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Originally published July 9, 2007 at 12:00 AM | Page modified July 9, 2007 at 2:01 AM

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E3 2007 | Select group will get a peek at hot games

Last year, it was the new consoles. This year, it's the games. The Electronics Entertainment Expo, a high-profile industry event that starts...

Seattle Times technology reporter

For the gamers

Video-game enthusiasts shut out of E3 have another option, new this year: E for All, Oct. 18-21 at the Los Angeles Convention Center, looks to be the crazy half of E3 repackaged. A four day pass is $90. More information: www.eforall

expo.com.

Electronic Entertainment Expo

What it is: The annual E3 will be dramatically scaled back when it kicks off Tuesday. Previously the event has drawn 60,000 attendees in a carnival atmosphere at the cavernous Los Angeles Convention Center.

Attendees: Estimated at 3,000. Invitation only and mainly limited to media, industry analysts, investors and corporate buyers. Thirty-six companies are participating.

Location: Console and game companies will hold news conferences and meetings at hotels and other venues. Microsoft's is in a high-school amphitheater — in Santa Monica — with a central software showcase in a nearby airport hangar.

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Last year, it was the new consoles. This year, it's the games.

The Electronics Entertainment Expo, a high-profile industry event that starts Tuesday in Santa Monica, Calif., is expected to feature previews and hype for a parade of hot video-game titles on sale during the coming holiday season.

The show promises to be dramatically different this year, as organizers have limited attendance to invitees only. That could mean as few as 3,000 attendees — mainly limited to media, investors, industry analysts and corporate buyers — compared with a crowd of mostly gamers that reached 60,000 last year.

The industry is in a different stage as well.

The year 2007 will be the first full holiday season that all three new consoles from Microsoft, Nintendo and Sony will be on the market together. While the console makers and game publishers will be touting their big-name new games for the holidays — "Halo 3" and "Grand Theft Auto 4," to name a couple — some analysts think Sony and Microsoft may have some console news.

"There's significant uncertainty with both Microsoft and Sony," said Mike Goodman, director of digital entertainment with Yankee Group Consumer Research.

"Both of them have lackluster sales at this point," he said. "Microsoft did not manage to make its sales goal. They have certainly slowed down significantly in terms of unit sales, and Sony has never even really gotten started in terms of unit sales."

The most-recent U.S. console sales figures from market researcher NPD group show:

• Nintendo sold a monthly average of about 440,900 Wii consoles, which sell for $249, since the product was released in the U.S. Nov. 19.

• Microsoft shipped a monthly average of about 306,700 Xbox 360s, priced at $299 to $479, since it went on sale in Nov. 22, 2005.

• Sony's PlayStation 3, $499 to $599, comes in third with about 211,800 units sold per month since its U.S. debut Nov. 17.

"These guys have got to do something, or Nintendo is going to run away with this business," Goodman said, adding, "For Nintendo it's one big party. ... For them it's don't mess with success."

Sony plans to announce today it is knocking $100 off the price of the 60-gigabyte, $599 model.

It is also announcing a new, 80-gigabyte, $599 PS3 with a bigger hard drive for storing downloaded content such as video games and high-definition movies. The console will include a retail copy of the online racing title "MotorStorm."

Contrary to Nintendo's marketing, which attributes the Wii's success to its appeal to a broader audience of gamers — even retirees who had previously never touched a video-game machine — Goodman sees much of the console's success as a function of its lower price.

"They're cannibalizing the PlayStation 2 installed base," he said, referring to Sony's previous-generation console, which has sold somewhere north of 120 million units since its introduction in 2000.

To become competitive, Goodman thinks Sony will have to lower the PS3's price by $150 to $200. He said Microsoft could gain more PlayStation 2 converts who have been moving to the Wii by lowering its prices by $100 per console.

Billy Pidgeon, program manager for consumer-gaming markets at industry-analysis firm IDC, said he thinks there is a "good possibility" Sony, Microsoft, or both, will announce "value bundling" — selling consoles and games or other peripheral devices together at a discount.

Nintendo would have no need to cut its prices, even if its competitors do.

"Honestly, you can't find a Wii on the shelves," Pidgeon said. "Why would you need to make it cheaper?"

Last week Microsoft announced it would begin selling the high-end version of the Xbox 360 in Japan for about $90 less than it sells in the U.S.

It also extended the warranty from one year to three years on a specific and annoying general hardware failure known to console owners as the "red ring of death."

The company shaved $1 billion off of its fourth-quarter pre-tax profits to cover costs associated with the warranty extension.

Both Sony and Microsoft can also juice demand for their consoles through releasing must-have games.

"Content sells hardware, which is one of the reasons why Nintendo has done so well out the gate with the Wii," Anita Frazier, toy- and video-game industry analyst for the NPD Group, said in an e-mail.

"All eyes will be on Sony and Microsoft for content announcements."

Microsoft will be building buzz for the third installment in its popular "Halo."

Add that to last year's "Gears of War" release and the Xbox 360 has a pair of "multimillion-unit sellers that will drive hardware sales," Goodman said.

Sony has plans to dramatically expand the PS3's slim game library in the next six months to a year, but Goodman is still looking for that blockbuster title, exclusive to the PS3, that will draw gamers to the console.

One possibility is "Killzone," which Sony plans to show off in the format of a film. Another is "Heavenly Sword."

Pidgeon said the consoles can no longer rely on a single huge-selling game.

"They need to start aggregating some exclusive content to get some cachet," he said. "One game is not enough."

Ted Pollak, a senior game-industry analyst with Jon Peddie Research, said the full capabilities of the new consoles has yet to be fully tapped by game developers.

"Games look and act better further into the console life cycle," Pollak said. "... It's all about the games and, to a lesser amount, about how the games are coded, meaning how they take advantage of the hardware."

Microsoft's one-year head start on the market means game developers are more familiar with the platform and can better use its capabilities to create games, he said.

Sony's PS3 has the most advanced technology of the three consoles, including the Cell Broadband Engine, a powerful chip from IBM.

"Developers are still learning how to harness the Cell processor," said Pollak, who also manages an electronic-entertainment focused investment fund.

Last summer, in a meeting on Microsoft's campus, the Entertainment Software Association voted unanimously to scale back E3 to about a twentieth of its former size, based on estimated attendance.

Association founder and President Douglas Lowenstein said at the time that the huge show "lacks the intimacy and doesn't offer the opportunity that it used to for the real quality interactions that are so important to the industry."

This year's show will be dispersed across nearly a dozen venues and geared toward one-on-one presentations, rather than the mass-market spectacle of a sprawling exhibition hall.

Pollak said he's looking forward to the opportunity to evaluate the industry's offerings more carefully.

"I think it's a welcome change," he said.

Material from The Associated Press is included in this report. Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

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