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The Nintendo Ltd. (OTC: NTDOY) Wii and Sony Corp. (NYSE: SNE) PlayStation 3 were released within two weeks of each other, in November of 2006, as the latter two of the three "seventh generation" home video-game consoles, with the Microsoft Corp. (NASDAQ: MSFT) Xbox 360, released a year earlier, being the third. Now, a year and a half later, let's review how the two gaming machines stand up to each other.

Out of the gate, the Wii was a hit. It broke sales records, led by its revolutionary controller and Wii Sports, a silly mini-game compilation that came packaged with the console. The focus of the system was more on its unique game play, which Nintendo hoped would draw casual gamers, than its intense graphics abilities. The gamble paid off, as the Wii surpassed the Xbox 360, which was released earlier, as the top-selling console in September 2007.

The PlayStation 3 had no such luck at the start. The console's strategy, like the Xbox 360's, revolved around graphics, which made the system more expensive -- $499 for the basic PS3 at launch was double the Wii's $249 launch price. Sony also decided to intertwine the fate of the console with that of the next generation DVD technology the company backed, the Blu-ray disc. However, the release of the PS3 slightly predated the high-definition craze, and so having a Blu-ray player was not an important enough selling point to help the console at launch. Another issue for the PS3 at launch was the lack of a cornerstone franchise for the system. Xbox had Halo, and Nintendo, with its deep video-game roots, had Zelda, Mario, and Metroid. Without a "must buy" game or franchise, Sony was left out, and its PlayStations stayed on the shelves.

The theory makes sense. As the economy softens, Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT), and Nintendo will cut the prices of their game consoles to keep sales volumes up. The CEO of game publisher Activision (NASDAQ: ATVI) has stated as much.

According to Reuters, "With the rising costs of fuel and food and housing, it is more difficult to go out and buy a $399 console, and I think it's going to put pressure on the console manufacturers to reduce their prices," Bobby Kotick said.

The problem presents a delicate balance for the console makers. Nintendo's stock has soared because of the popularity of the Wii. Microsoft just began to make money in its device division in the first quarter of the year. After a number of quarters of losses, it looks like the PS3 may start to contribute to the Sony P&L.

Holding prices may keep margins high, but drop unit sales.

There are two factors that work in favor of the console producers. The first is that, as their manufacturing volume has gone up, component prices have come down. That means if retail prices are lowered, the companies can still make money.

The other factor is that all three companies get licensing fees from each video game that is sold to run on its platform. With new offerings like Grand Theft Auto IV on the market, those fees should soften the blow of lowering hardware prices.

Watch for the price of game consoles to be dropped -- and soon.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

After over four years and billions of dollars in losses, Microsoft (NASDAQ: MSFT)'s game division has finally started to make money. Although Wall Street was disappointed with some of the software company's numbers for Windows and Office, the firm's "entertainment and device" division made $89 million on $1.58 billion in revenue. In the same quarter last year, the operation lost $324 million on $936 million in revenue.

According to the company, "Cumulative console sales surpassed 19 million during the quarter, up 74% from a year ago. Server and Tools revenue growth of 18% added to its string of consecutive double-digit revenue." The Xbox has finally arrived.

The news shows that Microsoft is willing to spend massive amounts of money to enter a business and stick to it. When the Xbox was launched, Sony (NYSE: SNE) ruled the game business and there was no reason to think that Microsoft could do well. Gaming could not take advantage of Microsoft's core strengths in PC and server software. The move was an attempt at diversification.

After all the years of battling, the Xbox 360 now outsells Sony's PS3 in most months. If the software company could only make money on MSN.

Douglas A. McIntyre is an editor at 247wallst.com.

As people spend more time on the Net, Hollywood has been moving to online video. But people are also spending lots of time on Microsoft (NASDAQ: MSFT)'s Xbox.

So why not have cool Hollywood content for that?

Well, Microsoft has retained Peter Safran, who is an entertainment mogul who operates Safran Company. Some of his films include Scary Movie and Meet the Spartans.

Basically, Safran will produce a variety of shortform video shows for the Xbox Live, covering such things as comedy, sci-fi and so on (hey, the Xbox has a mostly young male demographic).

To get some perspective on things, I interviewed Chase Norlin, who operates Pixsy (a video search engine). According to him:

"Producing content for Xbox 360 represents the most significant trend impacting the entertainment industry today: the shift in the economics of content creation and distribution. Given the multitude of new content distribution opportunities available today (web, mobile, video on demand, and game consoles to name a few), expect to see all the majors leveraging the 'create once, syndicate everywhere' model. We are entering an era where a new type of 'digital Hollywood studio' is truly achievable."

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Imagine if the Sony (NYSE:SNE) PS3 actually came out of the shadow of the Nintendo Wii and Microsoft (NASDAQ:MSFT) Xbox 360. During 2007, PS3 ran in third place in sales in most regions and most months. The machine was viewed as too expensive and did not have enough new games to run on it.

There is a case to be made that some of this could change. Production scale is moving up on the machine. That means lower component costs and another chance to cut prices. According to Reuters, "2008 will be a turning year for the PS3," said iSuppli analyst Pamela Tufegdzic. "Sony is offering a better forthcoming software pipeline with blockbuster titles like 'Gran Turismo 5,' which will boost PS3 sales this year."

Not so fast. Nintendo and Microsoft are not going to stand by and let their sales be stolen. Nintendo has already introduced a radical new platform called Nintendo Fit. It allows users to stand on a balance board and be physically involved in games that include things such as downhill skiing. Microsoft has its own arsenal lead by Halo 3.

Sony's PS3 may be in for slightly better times, but it is far behind in a race that it may never win.

Douglas A. McIntyre is an editor at 247wallst.com.

For years Playstation revenue carried Sony's (NYSE: SNE) earnings. The PS2 was one of the great selling consumer electronics products of all time.

Sony nearly failed with the launch of the PS3. Microsoft's (NASDAQ: MSFT) Xbox had taken too many customers and the Nintendo Wii became the world's top game console. Sony's CEO had to step down, and Sir Howard Stringer was brought in from the US to run the company.

Net income at Sony moved up 25% to $1.9 billion for the quarter ending December 31. Revenue rose almost 10%. Some of this is due to the fact that for the first time in years Sony's game division has finally gone into the black.

TV sales were the big winner for Sony during the quarter. Financially, the game unit, which includes PS3 only made a modest contribution. But it is no longer a drag on earnings. According to Reuters, "its game business swung to a profit after Sony cut production costs and retail prices of the PlayStation 3 game console and broadened its game software lineup."

Sony waited a long time for the PS3 to work out. That may be paying off.

Douglas A. McIntyre is an editor at 247wallst.com.

Nintendo (OTC: NTDOY)'s Wii gaming system is truly a craze that has swept many nations. Older generations like the physical aspect to the games. Younger generations love it. Even people who have never liked video games (yours truly included) are fascinated by the technology. And 13 months after the Wii was introduced in November 2006, it remained one of the hot-ticket items for the holidays. Lines were long, eBay Inc. (NASDAQ: EBAY) prices were through the roof, and demand was insatiable.

The continued success of the Wii (and the DS portable game device) helped lift Nintendo Co. profit to 258.9 billion yen (or $2.43 billion) in the April-December reporting period. This compared quite favorably to the 131.9 billion yen earned in the previous year. Sales were 85% higher during the nine-month period to 1.32 trillion yen.

The Wii has outsold its primary competition: the Sony Corporation (ADR) (NYSE: SNE) PlayStation 3 and Microsoft Corporation (NASDAQ: MSFT)'s Xbox 360. In fact, 18.5 million Wii units are expected to fly off the shares this business year, which ends March 31. This is above Nintendo's October forecast of 17.5 million units. Even with an economic slowdown in the air, the Wii is one device consumers are willing to pay for. Additionally, the company boosted its overall sales forecast to 1.63 trillion yen from 1.55 trillion yen. In the previous year's reporting period, company sales hit 966.5 billion yen.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

Microsoft (NSADAQ: MSFT) has cut deals [subscription required] with NBC, CBS (NYSE: CBS), Disney (NYSE: DIS) and a number of other media companies to use their video content on its Xbox Live and MSN services.

According to The Wall Street Journal, "under the agreements, Disney, MGM and Showtime will contribute programming to Xbox Live, an online service with about 10 million subscribers that is primarily used for playing videogames."

Microsoft may be getting a great deal of content, but the question remains whether people would want to watch content through a video game platform, no matter what other features it has. At this point, the American living room is wired with satellite and cable VOD, DVRs, video game platforms and set-top boxes from companies like Amazon (NASDAQ: AMZN). All of this clutter means that no one company is likely to be able to stand out as a core provider of entertainment services.

It is a good thing that the Xbox can be used for playing Halo 3. It is not likely, however, to become a core video viewing device. The consumer won't be able to find it in the pile of other devices.

Douglas A. McIntyre is an editor at 247wallst.com.

This post is part of our Hottest Products of 2007 feature. Also check out our other Hottest Products of 2007 posts and let us know which product you think is the greatest thing since sliced bread.

For gamers, the experience is everything, and their heroes are not the wonks designing Microsoft (NASDAQ: MSFT)'s Xbox or Nintendo's Wii, but the creators of the worlds that hold them in thrall. None has done it better than Bungie Studio's Halo 3, the first-person shooter game that is one of our Hottest Products of 2007.

The numbers demonstrate just how this game annihilated its competitors. 4.2 million units were in stores on the day the third iteration of this game was unveiled September 25. In the U.S. alone, Halo 3 grossed $170 million its first day, and $300 million in the first week. More than a million players competed live in its first day of release, via Xbox Live.

This post is part of our Hottest Products of 2007 feature. Also check out our other Hottest Products of 2007 posts and let us know which product you think is the greatest thing since sliced bread.

Nintendo (OTC: NTDOY)'s Wii gaming console was a non-contender -- an underdog -- this time last year. The gaming console with the funny name was set to launch with little fanfare compared to the Sony Corp. (NYSE: SNE) PlayStation 3 or Microsoft (NASDAQ: MSFT)'s Xbox 360, launched a year earlier, but the Wii caught eyes because it was priced at only $250, compared to $600 for the PlayStation 3 and $400 for the Xbox 360. But then again, it had inferior graphics and other downgrades. My, my -- how customers didn't care about its competitors' touted features and other fluff.

Why not, you ask? The Nintendo Wii featured the most innovative and immersive gameplay, regardless of the hi-def video or audio output and inferior graphics. Nintendo figured out that consumers wanted a newer kind of gameplay -- not photo-realistic blood and guts. As an aside, they designed the initial games and many others to get game players off those duffs and onto their feet, wildly slinging those Wii-motes through the air -- swatting tennis balls, slaying dragons and driving cars. The mass, mainstream consumer loved it, and so the age of Wii was born.

There was some hope on the part of Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE) that their plans to pick up market share in the video game console market might work. Sony cut the price of its PS3 and sales did pick up in late October. Microsoft rested its hopes on its Halo 3 game to drive sales of the Xbox 360.

While each company did do something to benefit sales, Nintendo's Wii could not be pushed out of first place in U.S. game console sales. October sales of all video games went through the roof. According to Reuters "total sales were $1.1 billion, compared with $643 million a year earlier, according to market research firm NPD."

That would mean that all three companies may have done relatively better than they did last year. But the Wii still had a commanding lead, with unit sales of 519,000 in the U.S. Microsoft sold 366,000 Xbox consoles and Sony moved 121,000 PS3s.

The news appears to be relentlessly bad for everyone other than Nintendo. Price cuts and popular games may spike sales, but that appears to be temporary. The price and popularity of the Wii keep pushing it back to the top of the pile.

The news is especially bad for Sony. Its video game business used to be its big earnings engine, back when the PS2 ruled the gaming world. Operating income from the game division is now an anchor that pulls down the balance of the company's financial results.

Maybe Microsoft and Sony should merge their gaming divisions and call their flagship product the XBox3603PS.

Douglas A. McIntyre is an editor at 247wallst.com.

Companies like Sony (NYSE:SNE) thrive on the loyalty of customers like Maryland teen Cory Troiano, who would kill to get his hands on a PlayStation gaming system. Unfortunately, this turned out to be literally true, in Cory's case. He is on trial for attempting to hire a hit man to whack his parents, after they yanked his PlayStation and TV privileges in an attempt to inspire him to behave better and improve his grades.

Even sadder is the report that his mother was reduced to taking part in a sting operation with a local policeman posing as an assassin. Cory reportedly offered the cop his stepfather's new pickup as payment for the crime.

What makes this more puzzling is that the kid was defending a PlayStation, for crying out loud. He can't even play Halo 3 on it, as he could on Microsoft's (NASDAQ:MSFT) XBox 360, or racket sports, as with a Nintendo (OTC:NTDOY) Wii. Perhaps third-rate devices attract third-rate kids.

Regardless, he's no doubt in for the grounding of a lifetime.

In light of the upcoming and lower-priced xbox 360 arcade gaming package from Microsoft Corp. (NASDAQ: MSFT), competitor Nintendo Ltd. (OTC: NTDOY) said today that there will be no price cuts on its ultra-popular Wii gaming console, and that the Wii will go on sale in China sometime in 2008. Microsoft's new offering is possibly set to challenge the $250 price of the Wii, as it takes its own package price down to $280 and intros several new family-friendly gaming titles as well. That's a great move, but I have a hard time believing that the Wii will face a serious challenge due to the move.

In addition to seeing a huge growth in profits for its latest quarter, Nintendo President Satoru Iwata said that a new "give a gift" feature is coming to the Wii, where games can be sent from one Wii to another over the net. Somehow, the Japanese gaming giant has found a way to make its gaming console the hit it needed, as competitive gaming consoles came in at much higher prices and with too much capability. Nintendo went for the mass public with the Wii, and it got it (and then some).

Iwata continued on to say that the demand for the Wii was still outstripping supply, which is a precarious position for any consumer goods manufacturer. As expected, he also announced no price cut for the holiday selling season. With the Wii being so hot still, of course it makes sense to not lower prices. Although the company is whipping out 1.8 million consoles per month, it may indeed face a holiday crunch in November moving into December if those numbers don't satiate global demand.

Microsoft Corp. (NASDAQ: MSFT) today reported outstanding third quarter results that handily beat Wall Street expectations.

Net income was $4.29 billion, or 45 cents a share, compared with $3.48 billion, or 35 cents, a year earlier, Sales surged 27 percent to $13.8 billion. Analysts had expected profit of 39 cents and sales of $12.57 billion, according to Thomson Financial. Shares soared over 9% in after-market trading.

Of course, the world's largest software maker, which until now was in Wall Street's dog house, couldn't have been more pleased. "This fiscal year is off to an outstanding start with the fastest revenue growth of any first quarter since 1999," said CFO Chris Liddell, in the earnings release. "Operating income growth of over 30% also reflects our ability to translate revenue into profits while making strategic investments for the future."

So does this mean that Wall Street is now going to get off Microsoft CEO Steve Ballmer's back about the billions the company is spending to catch up to Google Inc. (NASDAQ: GOOG)? Not very likely. One quarter does not make a trend even with its recent deal with Facebook.

But there is plenty for investors to like in the quarter. Vista sales seemed strong and the company hasn't been aggressively cutting xBox prices which has helped profitability, RCM Capital Management's Walter Price told Bloomberg News.

There is one perplexing side to the strong tech results this earnings side. If consumers are so worried about the future, how come they are willing to buy things like the Xbox, Vista and Apple Inc.'s (NASDAQ: AAPL) iPhone. Aren't they worried about housing, energy costs and life in general? Maybe they are so focused on their tech toys that they don't care about the rest of the world. Who knows.

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Microsoft (NASDAQ: MSFT) will be reporting its Q1 results tomorrow, and industry estimates have the world's largest software maker pegged at an EPS figure of $0.39 on $12.57 billion in revenue. In July (Q4's conclusion), Microsoft forecast a Q1 profit of 38 cents per share to 40 cents per share on revenue of $12.4 billion to $12.6 billion.

Analyst predictions for Q1 performance centered on better-than-expected PC sales on a global basis plus the uber-successful launch of Microsoft's Halo 3 game for the Xbox 360 console that went on sale about a month ago. First-day sales of the game set entertainment records, outpacing any previous game or even film, with a take of $170 million.

Microsoft is also set to launch a stripped-down version of the Xbox 360 console in November at a price point of $279, pegged squarely at competing with the best-selling Nintendo Wii system that has proved incredibly popular this year due to its unique gameplay and $249 price. But that won't help Q1 numbers -- only Q2 numbers. Still, the software company may have a splendid Q1 period, and as of now, its shares are trading above $30 for the first time since July.

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