 45 percent.

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In the last round of the console wars, the earliest entrant, the Sega Dreamcast, was roundly defeated by the PS2, GameCube, and Xbox--in 2001, Sega discontinued the manufacture of the system, and now only produces software titles for other platforms. But according to study author Irina Mulvey, an analyst with Kagan, Microsoft has a better chance at taking advantage of its early release date. "Microsoft has the backing of all major software makers in the United States, and they have commitments and agreements in place already," she said. There will be enough titles on the market to achieve this market share."

According to Mulvey, the higher prices of the next-generation titles will drive the increase in software sales, from over $6.5 billion by the end of 2005 to $8.1 billion in 2008. Although the higher prices could lead each consumer to purchase fewer games, Mulvey said, higher adoption rates and the increase of the number of households that own game consoles will overwhelm any depressed demand.

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