Microsoft is hosting an event at its Redmond, Wash., headquarters Tuesday, where it is expected to announce the successor to the Xbox 360. An invitation sent to media outlets last month teases "a new generation revealed."
Although few official details have emerged on the new Xbox video game console, industry experts such as Digital World Research analyst P.J. McNealy expect Microsoft to continue pushing the Xbox as an all-in-one entertainment device. "They want to position this box as a video game console, as an entertainment device and likely as a cable or satellite access device," he says.
While games will look better than on the current Xbox 360, the features that Microsoft will likely tout "will be more about living-room and mobile connectivity and other features that matter more to the modern consumer," says Dan Hsu, editor in chief of video game news site GamesBeat. "The next generation of consoles can only succeed if they can integrate with this lifestyle. If the new consoles are affordable and can prove their worth as must-own companions to mobile devices, then they can do well."
Three months ago, competitor Sony announced that its PlayStation 4 system was in the works. Although no release date or price was announced, the PS4 is expected to hit stores this holiday season. Sony promises high-end PC-quality graphics and increased social features in the new system.
Microsoft is looking to hold onto its strong position. After early struggles tied to hardware issues such as the infamous "Red Ring of Death" and the fast ascent of Nintendo's motion-control friendly Wii device, the Xbox 360 has captured significant momentum in recent years.
According to data from market tracking firm The NPD Group, the Xbox has been the top-selling console in the U.S. for 28 straight months -- outselling Nintendo's new Wii U system, released six months ago, which is not being snatched up by consumers as quickly as the original Wii.
With some Xbox 360s priced at $99.99 with a two-year online subscription, Microsoft has "a console that's priced well now," says Chris Grant, Editor-In-Chief of video game website Polygon. "They have a huge install base of really highly-rated games, (and) they have a system that works really well as an entertainment box."
McNealy adds the competitive landscape in the video game industry contributed to the Xbox 360's late surge. "It helps when the Wii hit 100 million units and kind of tapped out, and Sony just made its way along and didn't hugely invest in the PlayStation 3 late in the cycle," he says.
As with the Wii and Sony's PlayStation 3, the Xbox 360 has added a bevy of entertainment apps such as Netflix, Hulu and HBO Go that have boosted the device's mainstream popularity. Last year, Microsoft revealed more owners were using the 360 for entertainment apps than online multiplayer games.
However, video games and the console's devoted online audience will factor heavily into their presentation Tuesday, says Wedbush Securities analyst Michael Pachter. "They've done such a great job building a multiplayer community," he says. "It does drive household sales if people want to play with their friends."
Central to the Xbox's success has been the superior online service Xbox Live, which boasts 46 million members. Expect Microsoft to continue to evolve the service further. "They'll keep the $60 annual Gold account that allows people to play online multiplayer," Pachter says, "but I expect them to add a tier that give members the ability to use the next Xbox as an Internet router to send TV programming to any TV, and another tier that allows unlimited Skype calling."
Microsoft could also detail the future of Kinect, the motion- and voice-control sensor with sales of 24 million as of last February. Pachter predicts the next Xbox will feature built-in Kinect.
The announcement of a new Xbox arrives as the industry yearns for fresh hardware to stem sliding retail sales. Last year, overall retail video game sales fell 22%, NPD says, marking four straight years of decline.
Console game sales should increase, but are unlikely to match overall sales of the last generation of systems, says David Cole of DFC Intelligence. Sales of new console sales and games will account for about $3.2 billion in the U.S., this year, DFC estimates. That's slightly below the $3.4 billion sold in 2006, when the Wii and PS3 were released (the Xbox 360 arrived in 2005).
Consumer uptick is expected to increase, DFC expects, but not at as fast a pace as the previous generation of systems. Sales will peak in 2015 at $11.9 billion and will hold steady at that level through 2017. In comparison, sales topped $14 billion in 2008, the third year of the last cycle.
"The last generation set the bar very high and especially the success of the Wii," he says. "All systems will struggle to reach the more light or family gamer, (but) we actually see an increase in core gamers and a significant push to online revenue that wasn't in the last generation."