Last week, Newsweek columnist N'Gai Croal wrote an interesting piece on his Level Up blog regarding the state of Microsoft Game Studios and first-party titles for the Xbox 360 in the wake of the "Killer Bs."

With Halo maker Bungie officially independent once again, Project Gotham Racing studio Bizarre acquired by Activision, Mass Effect developer BioWare purchased by Electronic Arts, Shadowrun developer FASA dissolved, and Rare arguably not living up to the $375 million that Microsoft paid to acquire them, it's hard to deny that Microsoft's first-party efforts have taken a blow recently.

Croal argues that the "Killer Bs" phenomenon "strongly suggest[s] that the house that Shane Kim built may rest on quicksand." He added, "...it's only a matter of time before Bungie starts making games for platforms besides Xbox 360. And if we're not mistaken, Bungie's exit means that Microsoft no longer has an internal studio that makes action games." Furthermore, Croal believes that Microsoft's publishing rights for Epic's blockbuster Gears of War franchise extend only to the second iteration; so assuming there's a Gears 3, it could very well end up on PS3.

But is Microsoft's first-party situation really as tenuous as it seems? Should Xbox 360 gamers be concerned? How much has Microsoft been hurt by the "Killer Bs"? GameDaily BIZ took the pulse of some of the top game industry analysts to answer that question.

Mike Hickey, Janco Partners

MSFT clearly benefits from exclusive killer (+ 90 metascore) content... BioShock (96-meta), Halo 3 (94-meta), PGR 4 (85-meta), Mass Effect (?-meta), GTA IV + exclusive episodic content (?-meta), Gears of War (94-meta), Forza Motorsport 2 (90-meta), etc.

We think MSFT has intelligently constructed a large stable of exclusive content, enough to sway gamers toward their console over the PS3, which we believe is their most direct competitor. Despite the isolated loss of forward exclusivity, killer exclusive content like Halo and BioShock has both retail shelf and gamer library value, likely driving purchasing decisions for many years to come. Even if a hypothetical Halo release was someday available on the PS3, if the game was of such theoretical purchasing decision value, fans would have likely already purchased an Xbox 360 as they would value prior iterations of the franchise which could only be found on the Xbox 360.

Interestingly, the story line of video game play has become increasingly more relevant to gamers; future non-exclusive game releases would not offer a gamer the opportunity to connect a particular franchise's story line, which would significantly erode the meaningfulness of that game's release on a competitive platform. We believe the story line value is especially relevant on the front end of a console cycle, where gamers begin to build their library of games.

High quality core game offerings can take several years to develop, so a recent Xbox 360 exclusive release like Mass Effect could take several years to follow up with a "part 2" platform agnostic proposition, at which point the installed base allocation will have likely been determined. While Microsoft will likely have fewer exclusive offerings in the future, their current exclusive portfolio of games will likely continue to drive gamers to the Xbox 360.

We believe the upcoming holiday will mark an inflection point in installed base growth, significantly favoring the Xbox 360 versus the PS3. Considering the dramatic domestic separation in installed base size between the Xbox 360 and the PS3, we anticipate MSFT will have ample opportunity to sign exclusive agreements with independent developers who are not necessarily willing to devote significant resources to the development of PS3 games, which have a much smaller domestic market opportunity and have proven exceedingly difficult to develop.

All things being equal, we expect MSFT would favor signing exclusive deals with independent studios and collecting a sizeable royalty upon the game's release versus managing a large internal studio portfolio and the inherent operational risk with a potential poor release. Even platform agnostic game offerings have shown a quality bias toward the Xbox 360 (see Madden reviews), providing gamers a non-exclusive reason to favor the Xbox 360 over the PS3.

We also believe Sony's lower software attach rate versus the Xbox 360 is a detriment to the potential market opportunity of a game offering. We expect a growing percentage of PS3 purchases will come from non-gamer types who are looking for a reasonably priced Blu-ray player versus a game console and are therefore less likely to purchase as many video $60 video games.

Independent developers and publishers will likely continue to ask themselves, "Why should I devote significant resources to the development of a PS3 game when the installed base is so small and the game development continues to prove so difficult?" ... versus focusing their development efforts exclusively on the Xbox 360, where the finished game quality is likely better and far less time consuming. If a legitimate franchise is created on the Xbox 360, a future franchise release on multiple platforms could make more sense with less market risk.

We believe the recent release of BioShock from Take-Two Interactive is a prime example of game development risk management. The company's 2K Boston development team was likely able to manage a much lower development cost for BioShock by focusing purely on the Xbox 360 (and PC), while maximizing game quality and market opportunity. Now that they have proven the forward franchise value of BioShock, it's likely they will devote additional resources to extend that franchise to other platforms while having a much better understanding of the game's potential economic return.

Next page: Michael Pachter, David Cole and Todd Greenwald...