The X factor: Microsoft, Sony prepare for E3

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With Microsoft Corp.'s entry into the world of console gaming, all bets are off on a winner of the battle royale shaping up between the software giant's Xbox and Sony Computer Entertainment America's PlayStation 2. Both companies, along with Nintendo and a bevy of software publishers, are busy ramping up for next month's Electronic Entertainment Expo, the annual gathering of the $6 billion interactive-entertainment industry.

Unbridled buzz surrounding the Xbox-set to debut in the fall-and its $500 million global marketing budget has built for months. But the seemingly massive marketing war chest must last 12 to 18 months, cover media buys, retailer incentives, eye-popping interactive displays and more. While Microsoft has not revealed its ad strategy, basics of the brand positioning will be apparent at the Los Angeles show, known as E3.

"E3 is obviously a huge milestone for us; it's all about showing great games," said Don Coyner, Xbox director of marketing. Microsoft, Mr. Coyner said, is in the throes of creative development with Interpublic Group of Cos.' McCann-Erickson Worldwide, New York, on advertising for Xbox. Microsoft expects to launch a mix of brand advertising and advertising for flagship titles. The first of several major promotional tie-ins with beverage and fast-food companies, among others, will be announced today.

"I think it's important for Microsoft to market the Xbox and not Microsoft's Xbox," said Edward Williams, senior-VP for investment bank Gerard Klauer Mattison, adding, "Sony did an excellent job with the PlayStation."

Microsoft expects to have 15 to 20 software titles available at launch, including the previously announced Odd World series and World Wrestling Federation games; another 30 to 35 titles are due by Christmas. Sega, which exited the console business earlier this year, will publish 11 games for the Xbox, as well as supporting other platforms, including its installed base of Dreamcast consoles.

"The key battle in marketing is going to be between Sony, Microsoft and Nintendo," said Mr. Williams. "It's probably going to be Sony's battle to lose more than anything else."

Sony is headed into year two with the PlayStation 2, its next-generation console, and has pledged to spend "substantially more" than $150 million in marketing, according to Andrew House, Sony's VP-marketing.

"We will outspend them [Microsoft] in North America," he said, explaining that Microsoft's $500 million arsenal gets distributed globally, while Sony's funds are specifically aimed at North America and don't include spending on retail advertising and promotion. Sony expects to reach unit sales of 7 million on PS2 in North America by yearend. Insiders expect pricing to remain at $299 at least through the summer. Simultaneously, Sony will segment marketing efforts on PS1, targeting nontraditional gamers with a $99 price on hardware. Sony expects to introduce hardware and software bundles for PS1 to keep sales moving.

Despite executives' protests, Sony's PS2 and Microsoft's Xbox will target similar demographics-passionate gamers who are also early adopters, hooked on original content and enthralled by razor-sharp, life-like graphics and high-quality sound. "Microsoft will say this [the Xbox] is a machine designed for gamers by gamers; they'll make use of the WWF and [wrestler] The Rock," Mr. Williams said.

Sony will emphasize game titles in advertising by Omnicom Group's TBWA/Chiat/Day, San Francisco. "We are finally delivering on the promise of the experience and all our marketing efforts are really showing people what this content is all about," Mr. House said.

Microsoft, for its part, says content is king too, and it's preparing advertising around specific franchises and major sampling opportunities both at retail and in other venues. "There's the brand effort, about what Xbox stands for ... the attitude, tone and personality [and then] fairly quickly people are very interested in knowing what kinds of games can I play on Xbox and the specific features of those titles," Mr. Coyner said.

Nintendo, which sat on the sidelines of last year's E3, introduces Game Boy Advance supported by a $25 million marketing campaign by Bcom3 Group's Leo Burnett USA, Chicago, breaking April 30. Nintendo expects to sell 5 million Game Boy Advance units between October and December, and plans to spend $75 million in marketing by yearend. But its Game Cube system, which debuts in Japan in July, is more of a wild card, given the Microsoft and Sony powerhouses. Nintendo expects to sell about 1.5 million Game Cube consoles by yearend, but is not certain when advertising will roll out this fall.

"If October is the big month for consoles, we might stay out of the way ... too many messages," said George Harrison, VP-marketing and corporate communications. Nintendo plans three TV spots for Game Cube, expected to run in the fourth quarter. Of the competitors, Mr. Harrison said: "They are extremely well-funded and tenacious. We expect it to be a very hard-fought battle."

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