Microsoft has counted on its Xbox Live online service to set its console apart from rivals. The service lets users download hundreds of games, as well as television shows and movie rentals.
But gaming Web sites and forums have been filled in recent days with complaints from users frustrated by not being able to sign on to the service or play online.
Xbox Live General Manager Mark Whitten said the problems stemmed from a "massive increase" in new users of the service over the holiday season, when sales of video game hardware and software surge.
"While the service was not completely offline at any given time, we are disappointed in our performance," Whitten said in a statement, adding that Wednesday had set a record for the number of users signed on simultaneously.
Whitten said that as a gesture of thanks to customers, all Xbox Live members around the world will be able to freely download one game over the service. Games sold on Xbox Live typically cost from $5 to $20, and Whitten said details of the offer would come in the coming weeks.
Before the holiday surge, Xbox Live had more than 8 million members, many of whom were paying $50 a year for the premium service that lets them play online against others.
The company also said "Halo 3," the final installment of its popular sci-fi shooting game that went on sale in late September, had sold 8.1 million copies by the year-end.
Another Microsoft title, epic sci-fi roleplaying game "Mass Effect," had sold 1.6 million copies since its late-November release. The games typically cost $60 per copy.
Microsoft's announcements came ahead of the annual Consumer Electronics Show in Las Vegas this weekend, when Chairman Bill Gates and other executives are expected to give a peek into the future of the company's products, including the Xbox 360.
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