Well, nice to see that lot of you think that I have a good sense for humour, but unfortuntaley I was dead serious.
I'll try to brake down those bits in chapters for better understanding. And I excuse in advance for lengthy read below.
NEXT-GEN DRIVE
Here is the 1st revenue-breakdown point when talking "out-of-the-hardware". It is the most important point in these days, since on-line playing is important, but not The most important revenue.
360 was deliberatly caught in the big trap of BR vs. HDVD battle. When talking about 360 begun seriousely during 2004, MS was keen to stress that "with 360 begins the HD era, blah, blah". Unfortunately, 2 smart japanese companies had their own idea about becoming the market leader in various fields. Sony was seriousely developing BR from 2001, while Toshiba made their HDVD concept in the same time. All industry knew what is coming and all was prepeared for launch of both formats during late 2004.
Nothing happend.
To jump over writing down various PR assets of both side, the result is the same. Late 2005 showed us CES with BR all-over-the-place, and HDVD was shown by Toshiba, but without any serious impact. Why? Because from early 2005 Toshiba knew that HDVD will never be. Why? Because it would not survive. Why? Because of PlayStation 3, period.
BR vs. HDDVD
It is very easy to understand the enourmuos strength of "PlayStation" console as a tool to establish new formats on worldwide market. If you're a serious company such as Toshiba, you just can't neglect that pushing such a risky battle will lead you to market-death. Why? Because if you even invest in manufactoring, development, conrtacting, authoring and so on - you have to be ready to face a simple fact - you just can't sell 5 million HDDVD players worldwide in the first month of sale and establish a "first-wave-userbase" together with 10+ million HDDVD movies.
And Sony can. And they can sell up to 2 million Blu-Ray players inside the PS3 every single month after the launch, and millions in every next month, as much as they manufactoring can produce. And they can even produce, distribute and sell millions and milllions of Blu-Ray movies on their propietary BR discs just because the consumers will want to see what that BR thingie is all about - since they allready have Blu-Ray-powered PS3. And Sony has a incredible portfolio of movies to produce in BR thanks to their share in movie-bussines via Tri-Star and so on.
MOVIE INDUSTRY
Which leads us to another big-player in industry - big Hollywood studios. Who didn't like the idea about having 2 different next-gen DVD formats from the first second. In 2004 we saw so many lists with studios who support HDDVD and BR, the battle was going on, blah. In late 2005 all those just dissapeared. On CES Sony showd a 100+ title-list of BR movies ready to launch together with format-launch in mid-2006. Pioneer showed a official BR player, recorder, plasma and so on. Do not think that big studios had no impact on this battle. And when you are a big Hollywood studio and when you have a ability to produce and distribute a next-gen format hardware globally in a split-second - which both Sony is and can - you're the winner. It is easy.
And there is no market future for HDDVD anymore. It is too expensive for Toshiba. It may be cheaper to produce as all PR assets was saying those early days, but then Sony has stressed that BR movies will cost no more then 20% more then standard DVD. And that margin will come down shortly, no doubt. That was the last nail in HDDVD coffin.
On last Friday 24th March came another delay of HDDVD till April. The reason is "lack of movies available for the new players". Ad the biggest company in HDDVD lpunge, Warner Home Video stated it will release it's HDDVD catalogue on April 18th for US. BR will start in US in May, toghether with few model of players, next-gen 1080p screens and impressive potfolio titles with all major hits from last 20 years of movie-industry. And just 6 months after the format-premiere there comes the 500$ Blu-Ray player that can do everything else together with playing BR movies in all-of-their-HD-beauty.
So, why all this blabbling about? To show the inevitable. It is just not likely that any kind of HDDVD format will prevail. It will come to market, it will stay there for some time and then it will dissapear.
XBOX360 v.2 ?
And Microsoft has to have a next-gen drive inside the console for very obvious reasons. Developers are No#1. Who will become spoiled in very second when Sony offers them a 50 GB medium to store graphics and sounds. Not to mention the "region-free games" as reason No#2 that Sony officialy announced. It will cut the costs dramatically for whole bunch of titles in both development, merchandise and sales, increasing revenue and profit. Reason No#3 will prevail shortly after PS3 comes to market in 2006. Those are "normal" buyers. Who will certanly buy a console which allows them to watch BR movies, DVD movies, listen SACD and CD - and play games. And do not think that press, IT press, specialised game-press and so on will not awe the PS3 when it comes out. The reason No#4 will just rocket the +500$ console into skies of positive PR because it will offer so much technical advancements crammed in-the-box for so small amount of money, without even mentioning the games.
And noone will literally buy 360 any more.
UPGRADE PROBLEMS
They have to upgrade. And if they release a HDDVD drive as upgrade, there is no fisable bussines-model to do so.
How to explain a angry customers they can't play new games on 16 month old console because they have to purchase a separate 100$ external drive - because new games are on HDDVD? How will you fit that drive next to console to look good on photos and not to be laughed-out? Of course, you can always give-out upgrade for free and lose another 100 million dollars for every 1 million HDDVD drive. And up to this piont around 5 millions Xbox360 were shipped (not sold) on worldwide market.
DRIVING MISS DAISY
They can try to replace existing drive in services. But they can only try. Way to expensive. First Toshiba (or whoever) would need to produce a special 360 drive in few million pieces. Then engineers wold have to comply it with existing hardware. Then MS should distribute it around the world to services. Then not to speak about ways to call-in all customers, explain them what they need to do, and then do it. It is just not same as famous "power-cord case", but then again - they've collected valuable experience on that particular issuse regarding customer-care and hardware drawback
.
They can try to use HDD for loading. But there are new problems there. Basic systems does not have HDD. Ad Core system can use just 12GB of 20 to store data, since 8GB is owned by system. Which leads to need of replacing existing HDD with bigger one and revamping the whole internal security-protocls to allow the games being played from the disc. And since you do not have HDDVD drive, you can't rip the game on new big HDD since normal drive can't read the disc. And download of 20GB game via internet is a big "No-No".
You can try to persuade the developers to make a game on few DVD discs, then to persuade the customers to buy bigger HDD, and then to install it on HDD to play. How does it seems to you? Bad? I thought so.
DELIBERATE MOVE
All above clearly shows the distant perspective of problems for X360 when drive is in question. And Microsoft knows it, of course. They knew it form the very beggining. But they just couldn't do anything about it. In 2004 they were certain that next-gen format war will make 2 strong formats and they were keen to uphold the HDDVD and make it one of the key-selling-point of upcoming console. And all the ideea went down in flames.
They had to release the console in 2005 because postponing was just not the option. Gaining start possition was imperative. They knew that BR-issue will rocket the PS3 sales in the very minute the console premiere. And they know the strength of that particular card in Sony's hand. And Sony knew it too. And Toshiba knew it. And Sony nad Toshiba are long-term partners in the Cell-development. Which spreads way around the PS3 console in the cores of IT and computer bussines worldwide in very near future for both companies.
And do not forget the Sony stole the 2005 E3 conference with unveling the unfished product, while MS had 360 up-and-going. MS just did not expect that. But press was talking about PS3 and Revolution controller - X360 was on 3rd place by PR-count. And to make even more shameful- it was the only next-gen console ready to launch.
This years E3 will show 2 new consoles - PS3 and Revolution (Go?). 360 will be the "old-system". I can put all my money on idea that Bungie got a horse-head in bed with order to make a Halo 3 playable untill May. It is one-and-only thing that can carry the 360 in Los Angeles. But it will just not be enough.
Because there will be Revolution. No HD drives, no next-gen blabbing, just pure gameplay and revolutionized controls. But they were doing it form the very beggining that way. And they will certanly grab-back the big piece of market with Rev. Not to speak about the press - who will go mad about the next Zelda, Metroid and Mario for Revolution. And who knows what elese the Big N has in its sleeves.
Even if it seemed unsignificant in last 12 month, the next-gen drive format was the factor that will heavily infuence the future of X360. While console specs are somehow similar to PS3 in some ways, there is one slight thingie around the numbers - noone really knows the true-and-finished specs of PS3 so far. And in conjuction with extremly fast data-flow from BR drive and disc when comapred to normal DVD, PS3 certanly seems advanced - even when speaking about the games solely.
And for vast majority of casual customers, gaming was never the only selling factor of consoles.
My optimistic view says that in less then 18 months from now (autumn 2007) DVD drive in X360 will become a great problem for future of console itself. And that is why I think that MS will make a new console, because any assets in upgrading a existing platform would scream "360 is not good as PS3 and it needs upgrade".
E3 2005 was stolen by Sony and Nintendo.
E3 2006 will be all and only about Sony and Nintendo. And then comes November and Christmas time. 6 millions PS3 stacked on the worldwide shelves and few million Revolutions. And 1 million PS3 worldwide for every next month.
E3 2007 will be even more about Sony and Nintendo. Nintendo will maybe even announce a new HD console for 2008. Satoru Iwata already talked about it. And noone will remeber a white console with changable faceplates, obsolete DVD drive and old-school component-driven 720p.
HANDHELDS
And while MS did a nice job with establishing a Xbox Arcade service, it will face a tremendous competiiton with PS3 and Revolution launch - both Sony and Nintendo will offer all of their past-console portfolio for download, while Sony will even make a software-upscaler which will make all those low-res games being shown on high-res on PS3. And it will become the most important move for revenue since all of us will pay for their all-time-classics few bucks. And that is billions money.
And both Sony and Nintendo have handhelds, respectfully fully compatible with their upcoming consoles. Which is also a very important thingie when thinking about prevealing on video-game market in next 24 months.
Microsoft and Xbox360 are facing a big-time failure if they do not make some extremely serious move.
And which move it sould be - I really do not know. Except the new console accompanied with the handheld.
Or buying the whole Nintendo for ridicoluos amount of billions dollars and hoping for the best. But then again - I somehow doubt Nintendo would ever sell it's company to the MS. (EDITED: on 2nd thought it was offensive somehow).
If I was J. Allard, I would be talking with Russians to give me the azil this very moment.
Once more sorry for this lenghty read, but it was necesarry in explaining the whole picture.
), it's not Japan vs USA thing at all. If anything, I think that Nintendo dislikes Sony more, who's also Japanese. 
