Online play, powerful processors, wireless hardware and exclusive games are just some of the new standards these systems must meet.
Microsoft is continuing its emphasis on online games through Xbox Live for its new Xbox 360 system coming out in time for the holiday season. Many of the new titles include an online component and all will have a customizable soundtrack users can download.
"The Xbox 360 is one of the most powerful next generation consoles," Shane Kim, general manager of Microsoft Studios, told United Press International. "The hardware will be able to deliver high-definition graphics and audio. It will continue to be the leading online service provider for Xbox Live."
The system includes a detachable 20 gigabyte hard drive, wireless controllers, three cores running at 3.2 gigahertz each and a built in DVD drive and video camera. The face and controllers also will be customizable with different faceplates, and users will be able to watch movies and television shows they have downloaded onto their computers via the new system.
By striking a deal with Square Enix to support Final Fantast XI -- a popular online role-playing game -- and a series of other role-playing games, Microsoft also is reaching out to a new fan base.
"We're trying to appeal to everybody -- certainly we've appealed to the Xbox generation," Kim said.
Big, exclusive titles are what will really drive the market, according to David Cole, president of DFC Intelligence an entertainment market research group in San Diego.
"I think getting Square Enix was a big thing for Xbox," Cole said. "It's no longer an exclusive title fueling Sony."
Douglas Lowenstein, president of the Entertainment Software Association in Washington, said reaching out to new demographics is one of the main areas in which the industry needs to improve during his keynote address.
"We need a cultural shift so that young women don't feel that playing games is a hobby monopolized by their boyfriends and husbands," Lowenstein said.
Nintendo also is trying to reach out to an older audience by opening up the entire Nintendo catalog to The Revolution, their new console system coming out later next year. Users will be able to download and play classics such as Super Mario Brothers and the first Zelda games.
The company has not yet released much information about The Revolution. It is supposed to be the width of three CD cases and increase the processor speed using IBM's Broadway CPU. The system will be wireless and support multi-player online games.
"Our focus is a little different," said Beth Llewelyn, senior director of communications for Nintendo. "While they're looking at who owns the living room, we just want to produce games that are fun to play. Without good games a system is just a box."
Nintendo purposefully is not releasing details of the system, but the launch will be in 2006, Llewelyn said. "We want to do more innovative things for The Revolution, just like we did with the Nintendo DS," she said, and noted Nintendo has been unfairly pegged as a system for children.
"We plan to have content for an older gamer and younger," she said. "We already have Metroid, Resident Evil, the Tom Clancy game and more that are definitely aimed at older audiences."
Cole said he thinks Nintendo is going to have a hard time fighting that image. "Nintendo has lost a lot of steam because it lost the older market," he said. "They can reinvent themselves, but it'll be hard."
Sony is emphasizing power with the Playstation 3, scheduled for debut next spring. It is also using Power-PC processors and will be able to process up to two teraflops. It also comes with built-in wireless, a high definition DVD player, Bluetooth capabilities and Dolby Digital surround sound. It will be backwards compatible.
A new feature is a dual screen that could allow two players to look at completely different images. During a demo, one person played a game while another other viewed video images of the opponents.
"We have always attempted to do things differently. Our vision has taken us to unprecedented levels of success and innovation. Just keeping up with conventional technology is not enough for us," Kaz Hirai, president and chief executive officer of Sony Computer Entertainment America, said at a news conference.
Many of the titles coming out for the Playstation 3 are newer versions of popular games including Warhawk, Final Fantasy VII, Killzone, Mobile Suite Gundam, Fifth Phantom and possibly a new Red Dead Revolver.
It is difficult to tell which system is going to win out in the end, Cole said.
"This time the playing field is a lot more even," Cole said. "Sony is the one to beat because it's been in the lead, but the great thing about how the gaming industry works is that you get to reinvent yourself every five years."
What games become popular will dictate the early market, because people will not know what much of the new technology is really capable of until later, he said.
"A lot of the online features may not be a selling point early on because people won't really know everything it can do," Cole said. "Eventually, people will be amazed."
The Xbox 360 could have a slim advantage by coming out earlier, he said.
"Generally what happens is that the software is not up to full potential when the systems come out," Cole said. They'll have second generation software ready by the time the other two consoles hit the market. The PS2 had a big advantage by getting out early, but the first year sales tend to be pretty modest so it's hard to tell how much of an advantage they'll really have."
Whether the systems will even have the ability their companies claim remains to be seen, he said, adding that he expects a shortage of parts and systems when it comes time to ship the systems.
"Meeting consumer demand is going to be a big issue," Cole said. He expects the beginning prices of the systems to be around $300.
"One thing we saw with the last systems was that they kept a much higher price than expected. In the past you had to lower the price to keep moving huge numbers of units," Cole said.
As prices do drop, there may not be as much of a system war as in the past, he said.
"People are buying more than one system as the prices come down," Cole said. "That's something we didn't use to see."
In the end, Cole said he thinks an unexpected game or feature will be what drives sales.
"There's always something that comes out and capture's peoples' attention that we just don't see coming," he said. "That's what is going to drive the next system. That's what makes this so exciting."