Console Makers battle for fans taking over Gaming Expo

Video Games and Movies, the two business channels that were least hit by floundering worldwide economics. Box Office receipts and attendance are at or near records and the growth of gaming, while pausing slightly, still stands out as a tech sector on the rise. With gaming options like Nintendo's (NTDOY) Wii & DS, Apple's (AAPL) iPod Touch & iPhone, Microsoft's (MSFT) XBox and Sony's (SNE) Playstation 3 & PSP the kids (and ever increasing adults) these days have choices aplenty.

The Electronic Entertainment Expo goes on as we speak and it has been an interesting couple of days with keynote speeches by the big 3 console makers; Microsoft, Nintendo & Sony. While its been common knowledge that Nintendo and its motion controlled & causal gamer placed Wii has been the big winner in this generation of the console wars, with NDP data showing it outselling the XBox by 2:1 and the PS3 by a factor of 2.5:1 lately, the true test is likely to be longevity.

It's no surprise that laggards Microsoft and Sony had to deliver something to excite fans and developers in order to gain traction against Nintendo. It was the folks from Redmond up first yesterday with a keynote speech that excited not only the XBox faithful but fence-sitters alike.
Not only was the XBox opened up for several applications including social networks Twitter and Facebook and music streaming service Last.fm, it also introduced several enticing games and a entirely new control system.

It was the control system that garnered the heaviest reaction. "Project Natal", as it was coined, gives players a way to become the controller for their games. A camera system with facial and voice recognition follows a player's movements and can translate them onscreen for gaming interactions. The Microsoft team showed off several demos, straight out of Minority Report, of the "still-in-development" technology but it was very promising and it goes completely the other way from Nintendo's popular Wii motion controls. A development high-point for Microsoft in the gaming world? Or would Sony steal some thunder with their own announcements just a day later?

Sony's day had arrived and the company had several announcements to make, first a foremost another handheld system, dubbed the PSP Go. Sony will continue selling its existing PSP which has slowly but surely been selling very well for the company (although not as well as Nintendo's DS line or Apple's iPod Touch). With this new version Sony is going to full digital distribution for games and media making it a direct competitor to the aforementioned iPod. With 16GB of storage it undercuts the iPod's price by $50 ($249 vs $299).

Not to be outdone, Sony also jumped into the Motion Control business with a new controller. Internet outlets were quick to praise Sony's efforts as the motion control (based on a similar technology as Hollywood CGI & Motion Capture) allow the player to use the controller for a vast spectrum of game situations with incredible control accuracy. One of the demos showed off how to "air-write" with the controller, with incredibly precise results. The difference between Sony's and Microsoft's new controller entries is that in Microsoft's case the player actually need a controller to play.

Along with an army of popular game developers, both Sony and Microsoft made their case to the video game community that they are not only in the business to try and win and despite Nintendo's early lead, but also want to allow this generation of console hardware to still go strong. If today's announcement are any indiciation there's plenty of innovation left in the space. But what does E3 have to do with Investing?

Sony, despite its size is a vast gaming operation, and with the company posting its first yearly loss, it needs the Gaming operation to deliver incredible results in the years going forward. This will not happen without 1) Exciting innovations in the hardware (and lower costs) and 2) Developers excited about making games for that hardware. Sony has been in 3rd place in console sales since the PS3 launch but it has a long lifetime committed to the platform and even still sells a lot of PS2 machines. The bet on Blu-Ray as a standard will be debated for a long time as to whether it helped or hurt the PS3 in its early years, but the fact remains that Sony still loses money on each sale. The one thing consumers are clamoring for they still haven't received with the machine and that's a deeper price cut! Until it can cut those costs, Sony may simply have to suffer through more months at number 3 on the sales charts.

But with an upcoming stable of games, the new PSP Go and an impressive Motion Controller demo Sony is hitting the right track with Gamers and Developers, and Sony's stock followed suit with a gain of over 2% to close at $28/share.

Microsoft on the other hand, prints money from Windows and Office and doesn't really need a Gaming division, or does it? It in fact needs the XBox to succeed now more than ever for one simple reason. Image! Microsoft has a huge image problem amongst the computer using youth, with a floundering Windows Mobile team being eclipsed by Apple's iPhone, the disaster that was Windows Vista opening the door to more mainstream Mac usage, and the ignorance of anything related to Search the company can come up with due to Google's dominance in the area. This "Old-man's" Microsoft, being out-innovated by hipster companies will eventually trickle down to its core businesses.

The devices group may be that saving grace, while the Zune hadn't exactly lit anything on fire, the original XBox was a good start that has picked up steam with the XBox 360. The innovations of Project Natal, specifically the player controller, are the kinds of things the computer buying youth can get excited about, and once you've got them, if Microsoft can link the XBox brand with the Microsoft corporate image, a Windows user may come back or emerge. Microsoft stock was up about 2% on the day of its E3 speech and sits at $21.40/share.

While Video Games may have been child's play in the past, this business is as important as ever and some of the biggest tech names on the planet rely on a little old conference to reshape an entire corporate vision. Maybe its time to put a little stock into what things like E3 and those who attend have to say.

Disclosure: Author owns AAPL, holds no position in any stock mentioned.

Market Musings: Oil Records, Interest Rate Uncertainty put Market on Edge

As North American Markets rallied today oil prices soared towards record highs on fears that OPEC would be unable to meet demand. Oil approached records of around $78/barrel as investors bought up these futures into the winter season, expecting diminished oil supply numbers from the US.

Before you run off to buy Exxon Mobil (XOM) or Chevron (CVX), it's important to note that these mega-oils already saw around 2% gains today and stand close to 52-week highs. OPEC, the world oil production policy maker announced that it would increase production by 500,000 barrels per day to help ease prices. The general fear of market uncertainty due to the US Credit situation is putting the world economy on notice and forcing policy making organizations to take steps to control pricing of various goods. The news of the production ramp sent oil futures back to the $77/barrel range.

The recent US jobs number came in drastically softer than expected as payrolls were actually cut. Analysts expected a drop in jobs but not a complete loss. This data however, carried forward the notion that the Fed must act on Interest Rates at its next meeting later in September.

I would be cautious up to this meeting because the market's resilient rally here is based on the fact that the Fed will in fact cut rates by .25 or .50%. This is a key decision for the Fed as it balances a seemingly US strong economy and a disaster situation with credit that threatens to spill over into all consumer segments. Investors need to be cautious through the next week and beyond as the markets seek to establish a direction while waiting for the Federal Reserve to make its policy announcement. With the market having priced in a 25 basis point rate cut (.25%) and now working to price in a cut of 50 basis points (.50%) investors need to understand the upcoming risks. If action by the Fed is limited it would spark a sell off that could see the Dow back into the high 12000s.

If the Fed provides further relief for the markets, come the September meeting, we could be off to the races for the annual Santa Rally starting as soon as October. Technology companies making those must-have items such as Apple's (AAPL) iPod & iPhone, Nintendo's (NTDOY) Wii and Sony's (SNE) PS3 stand the most to gain, as would Internet advertising giant Google (GOOG), and auction house pioneer Ebay (EBAY). High growth will be the name of the game for the end of the year provided the expected relief comes by way of Bernanke and the Federal Reserve.

Disclosure: Author is long APPL, GOOG and does not own any of the other companies mentioned.