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Microsoft's Xbox Issues: Just How Bad Are They?

Thursday, 29 Nov 2007 | 2:01 PM ET
CNBC.com

It's the kind of news at the kind of time that Microsoft must be brooding over: the blogosphere is rife with meltdown messages from Xbox users all over the country. Extended play--the kind associated with new blockbuster titles like Halo 3 and Call of Duty 4--leading to system crashes, overheating, and frustration.

We knew there were problems: Microsoft copped to the issues over the summer when it set aside $1 billion and extended Xbox warranties by 3 years. But now, with these new titles available, and so many new players spending so much more time on Xbox play, Microsoft's sense of "mission accomplished" may have been premature.

Now enter gamer Randy Nunez who filed a 14-page lawsuit in Southern California against both Microsoft and game developer Bungie Studios, seeking class-action status, complaining that Halo 3 is actually incompatible with the console. So incompatible that every time he loads and plays it, his Xbox crashes. The suit claims that both Microsoft and Bungie "failed to acknowledge the propensity of Halo 3 to freeze, lock up and/or crash Xbox 360."

I spoke to one of the attorneys on this case, Garrett Wotkyns, who told me, "We have a number of consumers who have contacted us, in addition to Mr. Nunez, who have returned the game three, four, five times, encountering the same problem. That to us, we would respectfully submit, is the kind of issue ripe for class-action adjudication." He adds that, "This was the biggest game release in history. And if you're talking about a problem of the sort my client has experienced, or at least alleges he experienced, with game release of that size, you're obviously talking about a very big problem."

These high profile complaints come at a particularly difficult time for Microsoft and the Xbox. The company is locked in a pitch battle against Sony's PlayStation and Nintendo's Wii, both enjoying soaring sales last week as I detailed in a post yesterday.

I reached Microsoft and as you might expect, the company isn't commenting on the suit, but does point out that 3 million people have "enjoyed Halo 3 since its launch," and that We have received overwhelmingly positive feedback from fans worldwide for “Halo 3” and expect it to be on the top of many shopping lists this holiday season."

That might be the case, but Wall Street will be watching these issues very carefully. Brendan Barnicle at Pacific Crest Securities tells me, "It's obviously a concern because Xbox, although still not material to earnings, is material to the multiple that Microsoft gets. And certainly impacts the stock. So from a stock perspective, it's certainly something we have to watch. From a fundamentals perspective, not a whole lot of impact on the financials. It is a concern."

Xbox on the Rocks
A look at the overheating Xbox and a new lawsuit seeking class action status, with CNBC's Jane Wells & Jim Goldman

One note on the class-action status of the Halo case. I'm not attorney, but wow, good luck. It's not as if Halo 3 is a drug where customers MUST take it for health reasons, yet if they do, they risk some kind of injury.

This is a game. Customers who aren't satisfied can exchange it for another copy, and if that one doesn't work, they can demand their money back. Pretty simple. The attorneys are the ones who will bank the cash. I don't know: seems like a long shot to me.

Still, from a PR and competitive perspective, it has the potential of being a big issue, just as Xbox gets itself into the black after four years and billions in losses. Consumers and investors are watching carefully; almost as carefully as Nintendo and Sony.

UPDATE: More than 310,000 Xbox 360 consoles sold in the U.S. for the week of Nov. 18, including Black Friday, rounding out its third holiday season on the market. While Xbox 360 consoles continue to generate great consumer demand, the strength of the Xbox 360 ecosystem remains unmatched by any console on the market.

Here is recent blog on Xbox 360 problemsand ways to get your Xbox fixed.

Questions? Comments? TechCheck@cnbc.com

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