The software giant on Wednesday said it is planning a special Xbox-themed event at the company's headquarters in Redmond, Wash., on May 21, teasing fans that "a new generation" will be revealed. People familiar with the matter have said Microsoft is preparing a new Xbox to release in time for the holiday shopping season, taking on Sony Corp. 6758.TO +0.31% whose PlayStation 4 are expected to also hit store shelves around the same time.
A Microsoft spokesman declined to comment beyond the announcement.
Microsoft and Sony's updated consoles are expected to offer a bump for the videogame industry, which has struggled to maintain sales as customers have increasingly focused their attention on games played on social networks or mobile devices.
Sales of new videogames, consoles and accessories at U.S. retail shops fell nearly a third in March when compared with the same time a year prior, according to surveys by industry watcher NPD Group. Sales of videogame consoles themselves were particularly hard hit, dropping 32%. Further, videogame sales have contracted every month since December 2011.
Meanwhile, IDC said it estimates the number of paying smartphone and tablet gamers will surpass the number of customers using game-specific hand-held consoles, like Nintendo's 7974.OK +5.25% 3DS or PlayStation's Vita, by the end of this year.
In another sign of the difficult environment for videogame companies, Nintendo Wednesday announced its second consecutive annual loss as sales of its new Wii U game console, released late last year, failed to gain traction. The company said it hopes a new slate of games with popular characters, such as the "Super Mario Bros." will reignite sales.
The videogame industry is facing increasing pressure as mobile devices, such as Apple Inc.'s AAPL +0.18% iPad, not only continue growing in raw sales but also become more technically capable of powering immersive titles that consoles are known for. The proliferation of smartphones as well as tablets has both expanded the market for videogames and dramatically reduced their cost, with many of the top titles now costing below $5, or being offered free.
Microsoft and Sony haven't helped. Microsoft's Xbox 360 debuted in 2005, and the PlayStation 3 a year later, spending more than half a decade on the market without any significant changes other than new accessories, such as Microsoft's Kinect motion controller.
In response to the rapid changes in the industry, Microsoft is planning to incorporate more social gaming aspects into its new machine, people familiar with the matter said. Prototypes of the new device have also included hardware improvements, such as faster chips made by Advanced Micro Devices Inc. AMD +2.77% and a refined hand-held controller, these people added. Microsoft is also preparing a higher fidelity Kinect accessory, which other people familiar with the matter said will more clearly recognize gamers and hear their voices as they speak commands.
Microsoft will have a lot of ground to cover in order to compete with Sony, however. The Japanese electronics giant in February lifted the veil its PlayStation 4, which will feature sharper images, faster gameplay and a reworked social network to connect gamers together. The device also includes advanced functions that work over the Internet, such as a service that allows gamers to do things like beam images from the PlayStation 4 to their PlayStation Vita hand-held console, effectively allowing them to play titles from any room in their home. Sony will also allow customers to upload recorded footage of their gaming exploits onto social networks using a new "share" button on the controller.
The Xbox 360 has led the videogame industry's console sales for nearly two years, according to NPD Group, cementing Microsoft's status as one of the largest videogame makers. Over time, the company has worked to juice sales of its device by reducing its sticker price and offering it through a monthly payment plan.
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