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Up next: Xbox 2
The countdown is on for Microsoft's next generation game machine. Here's what to expect.
January 14, 2005: 10:56 AM EST
Game Over is a weekly column by Chris Morris
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NEW YORK (CNN/Money) – New year, new hardware. Welcome to 2005 – when things should get really interesting for the gaming industry.

2004 was a golden year for software. But this year, hardware takes center stage – and could hold the spotlight for the next two years. Sony got the ball rolling, kind of, on Wednesday, giving a few details about the U.S. launch of the PSP, its first entry in the handheld gaming space.

Actually, Sony waffled so much on its much-anticipated announcement that it left gamers craving a side of eggs and hashbrowns. Rather than giving a hard launch date or any sort of pricing information, the company only announced the device would "most likely" be released in late March.

While the lack of details won't reduce demand for the PSP, eyes are now starting to turn to Microsoft, which will likely give the first details about its follow-up to the Xbox in March.

Developers have been working on games for the Xbox 2 (or Xbox Next or Xenon, depending on which codename you'd prefer) for over a year now. And the consensus amongst publishers and industry insiders is the machine will be on store shelves this holiday season. But Microsoft has been (and continues to be) stingy with details about the system.

The big questions, at present, revolve around whether Xbox 2 will a) be backwards compatible (in other words, will it be able to play current Xbox games?) and b) have a hard drive. Of course, the matter of price is at the top of people's minds as well.

Let's take these in reverse order.

Price: There's little doubt that gaming in the next cycle is going to be more expensive. At least one major publisher (Activision) has gone on record saying it plans to increase wholesale prices on its AAA games. Others will likely follow its lead. That will probably result in retail prices jumping $5 to $10 per title.

Will hardware prices follow that trend? At least one analyst believes so. Tony Gikas of Piper Jaffray said in a recent note he expects the Xbox 2 to break beyond the traditional launch price for new consoles, which has stood at $299.

"We think Microsoft will price its next generation system at or above $300 for the base model," wrote Gikas. "We also think there will be a model that includes accessories or network devices that could price as high as $350-$400/system."

So what about the hard drive? That's a little trickier. Many, at this point, believe Microsoft will opt for flash memory rather than the traditional hard drive found in the current Xbox, but things hardly seem nailed down. It's just as likely that the company will abandon any significant installed memory and will rely on the user's home network to store games.

Whether that happens or not, the next Xbox will definitely communicate with home PCs. Bill Gates has talked glowingly about bringing music and media to the Xbox as well as connecting Xbox Live to MSN Messenger. And nine months ago, the company unveiled a new development platform for game makers called XNA, which will allow PC and Xbox gamers to play together online – and plug the Xbox 2 controller into the PC.

Backwards compatibility seems more likely today than it did a year ago. Last May, when I talked with Microsoft corporate vice president Peter Moore at the Electronic Entertainment Expo, he downplayed the importance of being able to play old games on the new system. That was before the phenomenon known as "Halo 2," though.

With sales of the game already topping the original – and still going strong (a trend likely to continue for some time) – Microsoft (Research) likely won't want to alienate them by taking away their ability to easily play the game. Gikas said he believes there is "a better than average chance that the Xbox 2 will be backward compatible."

Other things you can expect from Xbox 2 include wireless functionality and improved high definition outputs. Downloadable content will probably play an increased role as well, given the expansion of broadband internet service and the success of Xbox Live's content download sales (expansion maps, etc. for select existing games are sold at a nominal price to Xbox Live subscribers).

A couple words of warning about the coming months, though: Console launches come with a level of hype that even Donald Trump could not imagine. Before the end of May, we'll likely have seen eye-popping graphics from not only Xbox 2, but Sony's (Research) PlayStation 3 and Nintendo's next-generation console. Those graphics will amaze you visually, but they won't necessarily be reflective of what the games will be like.

Even the early images of games we've put together in a handy gallery for you to peruse aren't to be fully trusted. Many of those shots are pre-rendered and not representative of actual gameplay.

But, you must admit, they are interesting.  Top of page

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