The gory first-person shooter has managed to outsell all movies, books and videogames during its initial debut.

It even surpassed last year’s release of Call of Duty: Black Ops, which grossed $650 million, and Call of Duty: Modern Warfare 2, which sold $550 million.

In an interview, Activision Blizzard’s CEO Bobby Kotick told AllThingsD that the game’s entertainment value compares well against other more accessible media options.

“I don’t think we have empirical evidence to support this, but the cost per hour is a lot lower than any form of entertainment,” he said. “In this difficult economy, you are getting a great value.”

The latest installment, called Modern Warfare 3, retails for about $60 and is available on the Nintendo Wii, PlayStation 3, Xbox 360 and for the PC.

He said for that price, you get a social experience because of the multiplayer capabilities; a cinematic experience with good imagery and a story line; and an interactive experience. “It touches on all of the compelling areas of entertainment,” he said.

Activision is claiming that the Call of Duty franchise is one of the most valuable entertainment properties worldwide, having exceeded $6 billion in revenue over its lifetime. At that level, Kotick says, it is up there with “Star Wars,” the Harry Potter franchise, and maybe “Lord of the Rings.”

In its first day on the market, Activision sold more than 6.5 million units in North America and the United Kingdom at an estimated sell-through rate of more than $400 million.

It’s competing against a number of blockbuster first-person shooters that are being released this winter, like Electronic Arts’ Battlefield 3, which came out late last month. That title sold five million units during its first week of sales.

Not only is Call of Duty a big revenue hit, but it’s also likely sucking away time spent on other media.

According to Microsoft, more than 3.3 million unique gamers logged seven million multiplayer hours with the game by the end of Nov. 8, the first day it was available. At one point, more than 3.3 million concurrent users played the game on Xbox Live.

A companion social network for the game, called Call of Duty Elite, is being sold separately for $50 for premium access.

Kotick said Activision will release more information about sales on that soon, but “the response has been much higher than we anticipated.”

A year later, Microsoft is hoping a large lineup of games — 75 in all – will fuel a repeat performance.

And, if more sports and dance games won’t work, then it’s also integrating the speech- and motion-controlled Kinect capabilities into all aspects of the Xbox to seal the deal.

“It’s not just something for videogames. It’s something that will have a fundamental change in how people interact with technology,” said David Dennis, group product manager of Microsoft’s Interactive Entertainment Business.

Dennis declined to provide an update on how many Kinect sensors the company has sold since last season. To be sure, it has a long way to go to a majority of owners having it.

More than 55 million of the latest Xboxes have been sold to date, compared to the 10 million sensors sold, based on last year’s sales figures.

But he said the 75 new Kinect games available for the Xbox coming out this holiday are four times the number of games that came out for the launch last year.

Sony’s PlayStation Move, which it says has sold eight million devices, expects to launch a third of the titles, or 26, between September and December this year.

Tony Key, SVP of Sales & Marketing at Ubisoft, says its company has a dozen games, especially made for the Kinect, coming out this holiday.

“We are big believers and we’ve had a lot of success on it. We are going to continue to invest in the space, and it’s a great way to broaden the market,” he said. “Motion-controlled this year will sell more than last year. Kinect has a bright future. We have more Kinect games and a higher forecast on Kinect games.”

The range of games has expanded vastly beyond the dance, fitness and sports genres that launched last year. However, in general, the games still tend to still be more family-friendly and casual and aren’t meant for the hardcore demographic.

“It was about breaking down the barriers and making it easier to play. The games we launched with fundamentally and absolutely exploited the magic of Kinect,” Dennis said.

But that’s slowly changing. For example, some of Ubisoft’s titles — such as Just Dance 3, Just Dance Kids 2 and Your Shape Fitness Evolved — follow the status quo, but the publisher is bringing Kinect aspects to all future Tom Clancy games, including Ghost Recon Future Soldier, which comes out early next year.

In the game, players use hand gestures to customize weapons and voice controls to choose different attachments.

Dennis said there are many more examples of games that have Kinect features that aren’t necessarily Kinect-only games.

For instance, in Forza Motorsport 4, a racing game, players can look to their left to see a competitor’s car out the driver’s side window. Electronic Art’s Mass Effect 3, coming out next year, will allow players during battle to use voice controls to talk to their squad mates, including something like, “take cover on the left!”

More broadly, Kinect is also being integrated into all aspects of entertainment on the Xbox, including the ability to use Bing to search the music, games and video catalog on Xbox Live, or control Netflix.

In Xbox’s latest Kinect commercial it illustrates how Kinect has everything to do with it being a replacement for a remote control, and never even shows anyone playing a game.

Here’s a video showing off Ubisoft’s Tom Clancy’s Ghost Recon’s GunSmith feature:

As expected, the European Commission approved Microsoft’s $8.5 billion acquisition of Skype late last week.

Next, the deal for the popular Internet communications company — which had previously been cleared by U.S. regulators — is likely to officially close later this week (paperwork!), said several sources close to the situation.

Now, of course, comes the hard part — which is whether Microsoft can successfully integrate the more nimble Skype into the belly of the software beast and allow it to thrive.

Some key questions:

How smoothly can Microsoft integrate Skype into its existing products, such as its unified communications platform, Outlook mail and Hotmail, Office, Messenger and Xbox Live? And, perhaps most of all, Windows Phone devices?

That said, will Skype also get to do what it needs for its own success beyond Microsoft? That includes working with mobile rivals Apple and Google, who now dominate the smartphone market, as well as many others. It has already managed to buy GroupMe group messaging start-up for $85 million, just months after its own acquisition in May.

And can the division — which will be led by Tony Bates, Skype’s CEO and now a Microsoft president — operate successfully located mostly away from the power center of Redmond, Wash.? Skype has a substantial office in Silicon Valley, as well as key engineering units in Estonia and Stockholm.

In that vein, will Microsoft be able to hold on to new talent like Bates and Skype’s geek squad, all of whom have substantial choices elsewhere? Like a lot of large tech companies, Microsoft is not known for being able to hold on to those who come in from the outside, in large part due to its insular culture of longtime execs.

In other words, how big a welcome will Microsoft’s other powerful presidents — such as Windows division head Steven Sinofsky — give Bates and company?

And it’s fantastically successful. Machinima, powered primarily by YouTube, says it racks up 700 million video views a month.

Now it’s up to Jay Sampson to turn those eyeballs into dollars. He’s joining Machinima as its new EVP of sales, following a 14-year stint at Microsoft, where he most recently ran “emerging media sales” — that is, getting ads on to places like Xbox Live and MSN Games.

He’ll take over ad selling duties from Machinima president Philip DeBevoise, who will use the extra time to do things like making the company even bigger. DeBevoise’s brother Allen, by the way, is CEO.

Sampson’s hire is an indicator that Machinima is going to try to build a really, really big business instead of selling the really big one they already have. Another sign: A recent $5 million follow-on round from backers MK Capital and Redpoint Ventures, which pegs the company’s value “in the low hundreds of millions,” as my colleague Tricia Duryee reported. The LA-based company has raised about $20 million to date.

Machinima’s success is a nice example of two Web media lessons: 1) You need scale to make it in the ad business and 2) You can get scale targeting audiences that other mediums would consider too “niche.”

Machinima, for example, is for “gamers,” but not for Farmville gamers. It’s for hard-core gamers who get a kick out of watching in-game footage of first-person shooters, cut up and edited into entirely new narratives. Not my kind of thing, but lots of people really, really like it.

Here’s a remix of Halo 3, the kind of thing that originally made Machinima famous:

And the site is still doing the same kind of stuff:

But they’re now doing this sort of thing, too — a serialization, using real actors in real time, based on the classic Mortal Kombat chop ’em/sock ’em, produced by Time Warner’s Warner Bros. studio:

But a lot of the details were still unknown after Nintendo’s press conference yesterday, leaving a lot to the imagination on how a tablet-based game controller will change console gaming.

At a joint press conference between Nintendo and Ubisoft, a French-based games publisher, the two companies demonstrated how a touchscreen can be used to interact with a game on the TV and how it will be connected online to make the platform more social.

Nintendo’s President Satoru Iwata kicked off the event by saying, “I have come here today to introduce you to the most important partner for Nintendo.”

Ubisoft presented two of the five games it has under development, including one of Ubisoft’s long-standing brands, Ghost Recon, and an all new first-person alien shooter called Killer Freaks from Outer Space. It also said Assassin’s Creed was coming.

For now, it appears the most obvious role for a touchscreen controller is to serve as a second window into the game.

In Ghost Recon, the player with the Wii U controller can fly a drone overhead to spot enemies and allies on the battlefield. In Killer Freaks, Ubisoft calls the alternate view “immersion controlling,” where you can move the tablet to the left and right to see from where the enemies are attacking.

Of course, if your arms or neck gets tired, you can revert back to normal game play using the buttons.

In addition to providing different views, the tablet can also enable new types of game play. In a demo in Killer Freaks, for example, they called the new approach a shooter vs. strategy game.

The player with the Wii U remote gets to be the strategist or mastermind behind the game, by picking and choosing where the monsters will attack.

The other players, who have only a normal Wii remote, will have to kill the aliens wherever they land.

Besides the console’s new remote, other big questions remain about how Wii U will connect to the Internet and offer digital and social components like those provided by Xbox Live and PlayStation’s network. Apple also announced today how its Apple TV product will connect to the iPad to create a gaming platform.

Yves Guillemot, the CEO of Ubisoft, said in his opening remarks that he sees social gaming as the future.

As part of that, Ubisoft demonstrated how the tablet will allow users to be “always on” and create “persistent characters.”

For example, if the TV is off or you are watching a show, you can track friends and achievements in Ghost Recon and decide based on what the tablet is telling you when an appropriate time to join your friends online is.

“These are the two big game changers that we believe the tiny connected screen will bring to the gaming world,” said Hugues Ricour, Ubisoft’s senior producer.

More From E3

• At E3, Xbox Lets Kinect Lead the Charge on Gaming, Live TV Ambitions
• Justin.tv Broadcasts Gamers’ Every Move on TwitchTV
• Who Needs War? Sparks Will Fly in EA’s New Sims Game for Facebook.
• Sony Unveils Vita Gaming Device at E3; Will Launch This Year for $249
• E3: Nintendo Unveils the Wii U With Tablet-Style Controller
• Three Key Takeaways From Nintendo’s Wii U (Plus Photos!)
• No Hacks to Report at Xbox, But Microsoft Isn’t Letting Its Guard Down
• Forget About 99 Cents, What If You Could Rent Mobile Games for 25 Cents?
• Digital Game Revenues Hit $5.9 Billion in 2010

That’s what I asked Marc Whitten, the corporate VP of Xbox Live at E3 today, following recent attacks on his two closest competitors.

Only days after Sony turned its PlayStation Network back on after an attack forced it offline for three weeks, Nintendo reported that its U.S Web site had been hacked but that no company or customer information was compromised.

Whitten feels bad for Sony.

“It’s not great for the industry. It’s a rough and tumble world out there. We take it really seriously. We take privacy and security and cheating and hacking all very seriously. It’s been a high priority for us,” he said.

But when asked point blank whether Xbox had been subjected to any attacks, Whitten fudged his answer a little bit.

He was clear in saying that there was nothing unusual to report to customers.

“We continue to take it really seriously,” he said, but added that my question was “weird.”

A spokesperson intervened to clarify — or at least try to. He said in order “to protect the integrity of the system, we don’t share information because we want to keep it secure.”

In the meantime, if there are any remaining concerns, vigilance is the answer.

“It’s always been a top priority for us,” Whitten said. “Every time we see things — not just because it’s Sony in the videogame space — we try to do post-mortem. That’s part of the learning cycle.”

He said it also serves as a reminder to consumers to “practice safe hygiene on the Internet,” by not using the same username and password for all of your accounts. “One of the things it reminds us of, is that there’s nothing inherently special about Sony.”

More From E3

• At E3, Xbox Lets Kinect Lead the Charge on Gaming, Live TV Ambitions
• Justin.tv Broadcasts Gamers’ Every Move on TwitchTV
• Who Needs War? Sparks Will Fly in EA’s New Sims Game for Facebook.
• Sony Unveils Vita Gaming Device at E3; Will Launch This Year for $249
• E3: Nintendo Unveils the Wii U With Tablet-Style Controller
• Three Key Takeaways From Nintendo’s Wii U (Plus Photos!)
• No Hacks to Report at Xbox, But Microsoft Isn’t Letting Its Guard Down
• Forget About 99 Cents, What If You Could Rent Mobile Games for 25 Cents?
• Digital Game Revenues Hit $5.9 Billion in 2010

At the three-day show, which unofficially kicks off tomorrow and ends Thursday, hardcore gamers will get a preview of all the big-budget productions that will be released in time for the holidays.

But this year, in addition to the regular dose of blood and guts and first-person shooters, expect the videogame industry’s softer side to be on display.

Game companies are starting to recognize that in order to attract larger audiences, they need to appeal to a broader set of people.

The trend is being fueled by Microsoft, Nintendo and Sony, which will be looking for ways to extend the life cycle of the major game consoles, all of which are about five years old now. The shift is also gaining acceptance as big companies are finding large audiences on digital platforms, like the Internet and Facebook.

Ubisoft’s SVP of Sales and Marketing, Tony Key, said they are pushing three things this year at E3: core, casual and online.

It will be talking about a wide range of games, including several Facebook games in the works, hardcore titles like the latest Assassin’s Creed, and casual titles like Rocksmith, which allows players to connect a real guitar to a videogame console to learn how to play the instrument. ”Online is just another point of excitement for the business–it’s just another platform,” he said. “I think this is the best E3 for publishers, like Ubisoft, to showcase how they are viewing the space and what the right strategies are at the moment.”

But while more traditional publishers will be announcing digital strategies, there are some purists in attendance, too. In fact, a contingency of more alternative companies at E3 are jokingly calling themselves “That Other Platform.”

In a message sent to reporters, the companies write:

You’ve been to all the press conferences. Now, please join us as we celebrate:

• the one that DOESN’T have an army of PR people and a $50 million marketing budget.
• the one that DOES have an installed base of greater than 1.5 billion.
• the one that DOES have the world’s best developers.

All jokes aside, the show would not be complete without some hardcore talk. Here’s what to expect on the hardware side of the business:

• Nintendo will unveil its new Wii console on Tuesday.
• Plenty of new games for Nintendo’s recently released 3DS, a handheld game player, which has been slow to take off.
• Microsoft and Sony’s respective motion-controlled systems, the Kinect and Move.
• Sony’s new NGP, which is its latest handheld gaming device coming soon.

This year’s E3, short for the Electronic Entertainment Expo, is the 17th annual event thrown by the Entertainment Software Association, which is dedicated to companies that publish games and develop video game consoles. This year, the association said it is expecting 45,000 attendees and 250 exhibitors at the Los Angeles Convention Center.

One of the companies that will be a prime example of shifting its focus from a hardcore audience to an entertainment focus is Microsoft’s Xbox.

It has sold more than 53 million Xbox 360 consoles and has more than 30 million Xbox LIVE members who access content digitally over the Internet. It has also sold more than 10 million Kinects to date.

Tomorrow at the company’s early morning press conference, it will discuss how its not just a gaming device, but an entertainment hub for your living room.

Already, 40 percent of all Xbox activity is non-game with video with video consumption hitting an average of 30 hours a month per Xbox.

As the console makers run out of new reasons for strict gamers to buy them, diversification is key.

In advance of its press conference tomorrow, Microsoft provide this chart from NPD to show the trend lines for consoles during their lifespan (and how Xbox is doing relatively well because of its focus on entertainment):

Molnar joins GetJar from Microsoft, where he served as a partner architect in the Interactive Entertainment Business division, working on Xbox Live and Kinect. According to his LinkedIn page, Molnar said he worked at Microsoft for nearly two and a half years, leading forward-looking products for Xbox Live and future platforms.

He also said he improved the design of the Xbox marketplace. That’s probably what caught the attention of GetJar, which has generated 1.5 billion free downloads to date. In his new position, Molnar will be in charge of providing long-term technical direction.

GetJar COO Chris Dury said Molnar’s appointment is part of a serious ramp up of engineering talent at the company. “Over the next few months we’ll be doubling our engineering team as we focus our resources on growing the largest free app store and increasing profitability for Android publishers.”

Before Microsoft, Molnar served as VP of engineering at mobile start-up scanR, building a platform for image and text processing.

The addition of PayPal to Xbox brings into question whether Sony will be next after its very public debacle, which included shutting down its PlayStation Network after hackers obtained personal information associated with accounts, including names, addresses, email addresses, birthdates, usernames and passwords.

Additionally, it cautioned consumers that their credit card information may have been obtained.

Integrating PayPal may not eliminate all of those concerns, but it could potentially add another barrier between a customer’s sensitive information and the outside world.

In the announcement, neither Microsoft or PayPal hinted that the integration had anything to do with security or Sony’s woes. A PlayStation spokesperson did not respond to an email, asking whether it was considering alternative payment methods in the future.

However, beyond Xbox or PlayStation, it is becoming increasingly common for a variety of payment methods to be offered by merchants. In particular, game companies have been aggressive. For instance, on Facebook players can commonly charge virtual goods to their mobile phone bill or PayPal, among other options.

Other new payment mechanisms are also in the works. Visa revealed part of its digital wallet strategy last week, saying that it would allow consumers make payments with their credit card through an associated username and password instead of typing in their entire credit card number.

Not only could it be more secure, consumers often find it more convenient. In fact, convenience seems to be one of the main factors of the relationship between Xbox and PayPal.

Microsoft said Xbox 360 owners in more than 20 countries around the world will now be able to use their PayPal accounts to buy Microsoft Points, Xbox LIVE Gold subscriptions and Games on Demand.

The integration began rolling out early yesterday morning and will be available worldwide in the next few weeks.

eBay-owned PayPal said in a blog post nearly 75 percent of people who identify themselves as gamers also have PayPal accounts, according to an Ispos study from March of this year.

UPDATE: The PlayStation Network continues to be down with no estimated time for recovery.

The problems were first addressed on Wednesday on the PlayStation blog, and in a troubling update yesterday, Patrick Seybold, the company’s senior director of corporate communications and social media, said it could be another day or two before they are back online.

“While we are investigating the cause of the Network outage, we wanted to alert you that it may be a full day or two before we’re able to get the service completely back up and running. Thank you very much for your patience while we work to resolve this matter. Please stay tuned to this space for more details, and we’ll update you again as soon as we can.”

A Sony spokesperson declined to comment further on the situation.

For now, while the outage corresponds with Amazon’s cloud difficulties, which has now been officially out for more than a day, there are no signs that there is any correlation between the two.

In fact, Sony’s outage is being blamed on Anonymous, the same hacker group involved in retaliation efforts surrounding the Wikileaks shutdown, because they were involved again earlier this month in shutdowns on various Sony sites, reports the Christian Science Monitor. It’s also plausible that something far less sinister, like routine maintenance, brought the network down.

Regardless, the outage is bad timing. Consumers are up in arms, as they were eager to play recent releases such as Mortal Kombat, Portal 2, SOCOM 4, and inFAMOUS 2′s beta release.

A user who goes by the name of mixedkidbx wrote: “WHAT???? MORTAL KOMBAT just came out and now i cant play online. I cant play 80% of my games that have online functions.” In another post, he added: “Right i got the inFAMOUS 2 beta too.”

The Sony PlayStation Network is similar to Xbox Live, and serves the same purpose of trying to extend the life of the console by adding new content via the Internet. It has 70 million registered accounts worldwide who have downloaded more than 1.4 billion pieces of content.

According to comments on the PlayStation blog, the platform is well used and is being missed. On average, at least two-thirds of PSN registrants play an online game once a week or more, and more than 70 percent of registrants make at least one purchase. In January, PSN reported its fifth highest month for revenue to date.