Expect a blue Xmas, even with the Xbox

'Will it solve our problems? No. Unless the Xbox is like Pandora’s box and has all the answers, then no. Microsoft is a category by itself.'

Expect a blue Xmas,
even with the Xbox

Microsoft's $333M push won't revive ad economy

By Elizabeth White

     When Microsoft launches the Xbox video game system in the U.S. next Thursday, the company will also drop $333 million in marketing into the stale advertising economy.
    But analysts say that not even that amount of money or that amount of hype will be able to kick-start the ad industry going into the Christmas season.
    "That $333 million is a nice piece of business," says Jean Pool, director of operations at Mindshare.
    "Will it solve our problems? No. Unless the Xbox is like Pandora’s box and has all the answers, then no. Microsoft is a category by itself."
    Precisely because it stands alone, its aggressive spending probably won’t inspire others to follow suit.
    Those who would most likely follow, its direct competitors, are already spending, and they are not expected to increase ad dollars on account of the Xbox, whose entry has long been taken into account.
    Nintendo, which releases its rival GameCube system on Sunday, has launched a $75 million promotion, and Sony, which has its PlayStation and last year’s hot-seller, the PS2, is spending $100 million.
    The only good news is for Microsoft, which is expected to get a lot of value for its marketing dollars due to the soft advertising climate. Americans will be seeing lots of ads for the Xbox and noticing them more in the overall dearth of ads.
    "To the degree that Microsoft is spending that kind of money, it will have a huge impact on the Christmas season," says Chris Dixon, an analyst at UBS Warburg.
    "The reality is, given the weakness in the advertising economy, that they’re going to get a lot of bang for their buck. There’s not a lot of demand for advertising right now, and none of Xbox’s competitors will be able to spend that kind of money."
    The Xbox, which includes a DVD player, an Ethernet port for broadband online gaming, a 733 MHz processor, and an internal hard drive, is already undoubtedly one of the hottest new toys for the holiday season.
     Prudential Securities recently revised upward its prediction for Xbox revenue this December from $350 million to as much as $490 million, thanks largely to the company’s marketing efforts.
     Prudential forecasts that the promotional blitz could help Microsoft sell 1.5 million consoles and as many as 7.5 million games this December.
     But none of this bodes well for others this Christmas season, particularly retailers who do the bulk of their business over the next two months.
     "During the Christmas season, a lot of retailers either make it or they don’t. We’ll be able to tell a lot about what next year will look like after this Christmas," says Pool.
     "Everything’s on sale right now, and there’s nothing that tells me it’s going to get better. Media spending will be down. Retail will be down.
     "Automotives will depend on their inventories. Zero percent financing seems to be working, but that’s just sales. I would expect auto to be down too. Things are going to get worse before they get better."
     Adding to these woes is the mood of consumers, who seem to be particularly cautious heading into the holidays.
     "Buyers are conservative and pensive," says Pool.
      "They want to stick their money in their mattresses. There’s also a sense that it’s the thought that counts, not how much the gift costs. Things right now don’t inspire you to buy a mink coat. People will be trading down this season."

-Elizabeth White is a staff writer for Media Life.

Printer-Friendly Version | Send to a Friend
Cover Page | Contact Us