In tough times, escapism is big business – and the games industry is reaping the rewards. Jimmy Lee Shreeve reports on the consoles vying for victory

During the Great Depression of the 1930s, Hollywood thrived because it offered people a way to escape from austere times. Today, the video-game industry is providing exactly the same service. Meltdown might only be a heartbeat away for many industries, but business is booming for a number of games corporations. As 2008 drew to a close, global sales of console hardware and games software hit a record $49.9bn, according to UK consulting firm Screen Digest.

With so much at stake, it will come as no surprise that there's a bloody war for market dominance being waged between the "big three" console manufacturers. Microsoft, Nintendo and Sony are pitted against each other in a battle over who can win the hearts – and cash – of the world's gamers.

In terms of sales, Sony Corporation's PlayStation 3, which was launched in November 2006 in the US and in March 2007 in Europe, is increasingly being seen as the runt of the litter. It has long lagged behind Microsoft's Xbox 360, which went on sale in late 2005, and Nintendo's Wii, released a year later. The PlayStation 3 made some inroads on the Xbox in Europe, even jumping ahead of it in May 2008. But optimism quickly turned to gloom when CNN declared the console a "sinking ship" after figures from market researcher the NDP Group revealed that the PS3's November 2008 sales in the US had dropped by 19 per cent compared with November the previous year.

Break it down into units sold and the picture looks even bleaker. At the end of September, 17 million PS3s had been sold worldwide, compared with 28 million (its current total) Xbox 360 machines and 35 million Wiis. Yet go back a generation and the PlayStation 2 was shattering sales records and generally coming out victor in the war with Microsoft and Nintendo.

So what went wrong? Many believe Sony shot itself in the foot by making the PS3 too pricey. You can pick up a Wii for around £180, and an Xbox 360 (Premium) for around £170, but a PlayStation 3 (80GB) will set you back about £280/£300 – a stark price difference in the deepening recession. Another issue with the PS3 is you can't play PS2 games on current PS3 models (although you can on first-generation PS3s).

Then there's the Blu-ray drive, which plays high-definition (HD) films. Critics often dismiss this as a white elephant, saying people are put off by the fact that they need to invest in an HD television to benefit from the Blu-ray player. And as cheaper, stand-alone Blu-ray players have hit the market, what could have been seen as a unique selling point has become less attractive – further increasing Sony's woes.

Ed Barton, games analyst at Screen Digest, however, thinks Sony's gamble on Blu-ray is a winning move. While he accepts that many people will opt to buy cheaper, entry-level Blu-ray players, he believes that "video consumers are likely to purchase the PS3 as the most cost-effective, future-proof Blu-ray player."

Another thing that could help the PS3 is the possibility that it will go 3D later this year. But what is most likely to get units flying off the shelves is a price cut. And this looks like a distinct possibility, as Sony has reduced PS3 production costs by 35 per cent. Nevertheless, there is no escaping the fact that the PlayStation division of Sony has lost a frightening $3.4 bn in the past two fiscal years.

The Wii – with its motion-sensitive remote control or "Wiimote", which can be used as a sword, boxing glove, tennis racket or fishing rod depending on the game – has not only become a huge hit around the world, but has also helped bring gaming to a wider audience. The phenomenally successful Wii Fit game, which is primarily aimed at women and older people looking to lose weight and get fit, is a perfect example of this. Activities range from yoga to slalom skiing, and according to the blurb, the game will help "improve posture and strengthen your body". Bundled with the game package is a wireless "balance board" on which you stand, sit or lie to perform the various exercises. The board tracks your centre of gravity and can also calculate your body mass index and level of fitness for your age. The Wii Fit is selling like wildfire, but to a new audience of casual gamers who respond well to its low price, easy-to-play games and non-threatening image.

The Xbox, on the other hand, continues to be perceived as the console for the hardcore gamer. Arguably, one of the reasons the Xbox 360 has trailed behind the Wii – despite a year's head start – is down to it being plagued with problems in its early days. Hardware failures and the "Red Ring of Death" (three red lights on the Xbox's power button signalling "core digital" failure) didn't do much for its reputation.

Then there was the HD DVD misjudgement. When it first designed the 360, Microsoft put its money on the HD DVD format (whereas PlayStation put it on Blu-ray) and offered an external disc player for watching films. But the format went belly-up and Microsoft naturally stopped making the add-on. Right now, the Wii has market dominance. But future battle lines are likely to be drawn beyond the living room – in the realm of online services. Microsoft, for example, has created a thriving online Xbox Live market-place, which connects gamers via broadband to other gamers around the globe. It also lets you download games, free demos, movie trailers and HD movies.

The PS3 has its PlayStation Network, which offers online play for free (unlike Microsoft, which charges its Xbox 360 gamers via Microsoft Live). You can also download games, demos and videos – and watch streaming videos from sites such as Hulu.com in full-screen mode. Sony has also recently launched its much-anticipated – and delayed – PlayStation Home virtual world, which is similar to Second Life. It's free to join and lets PS3 gamers chat, interact in the virtual environment and launch multi-player games.

Like the other two consoles, the Wii also connects users to the internet (via built-in Wi-Fi), opening up a variety of Wii channels for news, weather, games, and more. Plus you can download an Opera-based web browser, which costs 500 Wii points (£3.75) and is also used to stream BBC iPlayer videos.

So who will win the console war in the long run? It remains to be seen. But legendary Japanese video game designer Tomonobu Itagaki makes no bones about it. He admits to admiring the Nintendo Wii's dedication to innovation, but thinks that the "Xbox 360 is the best games console on the earth. It's better than PlayStation 3." So until the next generation of consoles is born, this war looks set to run and run.

Let the games begin: The best bundles

Xbox 360

Created by: Microsoft

Launched in UK: November 2005

Best price: £176.19 for Arcade console only, Elite console with 120GB £227.59 from www.tdgstore.co.uk

Game to play: 'Gears of War 2'

Wii

Created by: Nintendo

Launched in UK: December 2006

Best price: £176.19 for console with Wii Sports game from www.amazon.co.uk

Game to play: 'Wii Fit'

PlayStation 3

Created by: Sony

Launched in UK: March 2007

Best price: £293.61 for 40GB console with no games, £309.99 with 'Call of Duty: World at War' www.game.co.uk

Game to play: 'LittleBigPlanet'

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