Microsoft hit with second Xbox lawsuit
Customers say the device scratches and ruins video game discs
Gregg Keizer

July 20, 2007 (Computerworld) -- A second lawsuit was filed this week against Microsoft Corp. by customers complaining about the Xbox 360 console scratching and ruining video game discs.

The suit, filed Monday with a Los Angeles federal court, followed a similar lawsuit submitted to a south Florida court the week before.

In the California filing, state residents Christine Moskowitz and David Wood claim that "during regular use, the Xbox 360 scratches the surface of the game discs, often to the point that they will no longer play in the console." When contacted, Microsoft refused to refund the price of the games or replace the discs, the lawsuit said. Microsoft's policy is to offer replacements only for its own titles, and then for a $20 swap-out charge.

Moskowitz and Wood are seeking class-action status for their suit and refunds for the cost of the games and/or the Xbox 360. Damages were set at $5 million minimum.

According to the lawsuit, the scratching problem isn't associated with the "red ring of death" issue that Microsoft said prompted it to extend the Xbox 360's warranty. Earlier this month, Microsoft announced a $1 billion-plus charge against earnings to pay for the warranty extension and repairs to all consoles that fail after displaying three flashing red lights to indicate a general hardware problem. In the earnings statement released yesterday, Microsoft pegged the charge at $1.06 billion.

Reports of Xbox 360s scratching discs aren't new. In April, a popular Dutch TV program (YouTube video) claimed that one in nine Xbox 360s it tested scratched game discs within a matter of hours. An independent hardware consultant, the program said, pointed to defects in the DVD drive, which is made by Toshiba Samsung Storage Technology Korea Corp., as the likely cause.

The Moskowitz and Wood lawsuit cited the Dutch TV report to bolster its call for a class action.

In a follow-up to the Dutch report, Meglena Kuneva, the European Union commissioner who heads that government's consumer affairs agency, said on June 1 that she had written Microsoft for an explanation about the problem, and asked the company to detail what it is doing to address the issue. In a radio interview that day, Kuneva said she had given Microsoft a week to reply, and confirmed that she lacked the power to order an Xbox 360 recall in the EU. "[But] I would be more than happy to act, if I have a legal ground," she said.

Microsoft did not comment today, but when asked about the Florida filing last week, spokesman Jack Evans said: "Out of the millions of Xbox consoles in use, Microsoft has not received any widespread reports of Xbox 360s scratching discs."

That runs counter to messages posted on Xbox 360 user forums, including Microsoft's own support boards. A quick search by Computerworld found plenty of disgruntled users.

"I have had my 360 just over a month, and it has knackered two discs," said a user identified as Forest4life. "MS and others say that discs will only scratch in the console, if the console is moved whilst it is on and the disc is in the machine. Well I have never moved the machine whilst it is on, in fact, it has been in the same spot since it was setup [sic]."

"I have had some of my xbox games for only a matter of weeks and they have been delt [sic] with very carefully. but still i am notcing [sic] scratches on the discs now to the point that whenever i try to play gears of war it says the disc is unreadable," added "Nightmare2406."

Xbox 360 sales down 60%, profit continues to plummet
Posted Jul 21, 2007 at 09:46PM by Nicolo S.

Information Week reports that Xbox 360 sales have gone down 60% in its latest fiscal quarter. Microsoft stated Thursday that 700,000 360 units were shipped, compared to 1.8 million in the same quarter last year. More boxes were sold after MS increased warranty to three years, but it looks like the stunt wasn't enough.

Microsoft's Entertainment and Devices Division, which handles the 360, experienced fourth quarter revenue drop 10% year-over-year to US$ 1.16 billion on an operating loss of US$ 1.20 billion, according to Information Week. Last year, US$ 423 million went down the drain for the group.

According to Microsoft, extending the box' warranty took US$ 1.06 billion off earnings. The problem doesn't stop there, with lawsuits filed against the giant company for the 360's design damaging game discs. Such claims have been shrugged off. It doesn't help that Peter Moore moved over to EA for his family.

On the other hand, competitors in the gaming industry have been faring better. As we all know, Nintendo continues to dominate both the console and handheld scene. Sony experienced substantial increase in sales after the PS3 price cut, while the PSP and PS2 are still making some money.

With that said, Microsoft's path with the 360 is still looking bright. Halo 3 is expected to bring Microsoft out of constant losses, and other topnotch titles will grace the box to boost profits. We'll have to wait and see before making any judgements on how Microsoft stands now.