Next-Gen Gaming Cheat Sheet

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Trojan horses. Blu-ray. First-person shooters. The way video game industry executives talk about next-generation living-room consoles, you'd think they were plotting a military invasion. You'd make combat references, too, if you had as much on the line as Sony (SNE), Nintendo (NTDOY), and Microsoft (MSFT). Five years of research and billions of dollars in spending go into each generation of gaming machines.



All three game makers are hoping for a big payoff this holiday season, as millions of hardcore gamers await their first crack at consoles from Sony and Nintendo, while others opt for Microsoft's Xbox360, which has already been out for a year.



For many the trick will be finding a state-of-the-art console in time for the holidays. For the uninitiated who plan to give a gaming machine as a gift, the challenge will be sifting through all the tech babble. Here's a primer on picking the right gaming console -- and knowing where to find it.



When will all three next-generation gaming consoles be available and how much will they cost?



Microsoft's $399 Xbox 360 has been in stores for about a year. Sony will release two versions of its PlayStation 3, a $499 entry-level and $599 higher-end machine, in North America on Nov. 17. Two days later, Nintendo will launch its $250 Wii.



What's the main difference between the three consoles?



At the most basic level, the consoles can be divided into three categories. The Xbox 360's online gaming service, called Xbox Live, is the most advanced, with a full lineup of game downloads and multiplayer options. The PS3 comes with the ultrafast Cell microprocessor and a high-definition Blu-ray DVD player, which will help programmers improve on 3D images and add artificial intelligence so games will look and feel more realistic. Sony recently has been beefing up its online gaming platform, PlayStation Network, to compete with Microsoft's service.



The Wii packs the least power of the three machines. But Nintendo says the Wii's lower-tech specs will make it less energy-hungry. And while you won't be able to play the visually vibrant games of rivals, its remote controller has cutting-edge motion and pointing sensors that allow it to be swung like a golf club or aimed like a gun. Nintendo is targeting people who might not normally play video games and want a user-friendly system.



Will the consoles let you do more than just play games?



Yes. In addition to playing games, all three machines will let you tap into the Internet over a high-speed connection, send instant-messages and connect with others using the same system, and store and view digital photos. Sony and Microsoft are also billing their machines as entertainment systems for the living room. One bonus: You'll be able to play high-definition DVDs or Web downloads. The PS3 includes the Blu-ray disc player, while Xbox 360 owners can buy a separate HD DVD player. [The Wii initially will only play optical discs for games, though the company says a standard DVD player is planned for a later version.] The Wii lets you create avatars -- digital look-alikes of real people -- that can make cameo appearances in friends' machines and some games.



How easily will the consoles tap into other devices around the home?



It's not clear yet. But both Sony and Microsoft are clearly hoping their machines will act as a hub for the digital home. Sony wants the PS3 to oust the PC as consumers' main access point to the Net. It's also hoping the PS3 will become a Trojan Horse of sorts -- a channel through which Sony can also sell you movies, music, and all sorts of other digital content. The company is also betting you'll want to upgrade to a high-definition TV to make the most of the Blu-ray DVD player.

Microsoft has designed the Xbox 360 to work seamlessly with PCs, which the company expects will remain the workhorse for digital multitasking for some time.



What about portable gaming consoles?



Sony is planning to have the PlayStation Portable link wirelessly to the PS3. The company says it hasn't yet programmed the capability into the PS3's operating system, but will do so by the end of November. The idea is to allow the PSP to stream songs, photos, and games to the PS3, and vice versa. The PSP could also offer extra features for PS3 games. At a recent gaming trade show, Sony demonstrated how the PSP could be used as a side mirror for a car racing game.



Nintendo says it has similar plans for its DS and DS Lite, though officials say they're still exploring ways the portable consoles can interact with the Wii. Theoretically, the DS touch panel and microphone could figure as key features for any game, and commands could be sent over the portable console's wireless link.



How easy will it be to find a console in time for the holiday season?



If you're hoping to get a PS3 or Wii, plan ahead. Both machines are expected to be in short supply for several months. To get one, your best bet may be to camp out at big retailers such as Best Buy (BBY) or Circuit City (CC) the night before a shipment is due. Sony officials estimate they'll ship only 1 million consoles to retailers in the U.S. this year. [Another 1 million will go to stores in Japan.] Nintendo's only estimates are for 6 million consoles to reach stores worldwide by the end of March. It hasn't said how many it expects to produce in the next two months, but analysts predict the volumes will slightly exceed those of Sony.



If your heart isn't set on a PS3 or Wii, you might consider getting an Xbox 360. As of the end of September, Microsoft had sold 6 million units. From October through December, it's forecasting shipments of another 4 million machines.



What type of games and how many will be available on each of the consoles?



As the first to release a next-generation console, Microsoft has the best lineup of games. The Wii and Sony are expected to have more than a dozen titles in the initial weeks following the launch. But the tight supply of PS3s could be bad news for Sony gamers. In a Nov. 13 report, Goldman Sachs (GS) analyst Yuji Fujimori wrote that PS3 shortages had led some game developers to delay the sales of new games.



Will games for older machines made by Sony, Microsoft, and Nintendo work on the new consoles?



Sony executives conceded on Nov. 14 that PS3 won't play all the games made for earlier versions of the PlayStation, contrary to previous promises. Many, but not all, of Microsoft's Xbox games are playable on the Xbox 360.



Nintendo says the Wii will play every game ever made for its old consoles. The Wii and PS3 will play old discs as well as downloadable versions of older games.



How important is the online gaming aspect to each of the machines?



All three companies believe that games now mainly sold on discs will eventually give way to downloadable games sold over the Web. Microsoft is sprinting ahead with plans to offer games and other content for sale online. Sony and Nintendo are following suit: Sony's machines will come with either a 40-GB or 60-GB hard disk drive to store games or add-ons, while Nintendo's Wii will let users do the same thing with 512 MB of NAND flash memory and a memory-card slot.

Do console makers rake in big profits off each machine sold?



No. But console makers have never counted on the hardware as a prime source of profits. That's because they mostly cash in on sales of software developed in-house and licensing rights sold to outside game programmers.



Sony will initially sell its PS3 machines at a loss. Analysts don't think those losses will narrow until at least mid-2007. Eventually, Sony hopes to turn a profit off the machines as volumes pick up. Microsoft has sold the Xbox at a loss too. By contrast, Nintendo's Wii is supposed to break even from Day One and is expected to make a profit for the company once larger production volumes help lower the cost per machine.



Which of the three companies is expected to sell the most machines?



In the past, Sony was the undisputed leader of the console market, grabbing as much as 70% share at one point. [Its original PlayStation and PlayStation 2 sold more than 100 million consoles apiece.] This time, nobody expects Sony to crush the competition. That's because the PS3's price could scare away some loyal Sony buyers. It's also no longer the only platform offering an array of games for every age group. Sports, racing, action, first-person shooter, role-playing, and kids' games are standard on every platform. Moreover, PC games have gained a worldwide following and stolen away diehard fans who prefer to tinker with content.



The current race is expected to be the closest in years. For instance, NikkoCitigroup's Soichiro Fukuda thinks Xbox 360 will retain the lead through the end of March, with 10 million units, followed by the Wii at 6 million, and Sony at 5.5 million. Through March, 2012, he expects Microsoft to sell 71.5 million, Sony 46.5 million PS3s, and Nintendo 45 million.



Michael Pachter of Wedbush Securities in Los Angeles sees the PS3 outselling the Wii, 36 million to 30 million, over the first 30 months. By contrast, the Xbox 360 could sell 30 million units over the first 38 months. Given the Xbox 360's 12 month head start, it should stay ahead of the other two machines.



Can three consoles coexist in the marketplace?



Many analysts think so. The PS3 is likely to attract long-time PlayStation fans who want to upgrade to the latest machine or technophiles who must have the most high-tech gadgetry. Xbox 360 should do well with anyone who prefers the interactivity and unpredictability of playing other gamers instead of the computer. And the Wii could win as a "second console," says Hirokazu Hamamura, president of Enterbrain, a Tokyo video game market researcher. He says the Wii's low price makes it attractive for any diehard gamer who already owns a PS3 or Xbox.