As the battle is joined, Microsoft execs are smart enough to understand that they've got some weaknesses to shore up in their Xbox business. And they've been working overtime to do so, primarily by securing as many exclusive third-party games or exclusive content deals as possible. Electronic Arts' FIFA and Konami's Winning Eleven soccer games, which are both popular in Europe/PAL territories: exclusive through Fall 2007. Take-Two's Bioshock, an Ayn Rand-meets-Jules Verne first-person shooter than won many plaudits at the Electronic Entertainment Expo in May 2006. The next installment of Ubisoft's Splinter Cell. Downloadable content for Grand Theft Auto IV. All locked up by Microsoft corporate vice president Peter Moore, his indefatigable team, and Uncle Bill's bottomless wallet.

Moore's job, however, was made easier by the fact that for the greater part of this year, PlayStation chief Ken Kutaragi hadn't finalized the business terms for independent publishers on the PS3. And without that, he was reluctant to greenlight any expenditures on Western third-party exclusives. In previous generations, Kutaragi's slowness hadn't been much of a problem because the first two PlayStations launched in Japan 8-12 months ahead of North America, leaving plenty of time to nail things down with Western publishers. But with the PS3 launching in North America just a week after Japan--and a year after a fiercely competitive Microsoft--Kutaragi's tardiness became a major issue.

We've learned that Take-Two and Rockstar Games were interested in continuing their longtime relationship with Sony, in which they premiered their Grand Theft Auto games on PlayStation platforms exclusively for 6-12 months before bringing them to other systems. Also, Ubisoft was interested in making Assassin's Creed, due in stores next spring, exclusive to the PS3. But neither company's top executives--all extremely important figures in the games industry--could get an answer from Kutaragi. PlayStation's Japanese headquarters was effectively radio silent, and without Kutaragi's signoff, the normally independent American and European branches had no authority to reach agreements on the exclusives they believed could be valuable to the PS3 cause.

While Kutaragi dragged his feet, Microsoft's top brass called these third-parties almost daily, asking each of them, "What would it take for you to publish these games on 360?" Finally, the executives could wait no longer, and both Take-Two/Rockstar and Ubisoft cut deals to make their games available on Xbox 360 as well as PS3. None of the 3^rd party executives we spoke with would address the matter directly. One source, who asked for anonymity because of the sensitive nature of these negotiations, says "I do have to give Microsoft a lot of credit for going after titles and doing whatever they can to generate third-party support. They've been magnificent in this generation."

SCEA executives were no more eager to address these charges head-on. "I don't want to get into confidential discussions with another company," says Tretton, "but there was interest on Take-Two's part to bring Grand Theft Auto onto Xbox platforms. We wouldn't encourage them to do that. The interest came from them."

When asked whether Sony's resurgent strength as a console games publisher was pushing the company to shun exclusives, Tretton denied it. "We're the only company in this industry that's got development resources and talent that have established Number one hits on all three continents," he says, which is true, since the bulk of Microsoft's studios are in North America and Europe, while Nintendo's are concentrated in Japan." We really feel like we're well positioned to contribute platform-defining games from a first-party standpoint, and we're not dependent on third-party community to the degree that a Microsoft would be. That being said, you would be crazy to say that you would never entertain or not welcome exclusives. It's just a question of how deep into your pockets do you have to reach to secure that? Desperation breeds deep pockets. Confidence breeds the opposite. When it makes sense, you do the deal. When it doesn't, you pass."

Click here for Part I. For Part II, click here.