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.

One indicator is the sales of prepaid gaming cards that are purchased at Walmart, Target, 7-11 and many other retailers.

While the game cards are typically purchased in person, they can be used for a range of things, from buying virtual goods within FarmVille  to buying a game that’s digitally delivered over the internet via Xbox Live.

Today, NPD released industry sales figures for February today, reporting that prepaid game cards now account for 22 percent of all accessories sold and that sales have increased 52 percent compared to a year-ago.

Meanwhile, in the same time period console software sales only increased by 2 percent.

NPD’s Analyst Anita Frazier said the jump in game card sales points to the increased importance of digitally distributed content sales within the games industry, and that last month marked the best February on record for accessory sales.

The top-selling item was the Xbox 360 1,600 points card.

Overall, NPD reported that physical retail channel in the U.S. generated video game hardware sales in February of $467 million, increasing 10 percent. Video game software, including console and portable totaled $601.4 million, dropping 5 percent, and video game accessories totaled $257 million, increasing 22 percent.

During the Microsoft chief’s traditional appearance on the eve of CES, there was really no better consumer electronic to talk about.

The Xbox add-on has been a blockbuster hit for the company.

It sold 2.5 million in the first 25 days at market, and has garnered extended interest in the platform beyond hard-core gaming enthusiasts. It works similarly to the Nintendo Wii by allowing gamers to play beach volleyball or ping-pong or take dance lessons using motion, but this version doesn’t require a controller at all.

Tonight, Ballmer provided an update on just how well it’s selling. In its first 60 days on the market, he said, eight million Kinect sensors were sold, outpacing the five million units the company had forecasted in 2010.

But those figures require a little more explanation than was given:

The 2.5 million sold in 25 days counted the number of devices consumers purchased, whereas the eight million figure reported today represents the number of devices shipped to retailers.

The discrepancy between those two is likely fairly slim. Up until recently, inventories have been really low, and retailers have been sold out in some circumstances. For instance, the Xbox 360 with 250GB, bundled with the Kinect, remains sold out at Walmart.com, but is available at Amazon.com.

A Microsoft spokesperson had a fairly simple explanation for the different reporting methods:

To develop the sell-through numbers when it announced 2.5 million in sales, Microsoft conducted manual checks among retailers to gauge interest during the holidays. Those are very labor intensive, “and are not something we do throughout the year,” the spokesman explained.

“The change back to sell-in reporting aligns our Kinect disclosures to our ongoing worldwide console and financial disclosures, and is what you should expect from us going forward.”

Either way, the spokesperson assures us that Kinect sales far surpassed the five-million unit forecast.

It doesn’t hurt that the Xbox 360 has been the best-selling console in North America for six months running. Another figure revealed tonight was that console sales for the Xbox 360 hit 50 million over the holiday season.

That’s a lot. Nintendo said this week that the Wii system to date has sold more than 34 million consoles in the U.S., and that it sold more than seven million in 2010.

Other milestones:

–8 million: Number of Kinects sold in first 60 days

–50 million: Xbox 360s sold to date

–30 million: Number of Xbox LIVE members

In the first 25 days at market, Microsoft sold 2.5 million Kinect accessories and now aims to sell five million this holiday season. The sales helped the Xbox become the best-selling console in November.

The Kinect is a motion detection system similar to the Nintendo Wii, but is hands-free and doesn’t require any controllers. Xbox 360 owners can purchase one for $150.

During our visit last week to the Xbox offices in Redmond, Wash., Craig Davison, the senior director of marketing for Xbox LIVE, told us the goal is to broaden the audience for Xbox. He said the competition is no longer limited to PlayStation or the Wii, but extends to Google TV and Apple TV.

Hard-core gamers enthralled with Call of Duty and Halo may shudder at the prospect, but the trend is already in play.

But adding a new kind of player to the platform is critical if Microsoft wants the console to be an entertainment hub. Kinect allows users who’ve never picked up a controller to play, and brings new functionality to hardware, which historically has been marketed as something that must be replaced frequently.

Game console owners are most likely to use the boxes to play games and watch DVDs, but after that, Nielsen reports, entertainment services are a close third. Video-on-demand and streaming services such as Netflix, MLB Network and ESPN3 account for 20 percent of Wii users’ time, 10 percent of Xbox 360 users’ time and 9 percent of PlayStation 3 users’ time.

Davison said the demographics for Xbox started to shift in 2008 when it introduced Netflix streaming to the console. Since then, it has launched a partnership with ESPN, and will launch Hulu Plus early next year. It’s even helping out the top line: Close to 85 percent of Xbox Live’s revenues come from games, with the remainder coming from Zune, he said.

Here are some other numbers to consider:

–Since the launch of Zune on Xbox 360 in November 2009, the pace of HD movie and TV consumption–downloads and streaming–has more than doubled.

–In the last year, Microsoft has seen a 157 percent increase in the time spent watching movies over Xbox LIVE.

–42 percent of Xbox LIVE users who spring for Gold status at $59 a year are watching an average of one hour of TV or movies every day–or more than 30 hours a month.

In fact, Caris & Co. analyst Sandeep Aggarwal says he expects Kinect to generate about $2 billion in gross revenue for the Xbox ecosystem. Beyond sales of Kinect itself, the controller is also driving sales of most everything else Xbox related. In Aggarwal’s view, Kinect offers four distinct benefits to Microsoft:

1. Better material attach rate for the 45 million Xbox installed base
2. Higher adoption and market share gain for the console itself
3. An uptick from the sale of new titles
4. Lower attrition and higher gross new subscriber growth for Xbox Live users

“As expected, the launch of Kinect increased noticeably the overall buzz around Xbox and helped improve the adoption of the console,” he concludes. “Just before the launch, Microsoft increased its forecast for worldwide sales from 3 million to 5 million by the end of the year. This forecast seems conservative now, given the strong reception.”

I’ve been testing two of these initial Windows Phone 7 phones, the Samsung Focus from AT&T and the HTC HD7 from T-Mobile; each will cost $200. Both are slender phones with large screens and virtual keyboards, though the Samsung is thinner and lighter than the HTC.

Microsoft has imposed tight requirements on the new Windows Phone 7 phones—including fast processors, decent screens and adequate memory. However, in my testing this time, I didn’t focus on the hardware. Instead, I bored in on the new Microsoft operating system, set to show up on nine phones this year, including some with physical keyboards.

My conclusion is that Microsoft has used its years in the smartphone wilderness to come up with a user interface that is novel and attractive, that stands out from the Apple and Google approaches, and that works pretty well. Instead of multiple screens filled with small app icons, or the occasional widget, Windows phones use large, dynamic tiles that can give you certain information, like your next appointment, at a glance. And it has special “hubs” for things like contacts and entertainment that use bold, attractive interfaces and offer personalized, updating information.

The Samsung Focus’s large touch tiles

However, despite having all that time to study its rivals, Microsoft has inexplicably omitted from Windows Phone 7 key features now common, or becoming so, on competitive phones. These missing features include copy and paste, visual voicemail, multitasking of third-party apps, and the ability to do video calling and to use the phone to connect other devices to the Internet. The Android phones and the iPhone handle all these things today.

Plus, because it has waited so long to enter the super-smartphone market, Microsoft is starting way behind in the all-important category of available third-party apps. At launch next month, the company hopes to have about 1,000 apps available for the Windows Phone 7 platform, compared with nearly 100,000 for Android phones and around 300,000 for the iPhone. That means Windows phones will, by definition, be less versatile than their main competitors, at least at launch.

In addition, Microsoft, unlike Apple, has ceded prominent home-screen real estate to the phone makers and carriers so they can push their own apps, like subscription-based TV and navigation services.

To be sure, Windows Phone 7 has a few advantages. These include built-in mobile versions of Microsoft Office (present for years on earlier Microsoft-powered phones) and of its popular Xbox Live gaming service, which also interacts with Xbox game consoles. There is a nice feature that allows the camera to be used quickly, even if the phone is locked. And search works particularly well, including a mode that allows you to enter search commands by voice from any screen. Phone calling also worked just fine, with few failed calls, good voice quality and easy connection to a Bluetooth device I tried.

But I couldn’t find a killer innovation that would be likely to make iPhone or Android users envious, except possibly for dedicated Xbox users. Even the built-in Office can be replicated with third-party Office-compatible apps on competing platforms; and the iPhone and Android phones also can interoperate with Microsoft’s corporate Exchange email, calendar and contact system.

So for now, I see Windows Phone 7 as mostly getting Microsoft into the game, and replacing the stale, complicated Windows Mobile system that preceded it. It will get better. The company is already working on a copy and paste system, and said it is coming early next year. But, today, I see Windows Phone 7 as inferior to iPhone and Android for most average users. It’s simply not fully baked yet.

The main feature of Windows Phone 7 is the Start screen, which takes the form of a long vertical list of tiles that can represent either an app or a hub. The phones lack multiple home screens or traditional folders for grouping apps. These tiles are dynamic: They can show things like rotating photos of friends, or how many unread emails you have.

Microsoft doesn’t intend for you to place every app or feature on the Start screen. Instead, some apps, like games, go automatically into one of the special tile hubs, which combine related functions. And all other apps pre-installed or added to your phone go into another long master list you can see by flicking aside the tile view or tapping an arrow.

It’s a clean, simple, different approach. But there is a downside. As you “pin” your favorite apps, contacts, photos or Web sites to the Start screen, the list of tiles grows longer, and you have to scroll further and further to reach some. There is no shortcut for getting back to the top of such a list, as there is on the iPhone.

The hubs have a level of social and functional integration seen on some Android phones and on Palm’s webOS operating system, now owned by Hewlett-Packard. For instance, in the People hub, you not only see your local contacts, but those synced from Facebook or Microsoft’s own Windows Live service. This hub, like the others, borrows the elegant interface from Microsoft’s failed Zune music player, so you can flick left and right to see just recent contacts or to see your friends’ status updates. But the People hub doesn’t have Twitter.

Microsoft sees this combination of tiles and hubs as a “glance and go” interface for quickly seeing important information without opening apps, as on the iPhone. But I was disappointed that more information wasn’t presented on the tiles. For instance, unlike in some Android apps and widgets I’ve used, a stock market tile and a weather tile I downloaded didn’t show on their surfaces the latest information.

The calendar, which syncs with Exchange, Windows Live, or Google, can’t sync with Yahoo or MobileMe, and lacks a week view. The email program syncs with a variety of services, but lacks a unified inbox, so you have to clutter your Start screen with separate tiles for each account.

Another downside for some users: The phones can be used in horizontal view for photos and Web pages, or for typing email, but some screens, like the Start screen and hubs, are fixed in vertical mode.

Microsoft has done a good job with the Web browser, which I found generally comparable in speed and features to the iPhone and Android browsers. But unlike on some new Android phones, it doesn’t support Adobe Flash content.

The People hub borrows the elegant interface from Microsoft’s failed Zune music player, so you can flick left and right to see just recent contacts or to see your friends’ status updates.

The built-in Office suite is very nice. It can link to Microsoft’s SharePoint corporate online document system. One of its apps, OneNote, also synced in my tests with Microsoft’s consumer-focused SkyDrive Web file-storage system. It has a nice feature that makes it easy to jump to sections of long documents, allows for making comments on files, and lets you see presentations broadcast over the Internet.

However, this new mobile Office failed to open a simple Word document I tried. Microsoft says this plain document had some hidden corruption, but it opened on an iPhone and Android, and was editable in their Quickoffice app. Microsoft says it is working on a fix.

Music, video and photos all worked well, and you can use a Zune subscription on the phone. I was easily able to sync media files with a Windows PC using a new version of the Zune software, and I also tried a pre-release version of the new Macintosh Zune software, which is more limited, but also worked properly.

The Microsoft app store, called Marketplace, worked fine, and has a nice try-before-you-buy feature for some apps.

Last but not least is the Xbox Live hub, the center for gaming. It contains games from Microsoft and other developers, and includes your avatar from the Xbox Live service. You can socialize with, and play against, others on the service. For Xbox Live fans, this is mobile heaven.

Overall, I can’t recommend Windows Phone 7 as being on a par with iPhone or Android—at least not yet. Unless you’re an Xbox Live user, or rely on Microsoft’s SharePoint corporate Web-based document system, it isn’t as good or as versatile as its rivals.

Find all of Walt’s columns and videos at walt.allthingsd.com.

Write to Walter S. Mossberg at walt.mossberg@wsj.com

]]> http://allthingsd.com/20101020/microsofts-new-windows-phone-7-novel-but-lacking/feed/ 0 http://allthingsd.com/20100920/shaping-ads-for-web-connected-tv/ http://allthingsd.com/20100920/shaping-ads-for-web-connected-tv/#comments Mon, 20 Sep 2010 22:51:26 +0000 Jessica E. Vascellaro and Suzanne Vranica http://voices.allthingsd.com/?p=30084 Technology companies racing to deliver video to the living room over the Web are exploring the idea of offering ads on their services, seeking to capture some of the billions of ad dollars that flow to television.

A few companies, including TiVo Inc. and Microsoft Corp. (MSFT), have released ad products tied to broadband-video services designed to be accessed on television sets, not computers. They include ads that can take a viewer to a movie trailer on YouTube when the viewer pauses a TiVo-recorded TV program, as well as ads that can be accessed by clicking a tile on the navigation menu of Xbox Live, the online gaming and video service for Microsoft’s Xbox game console.

Other efforts are also afoot. Google Inc. (GOOG) has been meeting with some of Madison Avenue’s biggest media-buying firms, exploring ways to sell ads through its Google TV software due out this fall. Sony Corp. (SNE) and other hardware makers are launching TVs and set-top boxes equipped with the software, which allows users to search and watch Internet programming.

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]]> http://allthingsd.com/20100920/shaping-ads-for-web-connected-tv/feed/ 0 http://allthingsd.com/20100907/microsoft-of-arabia-if-the-windows-7-phone-is-as-freaky-as-this-ad-boomtown-will-take-one-now/ http://allthingsd.com/20100907/microsoft-of-arabia-if-the-windows-7-phone-is-as-freaky-as-this-ad-boomtown-will-take-one-now/#comments Tue, 07 Sep 2010 12:15:10 +0000 Kara Swisher http://kara.allthingsd.com/?p=33427

Cue the desert music, mix in some swirling dust and a mirage, use a Middle Eastern font and a mysterioso tagline of “The Revolution Is Coming,” and show it at a movie screening of “Lawrence of Arabia.”

At least Microsoft (MSFT) will not be spending its badillions of advertising dollars on the launch of its Windows Phone 7–playing catch-up in the smartphone race–without some style.

While the trailer below seems to be a one-off for an event in London, it’s still very different from the basic marketing around the Apple (AAPL) iPhone (“It’s magical!”) and the Google (GOOG) Android mobile operating system (“It’s for manly men!”).

In any case, coming for the holidays, Windows Phone 7 should prove to be a welcome respite from enduring the tiresome bickering of those two behemoths.

Here’s the video of Microsoft’s sheikh effort, followed by a recent, more-hipster video of Xbox Live on the Windows Phone 7:

]]> http://allthingsd.com/20100907/microsoft-of-arabia-if-the-windows-7-phone-is-as-freaky-as-this-ad-boomtown-will-take-one-now/feed/ 9 http://allthingsd.com/20100707/xbox-live-stays-ahead-of-the-game/ http://allthingsd.com/20100707/xbox-live-stays-ahead-of-the-game/#comments Wed, 07 Jul 2010 20:04:00 +0000 Beth Callaghan http://voices.allthingsd.com/?p=26944 Microsoft’s Xbox Live has likely broken the $1 billion revenue mark for the first time in the year ended June 30. Microsoft says that roughly half of the service’s 25 million users paid an annual fee to play online games like Activision Blizzard’s “Call of Duty: Modern Warfare 2,” but that also for the first time, movie and TV download sales topped subscription revenue. Through recent content deals with ESPN and Activision Blizzard, the software giant projects that it can increase revenue by up to an additional 20 percent a year.

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