By Yi-Wyn Yen
February 21, 2008

By Yi-Wyn Yen

When Toshiba conceded defeat in the high-definition DVD format battle by ending support for HD DVD technology, it was welcome news for Sony, which has backed Blu-ray for its PlayStation 3 system. But where does that leave Microsoft, which offers an optional HD DVD player for its Xbox 360 game console?

“I don’t think this really affects us,” John Schappert, vice president for Microsoft Xbox Live told Fortune on Wednesday. “I think people buy our machines because they want to play games. And these are the best gaming machines out there.”

While video games may be the primary focus, both Sony

and Microsoft (MSFT) have worked hard to market their gaming consoles as multimedia machines that can also play high-definition discs. Xbox Live, a community of 10 million of online gamers, allows its members to download television shows and movies in high-definition, onto the console. Sony lets gamers watch Blu-ray movies on the PS3.

Gaming analyst Michael Pachter of Wedbush Morgan says the push for Blu-Ray is helping Sony drive sales. The PS3 outsold the Xbox in January in the United States for the first time since the Sony console launched in November 2006. Sony sold 269,000 PS3s compared to 230,000 Xbox consoles, according to the NPD.

Schappert dismissed the notion that the HD DVD battle will have a significant impact on the Xbox. “Of course the Xbox can be used as a media center extender so you can watch movies and TV shows,” said Schappert. “I like all that, but the primary reason why the machine is in the house is so that you can play Call of Duty or Halo 3.”

Now Microsoft is turning to games for the masses as well as hardcore gamers. In a speech at the Game Developers Conference in San Francisco on Wednesday, Schappert said in May Microsoft will open its platform to let any developer make video games to run on the Xbox, PC, and its Zune music player.  “We think allowing anyone to make their own game will double our game library. It’s just another reason why you want to have the Xbox 360 in your living room.”

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