Its code name is "Freon," reflecting the notion that it is the coolest secret project at Microsoft Corp. these days, at least in the eyes of the Xbox video-game division, Monday's Wall Street Journal reported. What Freon stands for is a souped-up successor to the Xbox console -- capable of playing games but also offering television capabilities, such as pausing live TV and recording shows onto a computer hard drive, say people familiar with the effort. Though it is unclear whether such a product will ever be built, its core concept appears to have the backing of Microsoft Chairman Bill Gates, who wrote in an internal memorandum in January that he was a "big fan" of a machine that would combine video services with gaming.

Such a device, which could cost around $500, would have another big advantage: It could beat video-game market leader Sony Corp. to the punch. Microsoft officials are mulling releasing some kind of new game machine sometime next year or in 2004, say people familiar with the matter. That timing could shake up the $20 billion global video-game market, breaking a long- established pattern of developing and releasing new systems in roughly five-year cycles. Sony, the undisputed leader in a three-way race with Microsoft and Nintendo Co ., isn't expected to release its next PlayStation system until 2005.