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How the Xbox 360 Got Its Groove Back

Michael Comeau

Things are starting to look up for Microsoft's (MSFT) Xbox 360 console, which hadn't exactly been flying off the shelves.

Today, Microsoft announced that its new action game "Gears of War" has become the best-selling Xbox 360 game of all time, moving more than 1 million copies worldwide despite being on the shelves for only about two weeks. In addition, Microsoft said that registrations per day for the company's Xbox Live gaming service have increased by more than 50% since the game was released.

But even more importantly, leading video-game retailer GameStop (GME), on which I've been very bullish in the Breakout Stocks newsletter since mid-July, commented on its third-quarter conference call that the release of "Gears of War" has resulted in a significant increase in Xbox 360 sales. This is a very important data point, as it indicates that gamers have been looking for a reason to buy the Xbox 360, and now they have one. This also benefits software makers like Electronic Arts (ERTS), as the Xbox 360 audience should increase in size nicely over the next few months.

Of course, this is yet another negative for Sony (SNE), which I believe made a bad decision by including the Blu-ray DVD format in the PlayStation 3. Blu-ray component shortages are limiting PlayStation 3 supplies, giving Nintendo a lot of room to gain market share in the key Japan market with its new Wii.

While I've never hesitated to criticize Microsoft, I have to commend its Xbox 360 strategy, which includes an emphasis on online play and interactivity. However, I think it should get even more aggressive here. Even though an uptick in Xbox 360 sales may reduce the need for a price cut, I think it should do one anyway to crank up the heat on Sony.