With console launches, it's game time for Sony and Microsoft
Microsoft is looking to conquer the living room with both games and mainstream entertainment content. Beyond its original programming, the company has struck a deal with the NFL to enhance games for fans via the Xbox One dashboard.
"People like to watch TV and like to play games," Yusuf Mehdi, Microsoft's chief marketing and strategy officer, said at E3 earlier this year. "It's the hits that drive adoption growth and business success. In gaming, the big hits for us are things like 'Halo'. We want to find some big hits on the TV side that open people's eyes as to what's possible. And the NFL is one of those."
Both Sony and Microsoft hope to avoid Nintendo's fate when the Wii U debuted last last year. A lack of compelling software and unclear consumer messaging have resulted in less than 4 million units sold. (The Wii had sold over 13 million units at the same age.)
Colin Sebastian, senior equity research analyst at R.W. Baird, projects worldwide Xbox One and PS4 shipments at 5 million to 6 million by year's end. Some analysts have predicted the PS4 will be the top seller, but he said Xbox One will have equal or even higher sales by the close of the launch window.
Analysts dismiss claims by some gamers that console makers hold back inventory during the holidays to create buzz.
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"You want to have shortages ... but not at the expense of losing a couple million units of sales," said Eric Handler, senior equity analyst at MKM Partners.
Analysts also said the price differential won't matter much this holiday season. Price is much less important to core gamers—the primary buyers—than bragging rights that go with having the newest generation.
McNealy of Digital World Research said volumes probably will hit a point in about 18 months at which manufacturers see cost savings they can pass on to the public.
Of course, games also drive demand for consoles.
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"When you buy a new hardware system, you don't just buy one game," he said. "People generally buy up to five different pieces of software in the first six months, so games like "Knack," "Forza" and "Killzone" will do well. This is where the first-party titles [those made by Sony and Microsoft] have an advantage."
—By Chris Morris, Special to CNBC.com.