Will Microsoft's Xbox One Exclusives Be Enough to Pry Gamers Away from Sony's PS4?

The company used to push Xbox One as an overall entertainment system, not just a game console. That was not the case at E3.

Jun 13, 2014 at 1:10PM

When the new Microsoft (NASDAQ:MSFT) led by CEO Satya Nadella makes a strategic change, the company fully embraces the revised direction.

That is clearly true of the decision to unbundle the Kinect motion sensor from its Xbox One console. That move, which allowed the company to drop the consoles price to $399 (matching what Sony's (NYSE:SNE) PlayStation 4 sells for), also meant changing the basic marketing pitch for Xbox One. Instead of highlighting the device as an entertainment center, the revised strategy pushes it as a gaming device first. That was evident at the company's E3 media event where it focused on its upcoming lineup of games. Kinect did not receive a mention.

Whereas Sony used its E3 event to announce a new $99 PlayStation-branded set-top box and a public beta date for its PlayStation Now streaming game network along with pushing its new titles, Microsoft kept the focus entirely on games. That's an attempt to recraft the Xbox messaging because the initial plan did not work as well as the company would have wanted. It's also a necessity since now that the price has been lowered, it can be assumed that most new users will purchase the Kinect-less version of the console. Not having the motion sensor makes many of the non-game features Microsoft originally pushed either not available or less sexy so it's logical to focus attention on what the stripped-down console can do well -- and that means games.

Consoles are not the business

In general console hardware -- which accounted for nearly $1 billion in sales in the first quarter of 2014, according to NPD Group, is a break-even or a slightly losing proposition for manufacturers. The goal of increasing console sales for Microsoft and Sony is growing the number of users who might buy games for each company's respective platforms.

Game sales, which topped $3.6 billion in the first quarter, according to NPD, are profitable. They are also going to become more profitable as they move from a disc-based model, which forced the console makers to share profits with retail stores, to a digital download model that allows them to sell directly to consumers. 

The games pipeline looks well-stocked

Microsoft spared no expense in its E3 presentation offering up a heavily produced presentation that was as much rock spectacle as it was nerd on stage talking about technology. Even Xbox Chief Phil Spencer got an introduction worthy of Rihanna as he took the stage to kick off the show. He started the event by delivering a speech designed to get what in the pro wrestling world is known as a "cheap pop." That's when a wrestler mentions a local sports team or other fan favorite designed to produce an easy cheer. Spencer's version of that was his salute to games in a room filled with avid game fans.

"This week, we share a common purpose with our friends at Sony, Nintendo (NASDAQOTH: NTDOY), and the developers and publishers in our industry. That purpose is to showcase the passion, creativity, and potential behind the fastest growing form of entertainment in the world -- games," he said.

Spencer may as well have shouted '"hooray for pizza" in a room full of fat guys, but his speech did set the table for around two hours of game announcements.

The presentation started with some of the new games coming to Xbox One in 2014. Those included a new title in the Call of Duty series as well as a new version of the Forza racing franchise. Also coming this year are Assassin's Creed, Unity, Dance Central Spotlight, and a return of Crackdown, a franchise many thought Microsoft had left for dead.

The whole presentation was over-the-top and too long by half, but it beat home the Microsoft message that Xbox One is a game console first. No mention was made of Xbox as a family entertainment platform or its many uses in watching TV. Even exclusive content that would appeal to gamers -- like the upcoming Halo video series -- were not mentioned.

Microsoft appears to know it drove its core gaming audience toward Sony with its initial Xbox positioning and this was another big step toward shoring up that base. Xbox One can still do all sorts of cool stuff that may appeal to non-gamers, but the initial sales lead PlayStation 4 has built suggests that those should not be featured until the new Xbox establishes itself as a game console.  

Will fans buy in?

In matching Sony's console price and focusing on games Microsoft has made the console battle much more about which company has the best titles. Both companies announced impressive slates at E3 and both have exclusive franchises, which helped create loyalties in the previous generations of consoles.

It's still early enough in the console game that Microsoft should be able to climb back into a race that according to the most recently released numbers from both companies has PS4 in the lead with 7 million consoles sold to Xbox One's 5 million sold to retail (but not sold through to customers yet). With the $399 price tag going into effect June 9 Microsoft may see a spike in sales from pent-up demand form Xbox 360 owners who were waiting to upgrade.

Returning the focus to games makes sense -- especially since Microsoft has an impressive slate of new releases on tap. If the E3 audience is an example then there are game fans eager to see Microsoft return its focus to delivering blockbuster AAA titles. The company has done that. Gamers seem likely to forgive the company for its early marketing efforts and the attempt to force Kinect on everyone.

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Daniel Kline is long Microsoft. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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