http://www.bloomberg.com/apps/news?pid=20601204&sid=an_wjSge1RpQ&refer=technology

Maybe Microsoft isn't as dense as I think.

"Microsoft Adds Xbox Games, May Cut Price to Woo Moms (Update1)

By Dina Bass

June 8 (Bloomberg) -- Microsoft Corp. has won over 20-year- old gamers, who spend hours a day launching rockets and firing plasma guns on the company's Xbox 360. Now it wants their moms.

To lure them, the world's largest software maker says it plans to add more family games and redo retail displays to make the children's titles easier to find. It also may cut the Xbox price, which is as high as $399, analysts say.

Microsoft is emulating rival Nintendo Co. The Japanese company's Wii console outsells the Xbox 360 in the U.S. by appealing to women, children and the elderly, a strategy Microsoft says it needs to adopt to win a broader audience than the first Xbox attracted.

``If we don't make that move, make it early and expand our demographic, we will wind up in the same place as with Xbox 1, a solid business with 25 million people,'' said Peter Moore, a vice president who oversees the Xbox. ``What I need is a solid business with 90 million people.''

Microsoft loses money on every Xbox it sells, said UBS AG analyst Heather Bellini in New York. In the fiscal year that ended June 30, the unit that sells the console lost $1.26 billion on sales of $4.26 billion. Microsoft says the division, which accounted for 9.6 percent of total sales last year, will be profitable in the year that starts July 1.

That may mean a price cut heading into the holiday season to spur sales of games, which do make a profit, Bellini said. Microsoft declined to comment on whether the console loses money.

``If they really are going to have a good Christmas games lineup, then they just have to have the largest number of boxes out there so that they sell the largest number of games,'' said Bellini, Institutional Investor's top-ranked software analyst. She expects a price cut as early as September.

Sweet Spot

``We are well aware that the sweet spot of the market is really 199 bucks,'' said David Hufford, a director of Xbox product management. Sony sold 75 million PlayStation 2s at or below that price.

Wii costs $250 and makes a ``strong value proposition,'' Hufford said. ``When mom walks into the store and sees she can get a console with a game for $250, she sees it as a $300 value. They've done a good job.''

He declined to say whether Microsoft will reduce the Xbox's price. The stock, up 34 percent in the past year, rose 14 cents to $29.76 at 10:13 a.m. New York time in Nasdaq Stock Market trading.

Microsoft Chief Executive Officer Steve Ballmer wants to avoid the fate of the first Xbox. The console appealed mainly to hard-core gamers, generally males between 15 and 29 years old, and trailed Sony Corp.'s PlayStation 2 in sales by a 5-to-1 margin.

Wii became a hit by luring users including women and kids with a controller that lets players move characters with their own motions. The controller mimics the action of equipment such as a racquet, golf club or lasso.

First Months

During Wii's first six months on the market, Nintendo sold almost 44 percent of its games and machines to people younger than 18, said researcher NPD Group Inc. in Port Washington, New York. NPD says 27 percent of Xbox 360 buyers in its first six months were in that age group.

Nintendo will sell almost 16.1 million consoles in 2007, about 60 percent more than the 9.87 million estimated for PlayStation 3 and 9.69 million for Xbox 360, according to estimates by IDC, a research firm in Framingham, Massachusetts.

The motion control of the Wii, introduced in November, makes it easy for new players to use, Nintendo spokeswoman Beth Llewelyn said. ``Nintendo has enjoyed tremendous success by going after new types of gamers,'' she said.

Moore and his team didn't foresee that Nintendo, not Sony, would be the biggest threat to Xbox. The failure of Nintendo's older GameCube system led some analysts to suggest the company quit the console business to focus on games.

War Games

Eight months before Nintendo's first demonstration of the Wii in September 2005, Xbox executives conducted three days of ``war games'' at a Bellevue, Washington, hotel. Sony was the simulated competitor.

As soon as he saw Nintendo President Satoru Iwata swing the Wii controller at a conference, Moore said, he knew his rival had a winner.

Microsoft's initial attempts to target children didn't live up to the company's expectations. A November game called ``Viva Piñata,'' in which kids build a garden and raise animals that look like piñatas brought to life, didn't make it into the top 20, even with a Saturday morning cartoon created to promote the game.

Microsoft, whose top-selling games last holiday season included ``Gears of War,'' aimed at mature players, says it's winning female users with Activision Inc.'s ``Guitar Hero 2,'' the No. 3 selling console game in the U.S. in March.

That's a necessary first step to getting more players to consider the Microsoft console, said Albert Penello, director of Xbox global platform marketing. ``If you don't start building that content and reputation it never comes,'' he said. ``I don't want to be pigeonholed as a hard-core machine.''