Next generation of videogames will play for high stakes.

Sony Corp.'s videogame guru, Ken Kutaragi, announced this summer that the Japanese consumer electronics maker would unveil its new PlayStation console next year at a trade show in Los Angeles. Hours later, his competitors at Microsoft Corp. struck back, saying they would introduce their next Xbox console on the same day.

"We'll be there," said Robbie Bach, senior vice president for games at the Redmond, Wash.-based software maker.

Microsoft couldn't afford to miss a face-off in its battle for videogame market share. Three decades after bars, arcades and college campuses went crazy over Pong--two electronic paddles that bounced a blip back and forth on a screen--the videogame industry is the fastest-growing part of the $1 trillion global entertainment industry, according to consulting firm PricewaterhouseCoopers LLP.

Sony, Microsoft and Nintendo Co. of Kyoto, Japan, are targeting a market that's poised to more than double to $55.6 billion in 2008 from $22.3 billion last year.

The videogame war is about to escalate. Today's consoles, the specialized computers that hook up to a TV, are nearing the end of their six-year cycles. That means the first company with a new machine will gain an edge in grabbing the world's 430 million gamers for years to come. Bach blames Tokyo-based Sony's 6-to-1 dominance in game consoles on Microsoft's 18-month lag in introducing the first Xbox, in 2001.

"We won't be late again," said Bach, in his office down the hall from a pseudo living room where visitors to Microsoft's Xbox campus test offerings like "Fable," a game that transports them to a medieval world.

In the U.S., $10 billion in videogame-related hardware and software sales last year exceeded the $9.5 billion that the Motion Picture Association of America said was generated in movie box office revenue.

More than 40 percent of American homes now have a console, according to NPD Group Inc., a New York-based market research firm. "An industry that started in the garage shop and the arcade has grown up to be a serious business," Bach said.

Digital home

For Microsoft and Sony, the new consoles are more than cool gizmos to part teen-age boys from their disposable income. Both companies are positioning their machines as crucial to their battle to control entertainment in the digital home.

"The stage is set for a showdown between the PC and the consumer electronics industries about how consumers will move content and entertainment around their homes in the next five years," said P.J. McNealy, an analyst at San Francisco-based American Technology Research, an independent research firm.

Sony's approach is to blend its game console with electronic appliances and control all of them with what Chairman Nobuyuki Idei calls a "home server." The server, due in 2006 or 2007, will manage everything digital: games, Internet access, music, photos and video-on-demand.

Microsoft's Media Center Edition PC, now in its second version, is Chairman Bill Gates' answer to the home server. In January, Microsoft announced it would introduce a package of hardware and software to connect the Xbox to the Media Center PC, a souped-up computer with a TiVo-like video recorder and programs that manage music and photos.

As Microsoft, Sony and Nintendo maneuver with their consoles, they're struggling with a more immediate hurdle: declining sales. Gamers are delaying purchases while awaiting the new consoles.

In the first six months of 2004, U.S. sales of consoles and paraphernalia dropped 17 percent to $631 million, according to NPD Group, whose numbers exclude big retailers such as Wal-Mart Stores Inc.

New titles based on the "Harry Potter" and "Spider-Man" films boosted software sales for PCs and consoles 4.3 percent to $1.7 billion in the first half, less than the 6 percent pace for the same period in 2003.

Anthony Gikas, a games analyst at Minneapolis-based investment bank Piper Jaffray Cos., predicted a bleaker 2005.

To tide them over until the next consoles hit the shelves, game companies are targeting new audiences. One big focus is women. In the past, as many as 90 percent of game players were men. "It's a huge business opportunity," Bach said.

For mobile-phone users, another new arena, games such as "Tiger Woods Golf.' let players hit a few strokes between calls. Electronic Arts is betting that Internet surfers will want to take on opponents on the other side of the globe.

Larry Probst, chief executive of Redwood City-based Electronic Arts, the No. 1 game producer, said his company will benefit from the proliferation of devices, online products and new technology. He said each generation of technology expands the gaming market--adding online players, cell phone users and more women. Sony, Microsoft and Nintendo will be battling for these new gamers, as well as old ones, as they race toward next year's deadline.

Their investors will be watching to see which of the videogame warriors will wring more profits out of their new machines.