[Michael Pachter, Wedbush Morgan Securities]

On Microsoft: I think some portion of family growth will come from aging of original Xbox owners, who will have families of their own and will likely play games with their children. I also think that newer features on the Elite, like the 80GB hard drive, will encourage more family activities, like downloading TV shows and movies.

In essence, I don't see [Microsoft] trying to cannibalize the Wii audience, so much as to trying to offer an alternative with the Xbox 360 as the home media center. I don't think that there is any real threat to the long-term survival of the Xbox 360.

On Sony: Sony will ultimately do quite well with the PS3, as it is likely that Blu-ray will win the high-definition movie format war. Sony has shown so far with its firmware upgrades that it desires to make the box accessible and useful in many contexts. I expect Sony will further expand its Playstation Network and Playstation Store over the next several years to compete favorably with Microsoft's Xbox Live.

On sticking with the hardcore crowd first: The only way for an expensive [game console] box to succeed is to appeal to hardcore gamers first. The "wider" demographic by definition is the demographic that doesn't consider ownership of a console essential. Thus, they would not consider it important to be early adopters. The hardcore demographic considers new consoles a "must have," and are willing to pay a premium to own one.

Most observers misunderstand what's going on with the Wii at present: that once a household purchases a Wii, it will never purchase another console. I completely disagree with this analysis.

In my view, the Wii is bringing in a wider demographic than has ever been exposed to games before, and a meaningful number of them will now consider purchasing a more "hardcore" system. Once the PS3 and the Xbox 360 price points decline to a competitive level -- the magic number is probably around $199, this wider demographic will be more likely to consider purchasing [one] as the second console in the home. I think the tried-and-true strategy of focusing on the hardcore gamer audience first, and expanding to the wider demographic later in the cycle, will again work for Sony and for Microsoft.