Xbox May Prove an Expensive Pastime for Microsoft

Is the Xbox, Microsoft's (MSFT Quote) billion-dollar entry into video gaming, a good bet to dominate the industry or doomed to be an expensive also-ran?

With Microsoft's core PC business slowing, the company needs the promise of a new revenue stream. And with the $20 billion video-game market growing at 10% to 20% a year, Microsoft is hoping the snazzy green and black box it plans to launch this fall will help the company expand beyond the PC and into the living room.

However, according to Merrill Lynch analyst Henry Blodget, Microsoft's first real foray into consumer electronics will be anything but profitable and will face a dicey future against two solid competitors in Sony (SNE Quote) and Nintendo. In a 56-page report and concurrent phone conference Tuesday, Blodget took the view of most other analysts -- that Microsoft will spend billions for what is likely to be a second-place finish to Sony, at least for a few years. ...