Metalhead toon lovers rejoice: The world's most brutal band, Dethklok, is heading into the videogame world.

Cartoon Network and Xbox have teamed to develop "Metalocalypse: Dethgame," a game based on the Adult Swim toon "Metalocalypse." Gamers will play as Klokateers, Dethklok army members who battle mutant fans to protect their beloved metal band. The game will include new songs from the "Deathklok 2" album, which is set for release this fall.

“We have gone above and beyond and found the biggest nerds in the industry to help develop and deliver what will without a doubt be the most successful downloadable cartoon death metal game in recorded history,” said Brendon Small, co-creator of the series.

Developed by Frozen Codebase, "Metalocalypse: Dethgame" is slated for release later this year. -- Erin Maxwell

Microsoft’s motion sensing controller is real.

The company unveiled Project Natal, a new motion-sensing camera that allows players to control on screen action without any handheld controller at its pre-E3 press conference. It did not, however, give any hint about when the device would be released.

Microsoft says Natal (an internal code name and not the final name of the product) will capture full body motion, in essence reflecting any movement you make on your screen. It will also recognize user’s voices, allowing you to talk with onscreen characters or, if the trailer was to be believed, answer questions in a trivia game vocally, instead of making choosing from pre-selected answers.

“The controller will continue to evolve, but here’s the problem: For far too many people, the controller is a barrier, separating video game players from everyone else,” said Don Mattrick, corporate vice president at Microsoft. “We asked ourselves: Can we go beyond the controller? Can we make you the controller?”

Natal uses hand swipes to navigate the Xbox Live dashboard, much like like Tom Cruise made in the film “Minority Report”. Microsoft showed several live demonstrations of tech demos, all of which seemed a bit rudimentary.

One had an employee trying to break bricks with a series of rubber balls (that came rocketing back at her). Another was a Jackson Pollock-inspired painting demo.

The most intriguing demo was called “Project Milo”. Shown on video – not live – it demonstrated a realistic-looking boy who spoke and played with the player.

“What we want to create is a connection to our world – and that’s what I believe Natal does,” said Peter Molyneux, president of Lionhead Studios, which made the demo. “It will change the landscape of games we play.”

I’m expecting to get some hands-on time with Milo before the show is over. I’ll post impressions after I’ve digested it.

Whenever it comes out, Project Natal will work with all existing and future Xbox 360s.

“We can leap into a new era of interactive entertainment without having to launch a new console,” said Mattrick.

Among the fans of Project Natal is director Steven Spielberg, who first saw the peripheral two months ago and came out to endorse the project.

“Despite the size of the industry, 60 percent of households do not have a video game console,” he said. “Don and I have always agreed that the way to bring games to everybody is to make the technology invisible.

“I think what Microsoft is doing is not about reinventing the wheel, it’s about no wheel at all.”

It’s definitely interesting – but Natal seems a long way from being ready for prime time based on the demos shown today.

Microsoft took pains to further position the Xbox 360 as an entertainment hub at its pre-E3 press conference today.

The company announced several new partnerships with Facebook, Twitter and last.fm – all set to begin this fall. It also announced plans to beef up the quality of its video content, with all HD movies and television shows in its 18,000 title collection being made available in 1008p this fall.

Additionally, it will no longer require users to download a film before they can begin watching. A new “instant on” feature will allow purchases to begin playing immediately.

Microsoft also plans to extend the number of countries it offers the content in from eight to 18.

The changes will take place as Microsoft begins integrating that portion of Xbox Live with the upcoming Zune HD. 

Microsoft and Sony have been competing for film and movies fans as fiercely as they have been for gamers this generation. Both companies believe the key to becoming an indispensible part of the living room is to appeal to all members of the family, including the ones they can't convert into gamers.  

Also this fall, Facebook and Twitter users will be able to update their status via the Xbox 360, as well as track friends’s updates, photos, etc. Players will also be able to instantly post screenshots from games they are playing starting with the release of the new “Tiger Woods”. The other features will go live this fall.

The last.fm partnership, which will also go live this fall (sensing the trend?), will be another part of the integration with Microsoft’s Zune HD. The service will let users stream music through their Xbox and will be free to Xbox Live gold subscribers.

It's not that uncommon for console makers to team with third party publishers on big titles for joint marketing efforts. If Sony can get you to buy, say, "Grand Theft Auto IV" with ads that emphasize it's on Playstation 3, or Microsoft the same for a game on 360, it's worth the money in a fierce console war.

"Resident Evil 5" is the first major game in 2009 to test the 360 vs the PS3. And Microsoft is investing a lot in the fight, including a special edition of its console.

The really surprising detail came in the mailing I got from Capcom today with a retail copy of "Resident Evil 5." The game was for 360 -- a little unusual in that nobody asked my console preference, but hardly a big deal. What I've never seen before, however, is a letter enclosed with the game, directly from Microsoft, touting the advantages of its console.

Since the two versions of the game are identical, Microsoft really has to stretch to make its case. Amongst its claims:

With "Halo Wars" out of the way and no major first party titles on the horizon save for "Halo: ODST" in the fall, it's no surprise Microsoft is looking to ride the year's big third party games. Will it be able to sell fans, and the press, on the idea that "Resident Evil 5" is better on 360? It seems like a stretch, but it's sure going to try.

In the category of news that informs us something wasn't a complete disaster comes this announcement from Microsoft:

Well yea, given that it's the most expensive DLC ever available on Xbox Live, and it comes from one of the biggest modern franchises in the videogame industry, it had better have broken the record. If it hadn't, something would have been very, very wrong for Rockstar and Microsoft.

Note that Microsoft only mentioned revenue, however, and not the actual number of units. We can safely assume from that that it didn't break the record for the most number of paid downloads by a piece of DLC, which appears to have been set by "Call of Duty 4's" Variety map pack last spring.

Without knowing how many copies of "Lost and Damned" Rockstar sold, we don't know anything really interesting. Like how many of the more than 10 million people who have bought copies of the game (the vast majority in North America and Europe and thus able to acces the DLC) bought "Lost and Damned?" And how much progress did Microsoft make on earning back the $50 million advance it gave Rockstar parent Take-Two for exclusive rights to "Lost and Damned" and the upcoming second "GTA IV" DLC.

All we know so far is that the "Lost and Damned" didn't launch way below everyone's expectations.

As Sony announced yesterday, Playstation Network has 20 million users.  Xbox Live, by comparison, has 17 million But PSN is for the Playstation 3 and PSP (around 70 million devices), while XBL is only for the Xbox 360 (about 28 million). PSN has been around for 27 months. XBL? 67.

What does it all mean? Who knows? There are dozens of variables that make comparisons difficult. But more importantly, "registered user" statistics are virtually meaningless. How many websites have you ever registered for? "Second Life" has over 15 million registered users, but it's struggling to survive and find a reason for being.

If you're interested in the business of video games, there's only one statistic of any significance: Sony has generated $180 million in gross revenue from PSN two-plus years of life. As of the last E3, after about five and a half years, Xbox Live had generated over $1 billion.

On that basis, the advantage goes to Microsoft. PSN has been around about 40% as long as Xbox Live, but made less than 20% as much money. Given how much more content there is available to download on consoles today (more games, video content, etc.) than the first few years of XBL, the advantage is even more dramatic.

EXCEPT... A little more than half of XBL members pay for the service. Without knowing how long they have paid for, and under what plans, it's tough to  estimate with any precision how much revenue that has generated for Microsoft. But it's safe to guess it's well into the hundreds of millions.

So on download revenue, the two might be roughly equal. But Microsoft still has an advantage. Revenue, after all, is revenue. And running Xbox Live certainly costs, ballpark, about as much as it costs to run Playstation Network. So Microsoft is making more revenue on around the same costs.

Sony's reason for making PSN free is, of course, to make the Playstation 3 and PSP more attractive. But given the weak sales of the PS3 and so-so sales of the PSP (whose main competitor, the DS, also offers free online play), it's not particularly working.

I think it's really tough to argue that, at this point, Sony wouldn't be better off by cutting the price of the PS3 as much as possible and making up at least some of the difference by charging for online play via PSN.

Say hello to “Kodu.” It might look familiar. Kinda like Sackboy’s little brother.

At tonight’s pre-CES keynote, Microsoft unveiled a new "game creator" (their term) that will look pretty familiar to anyone who follows the videogame world, or pays attention to  Sony ads.

“Kodu” is, as Microsoft entertainment president Robbie Bach describes it, a way to "empower everyone, the entire breadth of our audience, to create their own games."

What does it look like? Well, it’s an accessible, adorable application that lets regular people design and share their own own videogame levels. Microsoft can protest as much as it wants, but in the big picture, it's about as distinct from “LittleBigPlanet” as avatars are from Miis.

The most obvious difference, however, is that "Kodu" is 3-D. It's not just a platformer. In the demo that Bach did with a 12 year-old girl named Sparrow, the game she created in her little 3-D world was essentially fetch, in which two robots tried to get objects spit out of a machine and return them to a spot for points.

Watching Sparrow create the game, it's largely based on equations (like the ones on the right). Telling the factory that every 10  seconds it spits out a new item, for instance. When I say "equation," I mean you're literaly using + and = signs to make in-game rules.

The menus are still tricky (just like in "LittleBigPlanet," you have to navigate through a lot of stuff), but it's a language that anyone who graduated elementary school can probably understand.

Unlike "LittleBigPlanet," "Kodu" isn't the result of years of work by a development studio. It came out of Microsoft R&D, where it started as a way to help teach kids how to program. Because it's not a "game," per se, it won't come with a rich campaign or, I'm going to guess, arch voiceovers by Stephen Fry.

It's coming in the spring and it'll be downloadable. Microsoft hopes to use it to fuel lots of user creations on its Community Games channel, though it's not clear if there will be a rich social community a la "LittleBigPlanet" (rating, tagging, etc.) or if users will just be sharing the games they create with friends.

"Kodu" is definitely not a "LittleBigPlanet" killer. Sony's game is inarguably the richer experience. But Sony will no longer be able to claim it has the only console with an accessible and intuitive level builder. And based on what I say, "Kodu" may even offer a few tricks that make videogame building even simpler than "LittleBigPlanet" has shown us it can be.

When I wrote reported last week that Sony Pictures movies aren't possible to stream from Netflix on the Xbox 360, I said there would be a simple way to see whether the studio was being honest when it stated it was a mere licensing snafu: "I guess we'll find out when we see if other studios' content also disappears from Netflix on Xbox 360, or if Sony content becomes available soon."

Well, the latter has already happened. According to numerous sources (I don't have Netflix set up on my 360 yet, so I can't check myself), like this one, some Sony Pictures films are now available to stream from Netflix on the Xbox 360. To all those who doubted Sony's sincerity, including, to a certain extent, me, we've been proven wrong.

As several gaming blogs have been noticing, Sony Pictures movies aren't available to be streamed via Netflix on the Xbox 360, even though they can be streamed on PCs.

That's very surprising, since no other content is available to stream everywhere except the 360. And of course it's suspicious, since we all know Sony, maker of the Playstation, has an incentive not to make the Xbox 360 experience any better. That's why you can't download SPE movies from the Xbox Live Video Marketplace.

But Netflix's pr person told MTV Multiplayer that it was a temporary licensing issue. I spoke to a source at Sony today and that person vehemently denied that it was an attempt by Sony to keep their content off the 360. It's just a licensing issue, I was told; Netflix didn't have the rights.

I'm not sure what to think. I'm not exactly sure why everyone involved would lie, since they've never hidden the reasons why SPE content isn't available on Xbox Live Video Marketplace. On the other hand, what are the odds Sony would be the one studio with this particular licensing issue?

I guess we'll find out when we see if other studios' content also disappears from Netflix on Xbox 360, or if Sony content becomes available soon. The source I spoke to didn't indicate that the latter was going to happen really soon.

Update: Sony just provided me with the following statement:

This issue is not specific to Xbox or any other individual platform.  Sony Pictures is currently in discussions with the relevant parties to resolve certain licensing matters related to the distribution of its motion pictures.  Given the ongoing nature of these discussions, we don't think it is appropriate to comment further at this time.

As I wrote on Wednesday, I have found Microsoft's updated version of Xbox Live to be a mixed bag navigation-wise. And I haven't used a few key features like parties or Netflix yet.

But there's one feature I'm using that is undeniably awesome: Saving games to the hard drive. As soon as I got the NXE (new Xbox experience) beta test, I immediately saved "Fable 2" to the hard drive, mainly because the game is constantly accessing data from the disc and it is loud, even by Xbox 360 standards. I was hoping I would no longer be distracted by the noise of a disc spinning with such fury it could fly out of the machine and behead me and I was right. The 8 minutes or so it took to transfer the game to my hard drive was well worth it, because the 360 is now virtually silent while I play.

But there was one extra, unexpected benefit: "Fable 2" looks noticeably better. The graphics are sharper and brighter. So much so that it's like the game, or my graphics processor, has gotten an upgrade. Perhaps someone more familiar with programming can tell me why, but I assume it has to do with the fact that it's easier for the console to access and process all the requisite data, so it has to make fewer compromises to deliver me graphics in real time.

Nobody at Microsoft (or anywhere else) has talked about this benefit that I've seen I can't say whether it will happen with every title. But presuming so, it really makes transferring games to the hard drive a no-brainer, so long as you've got the space. Who doesn't want their videogames to look as sharp as possible?

(In terms of hard drive management, I imagine I'll be regularly transferring and deleting different games based on how much space I have and what games I'm playing the most at the moment.)

After five days with a beta version of the "New Xbox Experience" -- the upgraded guide you see when you turn on the console -- I'm still not in a position to fairly review it, since I haven't used close to all the features. I still haven't formed a "party" to play online, since none of my friends i play with are on the beta, nor have I done any extensive online shopping and downloading. What can I say so far?

-Having not gone into a party so far, my avatar feels pretty pointless. He's just kinda standing around on the "my profile" box on screen.
-The options for creating my avatar were disappointingly limited. Since this isn't a realistic 3-D world like Sony's "Home," I would prefer to make my guy look really crazy and dress him up in gear from my favorite games. Reportedly an "avatar store" is coming in the spring, but for now the craziest thing I could do is give him a monocle and Vulcan ears. Also, while the avatars don't look exactly like Mii's, the sound effects while creating and using them are disturbingly Wii-like.
-Finding information about a game and it's available downloadable content is much easier. You can get everything about a game in one place, instead of having to find it in separate categories for videos, DLC, pics, etc.
-Microsoft is able to feature more content, be it DLC, online events, or new features, since the number of "items" in each category scrolls pretty far horizontally. But you can't see as much, since each content box is bigger and most of it is stacked to the right off screen. This is especially true if you have more than a few friends online at once.
-Ads are more intrusive now, inserted into horizontal rows of content with just as much prominence as the actual Xbox Live features.
-The new "Xbox Guide" is the best friend of experienced gamers. Just click that big X button and you get a simplified, purely text version of the old "blades" with everything that used to be on the launch screen. And you can get it while still in the middle of the game. If you know what you're looking for, it's much simpler than navigating through the 3-D graphics of the NXE.

For a much fuller exploration of NXE, check out Joystiq's video tour.

Also, while I haven't gotten to try Netflix on Xbox 360 yet, I was surprised and impressed to read that we'll be able to stream HD content. There's only 300 titles so far, according to Engadget, but that's still 300 more than Microsoft had said would be possible as of E3. A very promising development.

The  Xbox 360 price cut that I first said was likely way back in July and has recently been predicted by every videogame blog based on leaked retail circulars is finally official. As expected, it's $200 for the hard-drive free arcade version, $300 for the standard version, and $400 for the Elite with a big ass hard drive. (If I were like a certain other blogger, I'd be yelling "toldja!." But suffice it to say that Cut Scene readers should have been expecting this for almost two months.)

While serious gamers will appreciate the price cuts on the standard version and elite, it's very apparent that Microsoft is emphasizing the new price of the arcade version. The press release is pretty dramatically titled "The Moment Is Now: At $199, Xbox 360 Invites Everyone to Play." But it's the first sentence that really intrigues me:

Imagine if friends and families had the ability to instantly watch movies from Netflix, live out their musical fantasies through "Rock Band 2" (Harmonix/MTV Games) and "Lips" (iNiS Corp./Microsoft Game Studios), star in their own Hollywood classics with "You're in the Movies," or have the power to never miss the latest episode of "Heroes" -- all from one device, starting at $199.

They're selling a videogame console and the very first feature mentioned is streaming movies. The only games mentioned here are all casual titles based on music or movies. In fact, you have to go all the way down to the second half of the fifth paragraph to find even a mention of a non-music or movies game, where Microsoft finally gives a nod to its biggest first party title, "Gears of War 2," which it says will be "the biggest entertainment event of this holiday season." (I expect a few films like "Quantum of Solace" might disagree, but anyway)

There's not a single mention of major non-exclusive titles like "Fallout 3," "The Force Unleashed," "Call of Duty: World at War," etc. Why? Microsoft is apparently betting that most gamers who buy titles like that already at least know about those games and what the 360 offers or, in a worst case scenario, all already own a 360, which would explain the slow sales this year, even around the launch of "Grand Theft Auto IV."

Which is why this release mentions Netflix streaming three separate times (getting even a fraction of   Netflix's 8.2 million subscribers, many of whom probably don't game, would be a major coup for Microsoft), makes a big deal out of "Rock Band 2," "Lips" and, to a lesser extent, non-360 exclusive "Guitar Hero: World Tour," and devotes extensive space to downloadable movies and TV shows.

As Don Mattrick alludes to in the release, the majority of console sales in the last generation generation occurred below the $200 price point. By beating Nintendo and Sony to that mark, Microsoft, which has been mired in third place for console sales all year, is hoping it can get a big boost this holiday season. And it's heavily emphasizing the content it has for casual buyers who might finally be opening their wallets to a videogame system at $200 for the first time.

The three big questions in my mind:

-Can a $50 price advantage make up for the overwhelming public perception that Nintendo's Wii is the console for casual players, not the 360?

-Will those who buy a 360 Arcade be annoyed when they find out the limitations of not having a hard drive? They can't do any of the video downloading that Microsoft touts in its press release, for instance.

-Does Sony need to respond? Sure, there's a good argument that the Playstation 3 is a better deal at $400 than the 360 Elite (it's a Blu-ray player, has built in wi-fi). But right now it's completely and totally ceding the family/casual market to Microsoft and Nintendo. If it does that for too long, its entire business will be staked on the avid gamers, which is not a good place to be, especially given the very broad penetration last generation of the Playstation 2.

Apologies for the slow posting this week as I'm preparing for a big family wedding on Saturday. Meanwhiles, here's the big news I'm behind on posting:

-I reported back in July that there would likely be a price for the Xbox 360 this fall. Then earlier this month, ArsTechnica reported that the price cut would likely be to $200 for the Arcade, $300 for the standard (formerly known as "pro"), and $400 for the elite. I said that sounded about right for me. Now Joystiq has a Radio Shack flyer that confirms those new prices are coming September 7. Which is good timing, given that temporary 360 exclusive "Rock Band 2" comes out later in the month. Given the slowdown in sales for the 360 this year, it seems like a price cut is necessary. Now Microsoft is in the much stronger position of having one version even cheaper than the Wii and it's highest quality version the same price as the PS3, while its standard version is nicely positioned between the two.

-NPD, working with Chart-Track and Enterbrain, makes its data a bit more interesting by providing year-to-date sales for the top 5 games in the U.S., UK and Japan. Not clear whether they will provide this quasi-global data on a regular basis, though. Data is below. No surprise that "GTA IV" is #1, though NPD's 6.3 million is still far below Take-Two's self-reported total of 8.5 million as of May 31, revealing the limits of NPD's incomplete reporting (since Take-Two is a public company and we can probably assume we're being honest. It's also notable that "Wii Fit" is the one game to actually sell even better in Japan than the U.S. "Guitar Hero III," meanwhile has virtually no sales in Japan. I guess the Japanese like funky peripherals that let them improve their balance, but not become a rock star.

-Jamil Moledina, who has led the Game Developers Conference for five years and helped it grow into an event that's now arguably more important to the industry than E3, has left his job with the ever mysterious intention to "pursue other interests." Meggan Scavio, who already had the job as "event director" of GDC, is now in charge.

-The FTC has, perhaps unsurprisingly, given the OK to EA acquiring Take-Two. Now the only question is whether their upcoming private talks will lead to a deal.

I'll be back on Monday, with some fresh reporting coming next week.

Fuse, the cable network that actually features regular music content (unlike the one with an "M" for "music" in its title), is the lastest programmer to jump on the Xbox 360 video bandwagon.

But it's not selling its shows, like most other networks do. Instead it's using Xbox Live as a marketing vehicle, providing clips, coverage, and artist interviews from big summer festivals like Bonnaroo, Rothbury, Mayhem, Vans Warped Tour, and Bumbershoot. Artists include Metallica, Pearl Jam, and Jack Johnson. That 's a sweaty Eddie Vedder performing at Bonnaroo on the right.

"We are confident that Xbox 360 fans are going to love it and want to tune in to Fuse for more great music programming," executive VP of content distribution Eric Samuels says, making clear what's in the deal for Fuse.

Most networks and studios look at Xbox Live as a way to make a little extra money, selling shows for $1.99 (the vast majority of which goes back to them and isn't kept by Microsoft). But for networks that want to get young male gamers to turn off the console for a little while and just watch TV, I think we can expect it to be used more and more as a marketing vehicle. Free clips are, of course, the easiest way to show gamers what they're missing.

Last month I reported on a conversation I had at E3 with Dennis Durking, CFO of Microsoft's videogame business, which indicated strongly to me that a price cut would be coming this fall for the Xbox 360. (He told me that price cuts in the summer are generally "not impactful," indicating that the fall would be the time to do it.)

Now ArsTechnica has (in a ridiculously convoluted story) word from a "mole" that such a price cut is indeed coming this September. The Arcade version would drop to $199, "Pro" (which is now just called "Xbox 360," for those who care) to $299, and Elite to $399.

That pricing makes good sense -- there would be a version of the 360 that's cheaper than the Wii, the mainstream edition wouldn't cost much more, and the Elite would be the same price as a Playstation 3 for the higher end market (though the PS3 is still a better value proposition thanks to its Blu-ray player).

With two pieces of reporting now pointing to a price cut, I'd say the odds are looking pretty good.

This definitely goes in the category of speculation... But today at lunch I was talking pricing strategy with Dennis Durkin, the the CFO of MIcrosoft's videogame business, and asked him why the company decided now wasn't a good time to cut the console's price (instead it just increased the storage available for $350).

His response: "Price cuts in the summer are not generally impactful."

So it's not a matter of Microsoft thinking $350 is the right price for console all year? It's just a matter of what the right price is for the summer? The logical conclusion, of course, is that a price cut is quite possible this fall. Certainly, if Microsoft is planning to cut the price of the Xbox 360, Durkin was stating that's when they would do it.

So, for those of us surprised that Microsoft didn't make a bold change in the price of the 360 -- maybe we should reserve judgment. More could be coming soon.

From the perspective of videogames meeting traditional entertainment, I think the most intriguing news from Microsoft today was its partnership with Endemol to make an interactive version of "1 vs. 100."

No, not the idea of turning a game show into a videogame. That's been done.

But what's really interesting is that Microsoft is "programming" primetime "1 vs. 100" events. It's essentially a massively multi-player casual game and it only happens at certain times. It's part of a new tab in the Xbox Live interface called "Xbox Primetime."

So at 8 PM on a Thursday, for instance, thousands of people sign on to play as the one, the 100 (though I imagine it's more than 100 online), or watch in the audience. Everyone is playing together. There's even a  host who will run the game and respond live to what's going on. I'd call it a massively multi-player casual game.

I spoke to Xbox Live head John Schappert about it and he threw out scenarios like an 8 PM game focused on sports trivia and then one at 9 focused on entertainment.

Microsoft hasn't yet announced a business model for "1 vs. 100," which launches this fall along with the update to Xbox Live. But Schappert definitely didn't dissuade the suggestion that it will be advertiser supported. Given that this is a programmed event, it seems like the best opportunity I've seen for free, advertiser-supported gaming.

I don't know what Endemol's deal is with Microsoft, but this is an obvious strategy for any media company with a property that has options for huge numbers of people to interact. A live interactive version of "1 vs. 100" is much, much more compelling than playing a disc-based game on your own with canned responses from the host.

I think what's most innovative about "1 vs. 100" is that it's PROGRAMMED. Consider the fact that as more and more people get DVRs and watch video online, TV is becoming increasingly less programmed. And here videogames are becoming MORE programmed. If you have a DVR, there's really no reason to watch TV at 8 PM, unless it's a live sporting event. But now, for the first time, there's a really good reason to play a videogame at 8PM.

"1 vs. 100" is part of an entire new section of Xbox Live called Xbox Primetime, so we can expect to see more games with live events like this. And having a captive audience at a certain time is a fantastic way for Microsoft to sell advertising on Xbox Live and rapidly grow that revenue stream.

Microsoft unleashed a few new stats and predictions at its press conference today:

-Videogames head Don Mattrick confidently predicted that "Xbox 360 will sell more consoles worldwide this generation than Playstation 3." No mention of Nintendo, as the Wii is already surpassing the 360 despite launching a year later.

-Since the launch of the 360 in late 2006, Microsoft has made more than $1 billion in revenue from Xbox Live. That includes subscriptions for $5 per month / $50 per year as well as downloadable games and videos.

-Movies and TV shows account for more than 1/3 of paid downloads on Xbox Live in the U.S.

The list of studios and networks NOT on Xbox Live got even shorter today as NBC Universal has signed up to offers its tv shows. The only major studios not on there now are Twentieth Century Fox (though Fox TV shows are on there) and, for obvious reasons, Sony Pictures. And now every major television network is on Xbox Live.

Microsoft also today finally unveiled the partnership with Netflix that we all knew was coming. As expected, Netflix subscribers will be able to get movies available to "watch instantly" via the Internet on a PC on the Xbox 360. The one unexpected feature is that users can share the movie with friends so they can watch together. The friends do have to be Netflix subscribers, though, which isn't quite as cool as I had initially hoped.

It's all part of a huge redesign of Xbox Live that appears to make the service a bit easier and more intuitive to navigage, while also adding more features. Picture on right was borrowd from Kotaku, so thanks to them for managing to grab that.

It also integrates online avatars which can represents users in their profiles, in parties friends can form to play together and chat, and even in some new games (such as the previously mentioned "Scene It: Box Office Smash"). Color me a bit skeptical about these rip-offs of Nintendo's Mii's. Especially for the hard core fan base of the 360, which I'm guessing won't want to have a cartoon replica of themselves online.

But I asked Live head John Schappert about that over lunch with some Microsoft execs and he said there will be options that appeal to more core gamers, like the ability to dress up your avatar in the outfit of a game character like Master Chief, Dom from "Gears of War," etc. (Those are just examples, not promises).

The first news from today's Microsoft press conference at E3 is the new game announcements. More posts coming very (very) soon on the new features in Xbox Live, new video partners, and the long awaited Netflix partnership:

Since all of the biggest console titles ("Gears 2," "Fable 2," "Rock Band 2," "Resident Evil 5" <wow that's a lot of sequels>) have been previously reported, I thought the most exciting announcements were actually on the downloadable side, so let's start with the new titles for Xbox Live Arcade:

-A new "South Park" game. Literally no details besides an announcement that it's coming in 2009, but given how popular "South Park" episodes are on Xbox Live Video Marketplace and how often I hear random players on Xbox Live quoting episodes, this seems like almost a no brainer hit. Especially if they manage to capture teh show's humor at least as well as "The Simpsons Game" did.

-"Portal: Still Alive." A sequel to the best videogame of 2007 (I don't know if I've ever said that on this blog, but that's my call) coming later this year as a download. According to Glados, whose voice showed up at the press conference, there will be new levels and achievements. I do hope that in addition to new challenges, it will also expand the original game's awesome story.

-Sequels to "Geometry Wars" and "Galaga Legions," both coming this year as well.

And the new console games:

-"Lips." As I reported (with a lot of help from Kotaku) last week, there's a new music game exclusively for 360. It's a karaoke title made by "Elite Beat Agents" developers iNiS and lets players import music from an iPod or Zune into the game. Not sure exactly how that'll work, but if it can really make any song work, that'll be amazing. Or maybe it's only songs that have been pre-cleared for "Lips?"

-"You're in the Movies." Players use the Xbox Live camera to move around in mini-games where they do things like run, swat away bugs, dance, etc. Then the game puts those video clips in a trailer for a B movie with totally different context. The resulting videos can be shared online. Could be an amusing party game. Was certainly amusing to watch Microsoft execs like Don Mattrick and Shane Kim play.

-"Scene It: Box Office Smash." A new "Scene It" trivia game focused on movies that uses those little remotes that Microsoft introduced at E3 last year.

So the Xbox 360's much anticipated price cut has come, but not quite in the way we expected. Instead of a clean $50 price cut as expected, Microsoft is phasing out the 20 gig "premium" model, previously $350, at $300 and then selling a 60 gig version for the same price: $350.

Matt Peckham at PC World (also a regular Variety critic) has a good analysis of what a mediocre value per storage gig this is (and he doesn't even mention what a spectucularly bad value per gig the Elite is now -- $100 for 60 extra gigs??). But why is Microsoft focused on giving users more storage? It strikes me that a price cut is really what's in order given the gains the PS3 has made recently.

But let's assume the execs in Microsoft's interactive entertainment division aren't stupid (probably a safe bet) and think about why they're doing this. I highly doubt that consumers care enough about storage that 60 gigs for $350 will make them buy a console that wasn't worth 20 gigs for the same price. So, beyond getting a temporary boost out of the 20 gigs consoles left for $300, Microsoft probably isn't focused on boosting sales. It's more concerned with giving storage. Why? Robbie Bach and Don Mattrick et al must care a lot about downloadable content. Whether because the profit margins right now are significant or because it has a lot invested in growing that business in the long run -- it wants users to download more movies and TV shows, casual games, etc.

Clearly downloadable content is an increasingly important part of Microsoft's Xbox 360 strategy. That's something we gamers and gaming journalists often overlook, since we don't get reliable stats on how many pieces of downloadable content are being sold. But it's an entire source of revenue that Microsoft makes and Nintendo doesn't that isn't captured by NPD stats.

Also interesting is that Microsoft has decided to drop the "premium" label on the $350 model, presumably so that when non-savvy consumers go in and ask for an "Xbox 360," they will get something without having to know anything more. But by having three models of the Xbox 360, two of which have adjectives after the name, we're left with a confusing situation. Check out this ridiculous sentence from today's press release announcing the storage increase / price cut:

Xbox 360 is just one of three Xbox 360 gaming and entertainment systems Microsoft offers.

I can't help but think about what might happen if some other companies adopted this brilliant branding strategy:

Cheese is just one of three brands of cheese that Kraft offers.

Camry is just one of over a dozen types of Camrys sold by Toyota.

iPod is just one of eight different types of iPods offered by Apple.

It's no surprise at all, of course, the "Rock Band 2" is coming this fall. There were lots of signs, from executive hinting at it to bands saying they'd be in it. Not to mention common sense that after all the money it spent buying Harmonix last year and the success of the first "Rock Band," even though it launched so late last year, this game is going to turn into a franchise.

But the fact that Microsoft landed it as a timed exclusive in North America is a surprise, and a big deal. No doubt Robbie Bach and Don Mattrick et al paid a pretty penny, either directly or in marketing support, for that deal. But combined with "Gears of War 2" and the pending price cut, that gives them a pretty compelling argument at E3 that they're going to have a boffo holiday season. Of course that's what they said last year with a price cut, "Halo 3," etc., and it worked during the holidays but faded come the new year.

No word yet on when "Rock Band 2" will come to PS3 and Wii (and maybe PS2?) except "later this year."Which I'm sure Nintendo and (especially) Sony is going to argue is all that really matters, since people will still be able to get "Rock Band 2" in time for holiday shopping. Not to mention "Guitar Hero: World Tour," which is going to be available for every system around the same time as "Rock Band 2" and pose a pretty formidable threat.

MTV and EA are saving a lot of the details about "Rock Band 2" for E3, which comes in just two weeks, but they are promising:

-New online modes. At a minimum, I'd guarantee that will mean the band tour will be available online. MTV execs I have spoken to admitted they know the fans wanted that. I'd also count on more competitive modes, including stuff like band battles

-New and improved drum and guitar peripherals. Though the old ones will still work. How closely will the drums resemble the new set for "Guitar Hero: World Tour?"

-Complete compatibility with songs downloaded for the original "Rock Band." Which makes sense since Harmonix has always spoken about "Rock Band" as a "platform," rather than just a game. Which means the online store will stay consistent even as the game and peripherals are updated

Of course, the big question hovering over it all: Now the "Guitar Hero" is essentially directly competing with "Rock Band" this fall with the "World Tour" version that has drums and singing... Which will be better? Since they're fundamentally the same game, it'll come down to a battle of features, quality, and, of course, marketing.

The Hollywood Reporter is confirming the circular scans that appeared on the blogs this past week... That Microsoft will indeed cut the price of the Xbox 360 by $50 around E3 time. They were the first news outlet to confident report the 360 price cut last year, so I'd say there's a good chance they're right again this time . And of course the price cut makes sense for business reasons given that the Playstation 3 has actually been beating the 360 in U.S. sales most months this year, despite a $50 higher price. Microsoft can't possibly afford to lose the holiday season to PS3. And with its price only $50 higher than the Wii, Microsoft is probably hoping it can more effectively compete against Nintendo, which of course has no incentive to cut prices given the current demand.

No word in the THR story what the price cut for the standard version of the 360 will mean for the $280 "arcade" version, which has no hard drive and comes packed with five casual games. One possibility is just killing the thing, which isn't selling too well and represents a weak attempt by Microsoft to position the 360 differently than the public fundamentally perceives the console. The other possibility is cutting the price to at least $250 and saying, "Hey, it's a better value than the Wii for the exact same price." Though I'm still skeptical whether that will work. Microsoft's problem with consumers buying the Wii is probably at even more about perception than price, at least at this point.

At this point it's safe to say that pretty much everyone, including me, will be shocked if Microsoft doesn't reveal all the details of its partnership with Netflix at its E3 press conference. Finally, as we all expect, those of us who are Netflix subscribers will be able to use the "watch now" feature on our TV without buying yet another set-top box.

But today, as many of you probably know, a relatively simple hack came out that lets people with a Windows Vista computer access Netflix via the 360's Media Center extender. The beauty part is that, except for the ability to download and save movies, this program doesn't seem to violate any terms of service, so there's no reason it should get shut down (or if it does, nor reason it can't get restored with the TOS-violating feature).

Like many people, especially gamers who've heard all the complaints, I don't have a Vista computer. But the great thing about this program is it sets a bar for Microsoft and Netflix. When they finally do launch their partnership, they had better at least be able to match the features that this vcmNetflix app has: streaming movies immediately, browsing and managing your queue, searching for new films, etc. And they had better not charge extra for the privilege. If they can't at least do that, they now know for a fact that people have a better alternative.

Over at GigaOM, a tech news site mostly dedicated to Internet stuff, Wagner James Au argues that "the era of next-gen gaming as a driving force is over." His evidence is that "Grand Theft Auto IV" hasn't boosted sales of the Xbox 360 and Playstation 3, as most industry observers expected.

I'm already on the record as being shocked that the PS3 and 360 got no visible boost from the debut of that monster game, indicating that most of the people buying "GTA IV" already have their system to play it on. That's not great news for Sony or Microsoft.

Nintendo's Wii, meanwhile, maintained its huge lead over both systems in April and May even though "GTA IV," which isn't available for the Wii, was the best selling game both months.

But I think Au is getting ahead of himself by saying that we can conclude neither hardware system has any life left in it sales-wise. "If Grand Theft Auto can’t move more machines, nothing can," he asserts. But "GTA IV" is a bit of an odd animal, since it came out in April, not anywhere close to the holidays, and it wasn't a single system exclusive. So there could still be plenty of people who own a 360 waiting to buy a PS3 and vice-versa.

To make any really definitive claims, I think we have to wait until the end of the year. That's when we'll have seen huge PS3 exclusive "Metal Gear Solid 4," huge 360 exclusive "Gears of War 2," and the holidays. If none of those 3 things, along with "GTA IV," can move hardware sales, then we can probably say that the two systems are about tapped out, at least at their current prices. And then we'll have to start asking some really serious questions about the wisdom of high powered, high priced game systems.

By the by, Au also argues that "['GTA IV's'] predecessor, 2004’s GTA: San Andreas, sold 21.5 million copies.  With GTA IV sales already plummeting, the franchise’s latest installment from Take-Two Interactive will be lucky to move 12-14 million copies total." That's really speculative. Given that it came out in April, I think we can reasonably expect that sales would fall dramatically after the first 9 million people get their hands on it right away. But there could easily be a huge sales boost around the holidays and continued steady sales for a few years as the price of the 360 and PS3 drop and the audience potentially widens. The game could still sell incredibly well. And even if it doesn't quite match "San Andreas'" 21.5 million units, that's understandable since the PS2 was more mature and had a bigger install base when that game came out.

And this statement, ultimately, is way over the top: "In other words, the days when so-called “next-gen” gaming reigned supreme are coming to end — instead, the industry’s future will be shaped by games like 'Rock Band.'" Sure, new kinds of games that appeal to broader audiences are an increasingly important part of the market. But "GTA IV," even if it doesn't quite match "San Andreas," will still be hugely profitable (hell, it grossed over $500 million in its first week). As was "Call of Duty 4," as are franchises like "Halo" and "Metal Gear Solid" and "Gears of War." We'll be seeing games like that for as long as videogaming exists, I predict. But as the industry grows and expands, a big chunk of that growth will be taken up by the new kinds of games and new kinds of systems. That's all. 

Wedbush Morgan analyst Michael Pachter is theorizing, with very good evidence, that Netflix is planning to start offering its Internet streaming service. As Pachter aptly points out, what other device could Netflix execs mean when they say they're moving it to "Internet enabled video game consoles?"

Based on Pachter's evidence and info I've gotten from sources, I'd say such a partnership is likely in the next few months, though nothing is yet confirmed. And it's a brilliant idea. One problem that companies like Vudu and Apple (with its AppleTV) have run into is that a lot of people don't want to spend money on yet another device to hook up to their television in order to get video content from the 'Net. The better solution is to do it with devices they already have that serve multiple purposes, like a videogame console.

The real question now is how it would would technologically and business-wise.

Would it be fully integrated into the Xbox Live service? Can the Xbox Live software, not to mention the 360 hardware, comfortably handle streaming? How high quality would it be? And will Microsoft get any cut of Netflix's subscriber revenue, or just be content to have a powerful marketing hook to reach the service's 8 million subscribers? Also, would the deal be exclusive, or could Sony get in on it soon as well?

GameDaily (on BusinessWeek) theorizes that this could hurt Xbox Live Video Marketplace, but I doubt that. The only potential downside is people who are already Netflix subscribers and Xbox Live Video Marketplace users who would be less likely to rent movies from XBL if they could easily stream via their Netflix account (that's a category to which I actually may belong; but I don't think there are a lot of us). However I'm sure that tiny amount of lost revenue could be more than made up for by getting a portion of the Netflix subscriber base to buy Xbox 360s.

Some of them might even use XBL to rent some videos anyway, since Microsoft has the advantage of offering video downloads in high definition, which you can't achieve via streaming.

Breaking news on Variety... I have learned from good sources who know what Take-Two is selling into retail that "Grand Theft Auto IV" is poised to gross over $400 million worldwide in its first week, beating the record set in September by "Halo 3," which grossed $300 million.

Also, while I'm always wary of such comparisons since spending on movies vs. games is so wildly different, it's worth noting that "GTA IV" will be right on par with the biggest movie debut of all time, "Pirates of the Caribbean: At World's End," which grossed $404 million worldwide its first day.

All the details are available right here on Variety.com

Also of note to Cut Scene readers is that I spoke to GameStop's senior VP or merchandising Bob McKenzie for the story. He's being a little more conservative with his estimates right now than the people I spoke to who know what Take-Two is selling to all retailers worldwide. Right now McKenzie thinks "GTA IV" will be a little smaller for his chain than "Halo 3" was.

On the other hand, Blockbuster CEO Jim Keyes told me that he expects "Grand Theft Auto IV" to "likely to do two times the volume that 'Halo 3' did" for his store. (More on Blockbuster's plans for "GTA IV" coming in another post soon.)

But I also asked McKenzie how the two different console versions of the game were looking for GaneStop and he shared this:

"Looking at the way pre-orders are trending, we're expecting it to be a little stronger on 360 than PS3," he told me, though he (unsurprisingly) wouldn't go into details on what the exact percentage would be.

So... we've had the poll on Joystiq, we have the GameFly rental data, we've had the debates about whether the highest install base of the 360 and the exclusive downloadable content would trump "GTA's" historical association with the Playstation console... and now we have our first solid data. It looks like Xbox 360 is going to beat PS3 for this game.

HOWEVER... it's worth noting that the 360 currently has a significant lead over the PS3. As of February, it was 9.6 million compared to 3.8 million in the U.S., according to NPD. So if the 360:PS3 ratio of "GTA IV" sales is closer than that, like say 60/40, that has to be considered something of a win for Sony, as it implies a higher tie ratio for their console and could potentially sell more PS3's than 360's. That would at least tighten the race between the two.

Xbox Live Video Marketplace already has feature films, TV shows, and Internet shorts, but everything there has always aired somewhere else first.

But later this year it’ll be getting its first premiere. Safran Digital, the division of producer Peter Safran’s company that does… guess what?... has struck a deal with Microsoft to premiere some short form programming on Xbox Live later this year.

They’re not yet ready to talk about what the content will be or who’s making it, though I would expect some of Safran’s clients like Nia Vardolos, “Epic/Date Movie” guys Jason Friedberg and Aaron Seltzer, or P. Diddy might be involved.

Jake Zim, the former Fox Atomic exec who is now COO of Safran Digital (and, I should admit, someone I know outside of journalistic reporting) would only say that the content will be under 10 minutes and in the kind of genres we can expect the young men who primarily populate Xbox Live to most consume, like comedy and horror. And no, none of it will be stuff that’s actually about video games. Perhaps that’s a little too on the nose.

There are lots of places to premiere content online, of course, and Zim said Safran Digital will be making deals with several of them. But he likes premiering some content on Xbox Live because it’s an easy way to get onto the TV and it’s much easier to get your content featured and found.

“Xbox Live is actually programmed carefully,” he noted. “You’re not going to get lost in a deep sea like on the Internet.”

Up to now, all of the content on Xbox Live has been pay-per-download, with the exception of some sponsored promotions. But the Safran Digital stuff may be advertiser-supported, though it’s not yet clear exactly how that will work. Microsoft execs have previously told me they’re looking at more options to allow free video downloads via advertising, so I wouldn’t be surprised if we see more of that even before Safran Digital’s stuff debuts.

Scott Nocas, Xbox Live’s programming marketing manager (fun title) says this is just the first programming deal he expects the company to make. And why not? You’ve got a captive audience of young men – just the types who are spending less time consuming movies and TV – so why not program to them?

In fact, way back when the Xbox 360 was launching in late 2005, I wrote about how the console’s Internet connection would let it become, essentially, a cable box for gamers. It’s coming true. Which means Microsoft – and, maybe one day soon, Sony -- is becoming a more and more powerful arbiter of what content gets put in front of a very sought-after demo.

I wouldn't be surprised if Playstation 3 is in the headline for most stories about the January vidgame  sales data from NPD, but to me the biggest surprise was "Rock Band."

While most of the top 10 games chart was the same as we saw in December, "Rock Band" rocketed from nowhere (at least not in the top 10) to take the no. 4 slot with its Xbox 360 version. Aided by a high price compares to typical games, and even "Guitar Hero III" with its controller, "Rock Band" across all three of its platforms was the no. 1 revenue generating game for the month at $30 million.

"Rock Band" even sold better on the Xbox 360 than "Guitar Hero III," by a razor thin margin of 184,000 compared to 183,000. Of course, "Guitar Hero III" for Wii did even better, though, selling 240,000.

On the hardware side, the shocker is that PS3 outsold 360 for the first time and almost beat Nintendo's Wii (exact sales figures below). As I noted in my story for tomorrow's Daily Variety, there were likely several contributing factors, including:

-More PS3's in stock after the holidays than the competing systems, both of which outsold it all of last year.

-Warner Bros' decision to switch to Blu-ray, essentially ending the format war and putting PS3 in an excellent position as an inexpensive, multi-use Blu-ray player.

-Good old fashioned momentum for the PS3 thanks to the price cut and a growing library of solid games like "Uncharted" and "Ratchet and Clank: Future."

Of course, it's still worth noting that only one PS3 game was in the top 10 and for total system spend on games, hardware and accessories, Xbox 360 remains in the lead (360: $297 million; Wii: $244 million; PS3: $219 million). Clearly, 360 still has the hearts of the hard core gamers with the most cash to burn.

Here's the data so you can make sense of it yourself:

January 2008 hardware sales

Wii: 274,000

Playstation 3: 269,000

DS: 251,000

PSP: 230,000

Xbox 360: 230,000

January 2008 game sales

Call of Duty 4, Xbox 360: 331,000

Wii Play, Wii: 298,000

Guitar Hero III, Wii: 240,000

Rock Band, Xbox 360: 184,000

Guitar Hero III, Xbox 360: 183,000

Super Mario Galaxy, Wii: 172,000

Burnout Paradise, Xbox 360, 144,000

Call of Duty 4, PS3: 140,000

Mario Party, DS: 139,000

Mario and Sonic at the Olympic Games, DS: 133,000

Since Warner Bros. made the switch to Blu-ray at the Consumer Electronics Show, Toshiba has responded by slashing prices on HD DVD players. Though only two studios release movies in the format now, Toshiba seems to be banking on consumers buying HD DVD players just because they're cheaper, denying Blu-ray the dominance in player sales it expects to follow from a larger supply of content.

With Blu-ray taking a commanding lead, many suspected that Microsoft, a longtime HD DVD supporter because its software is used in the format's interactive applications, would jump ship. But not yet. Today the tech giant followed Toshiba's lead (perhaps helped by a subsidy from Toshiba?) and slashed the price of the HD DVD drive that can be connected to the Xbox 360 from $180 to $130. And Amazon.com is offering it for the super cheap price of $80. (hat tip: cheapassgamer)

Of course, for potential buyers who want a videogame console and hi-def player, $400 for a PS3 with Blu-ray is still cheaper than $350 for an Xbox 360 plus $80 -$130 for the HD DVD drive. But given the 360's other advantages (more and better games, superior online), not to mention its higher install base, that's still serious competition. Despite what we all thought at CES, I wouldn't look for the hi-def DVD war to end all too soon.

It's time for the video game industry to get over its obsession with titles being officially "announced."

Let's get real. Barring global catastrophe, there is going to be a "Gears of War 2." I know people who have seen levels being built for the game. People who work at Microsoft have casually referred to a "Gears" sequel in conversations with me as if it's obvious and not a big deal. But of course we all know it's coming. What are the odds that a multi-million selling action title published by a console manufacturer as an exclusive wouldn't get a sequel? About the same as Mike Gravel sweeping the primary elections today.

Nonetheless, videogame websites and blogs are abuzz today because the latest issue of GamePro teases a "Gears of War 2" story on the cover. "'Gears of War 2' officially confirmed?" is the urgent question in GameSpot's "rumor patrol." Then everyone followed up with "breaking news" follow-ups like this one on GamesIndustry: "Gears of War 2 announcement "complete nonsense.'"

Treating an official announcement as "news" is just another way that the gaming press allows publishers and publicists to control them. Imagine if political reporters refused to say last year that any of the candidates were running until they made their official announcement speech? Or if TV reporters treated it as a big deal when ABC announces that "Grey's Anatomy" will be back next fall. It's ridiculous, so why do we tolerate it in the videogame world?

The working assumption in every story should be that "Gears of War 2" is in the works. It's a fact and should be reported as such. If and when Epic/Microsoft shares details about the game, then sure, that's interesting. And maybe that'll happen as soon as GDC in two weeks. But someone official saying the game is coming, or saying they haven't made any announcements yet, is not news. If game journalists and players want to incentivize publishers to stop treating us like idiots, we should completely ignore the existence or non-existence of an "announcement."

(Oh, and if you're wondering when "Gears 2" will come out, consider this fact: When New Line got the rights to make "Gears of War" movie, producers said they are aiming for a summer 2009 release. Who knows if that will happen given the writers' strike and other development issues, but my guess is they'd love to come out the same year as the game sequel.)