Earlier versions of Xbox 360 came with 20 gigabytes of storage. But that filled up too quickly with movies, TV shows and games from the Xbox Live Marketplace online store, said Peter Moore, a corporate vice president in Microsoft's Interactive Entertainment group.
The new Xbox 360 Elite will sell for $479.99. Consumers who already own the $399.99 20-gigabyte model will be able to buy a snap-on 120-gigabyte hard drive for $179.99.
Both the new console and the drive are expected to hit U.S. shelves April 29.
Microsoft also added an HDMI connection, which sends high-definition content from the console to the TV without losing picture or sound quality, while also helping prevent piracy.
Xbox 360 was the No. 2 U.S. video game console after Nintendo Co.'s Wii in January and February, according to data from market researcher NPD Group. The Xbox outpaced Sony Corp.'s PlayStation 3, a $599.99 console that plays Blu-ray DVDs.
Microsoft's decision to upgrade the Xbox 360 is the latest of many steps the software maker has taken to position its products at the center of home entertainment.
Microsoft has incorporated Media Center software, which can turn a computer into a digital video recorder, movie and music player, into all but the most basic version of its new Windows Vista operating system.
And Xbox 360 users can connect the console to their home network, then stream movies, music and other content from computer to the Xbox and television. Unlike Sony, Microsoft hasn't added a high-def DVD player to the console, but consumers can buy an external HD DVD player for the Xbox for $199.99.
On Wednesday, Microsoft also announced deals to bring new high-def video to the Xbox Live Marketplace, including New Line Cinema's film "Snakes on a Plane" and upcoming releases from Warner Bros. Home Entertainment's direct-to-video division.
Microsoft's focus on downloadable high-def video sets the effort apart from the competition, said Moore. He said the content fills a gap between cable companies' DVR services for fresh TV episodes, Tivo Inc. and Amazon.com Inc.'s standard-definition content available over the Web, and Apple Inc.'s recent move to send iTunes movies and music to the TV from a Mac.
At the core, though, video game players aren't going to choose their system based on its ability to play movies or television shows, said Anita Frazier, an analyst for NPD Group.
"To the extent (the consoles) do other things, it's great, but this industry is all about the games," she said.
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