July 1 — Its code name is “Freon,” reflecting the notion that it is the coolest secret project at Microsoft Corp. these days, at least in the eyes of the Xbox video-game division.

WHAT FREON STANDS FOR is a souped-up successor to the Xbox console — capable of playing games but also offering television capabilities, such as pausing live TV and recording shows onto a computer hard drive, say people familiar with the effort. Though it is unclear whether such a product will ever be built, its core concept appears to have the backing of Microsoft Chairman Bill Gates, who wrote in an internal memorandum in January that he was a “big fan” of a machine that would combine video services with gaming.
Such a device, which could cost around $500, would have another big advantage: It could beat video-game market leader Sony Corp. to the punch.
Microsoft officials are mulling releasing some kind of new game machine sometime next year or in 2004, say people familiar with the matter. That timing could shake up the $20 billion global video-game market, breaking a long-established pattern of developing and releasing new systems in roughly five-year cycles. Sony, the undisputed leader in a three-way race with Microsoft and Nintendo Co., isn’t expected to release its next PlayStation system until 2005.
“The utmost goal is to ship something before Sony,” says a person familiar with Microsoft’s plans. Changing development cycles could be particularly threatening to Sony, which relies more than Microsoft on specialized computer chips that take years to design. “My biggest concern is if Microsoft or Nintendo try to change the rules of the market,” says Shinichi Okamoto, chief technology officer at Sony’s game unit, Sony Computer Entertainment Inc. “I can imagine several [ways]. The first one is very simple — launching an annual new model: Xbox 2002, Xbox 2003.”
Microsoft officials won’t comment on Freon. But the software titan has been playing catch-up to Sony since it introduced the Xbox last year. Though Microsoft hoped the introduction of a hard disk and other features would inspire developers to write more exciting games than for the PlayStation 2, Sony’s hardware has retained an edge among consumers and programmers.
“It’s amazing how far we have come, and yet we still have to get people to see Xbox as even more of a breakthrough than they do today,” wrote Mr. Gates in the internal e-mail sent to top Xbox executives in January.
Officially, Microsoft says the current Xbox has been an early success. The company’s focus right now is on selling more Xbox consoles this coming Christmas season, says John O’Rourke, director of Xbox sales and marketing. At the same time, “we have to be thinking about the future,” Mr. O’Rourke says.
Microsoft officials are also mum about the release date for the Xbox console’s next version, known as “Xbox Next,” expected about 2005 or 2006. Still, the various Xbox projects inside Microsoft — as well as Mr. Gates’s musings in his memo — show Microsoft is serious about overhauling Xbox, if necessary, to strengthen its challenge to Sony.
A key pressure is economics: The Xbox console isn’t profitable for the Redmond, Wash., company and its costs are believed to be higher than Sony’s, partly because of the hard drive and a version of its powerful Windows operating system included with each machine. While “the Xbox is a full-feature BMW, the PS2 is a Toyota,” says Bruno Bonnell, chairman and chief executive of French game maker Infogrames Entertainment SA.
But many gamers prefer the more practical Toyota. Sony has shipped about 32 million PlayStation 2 machines world-wide, while Microsoft was expected to have shipped only 3.5 million to four million Xboxes by Sunday, the end of its fiscal year. Microsoft, which lowered sales expectations earlier this year, insists its more-powerful machine eventually will win over customers.

Mr. O’Rourke says the machine’s hard drive helps deliver features like the voice commentary on Microsoft’s “NFL Fever” football game. Microsoft also recently showcased a new Xbox game called “Blinx: The Time Sweeper,” which allows players to record moves they have made in the game and replay them at different speeds in the future.
“That is something you can only do with a hard disk,” Mr. O’Rourke says.
Still, Mr. Gates doesn’t seem convinced. In his memo, sent after one of his periodic “think weeks” away from the office, he mused about whether a hard drive would be necessary for Xbox’s online-gaming service, expected to be launched later this year. “Do we really know that you have to have a disk to do online?” Mr. Gates wrote. “I think it’s probably right, but say Sony tries to do online without it — how bad will it really be?”
Mr. Gates also tossed out a thought he described as “heretical,” wondering whether Microsoft will have to “back down” from its plan to offer online gaming only over high-speed Internet connections. That plan has been criticized because so few U.S. computer users have high-speed connections.
Mr. Gates received a briefing about the Freon product last week, a person familiar with the matter said, and also presided over a pep rally of sorts for a larger Xbox group. When asked about Freon at the meeting, Xbox chief Robbie Bach said there were no definite plans for deployment, this person said.

Mr. Gates has long been fascinated with extending Microsoft’s Windows software into the living room, though Microsoft stumbled with most of its previous TV efforts. And many in the video-game industry wonder if consumers would pay $500 — compared with the $199 Xbox — for a complicated home-entertainment machine.
“I worry about what I call feature creep — layering too many things into a product so the original intent of the product gets lost,” says Schelley Olhava, an analyst with International Data Corp.

Originally posted by mkdevo
And many in the video-game industry wonder if consumers would pay $500 — compared with the $199 Xbox — for a complicated home-entertainment machine.

Originally posted by Jackskeleton
why is everyone getting pissy? this is what happens every few years (or weeks for that matter) with CPU's.

Originally posted by neale
I hope they don't pull a Nintendo and instead make the new system backward compatible with the old games. (Like PS2 had the wisdom to do.)

Originally posted by joshd2012
Sounds like Microsoft has a bit of a problem here. Microsoft wants to release a system before Sony, but if they do that, they turn back on all their fans who purchased the X-box.

Originally posted by Groucho
The only way they'd pull it off is if they made it backwards compatable with Xbox games. Obviously they are mimicing Sony's strategy of "get in a year early and dominate the market" which works so well because most households only have one console. Of course, when Sega tried this they failed, largely due to the number of people who chose to wait for PS2. How many people will decide to wait for PS3 rather than play Kabuki Warriors: Freon Edition?

Originally posted by gcribbs
They need to focus on getting more games to market- I still see Halo being sold for $49.99 in ads

this game should be $19.99 by now with many of the older games at that price to push more sales of the console. They need more numbers of consoles to compete not a faster cpu or Tivo.

Originally posted by joshhinkle


The N64 used cartridges, the Gamecube uses mini-DVDs. There was no practical way to make it backwards compatible.

The Gameboy Advance is backwards compatible with Gameboy and Gameboy Color games.

Originally posted by neale
I hope they don't pull a Nintendo and instead make the new system backward compatible with the old games. (Like PS2 had the wisdom to do.)