this is a word document i found on my old hd, its dated at November, 17 2006
i cannot find it on the boards, but i remember posting it. The state of the consoles
-A look into the major three console on the eve of the next generation of console gaming.
As I write this there is an hour left CST before the PS3 is launched, already there has been a frenzy of action in my area with a riot and several stores have had lines in front of them for the past two days, even though the most consoles a store around here will get is 6 units per store, even in the larger outlets. Microsoft's Xbox 360 has already been out for the entire year with the second cycle of games coming out with graphics that are crisper than anything the PS3 launch lineup has to offer, also their online service boast a large user base. The Wii coming out in a little over two days has it’s loyal fan base that has sustained Nintendo these past two console generations, the Wii has built up hype and expectation for a new way to play as well as offering what will be a robust number of classic titles from some of the greatest systems ever. So what will happen in this next generation of consoles? I will run through some scenarios and give reasons why and why not things may or may not happen.
This is my third time I’m writing such an essay so I will try to keep it shorter than some of my past ranting. I do this type of document for several reasons: 1) I need the practice writing essays for some of my classes, 2) I love playing games and have been a multi-console owner ever since I started to work, so I want to share my love, 3) The information covered is part of my degree and is why I can keep informed for the next few years (I will write my next one in about 2 and half years around May of 2009 where I will refine my stance.)
My predictions
The first thing I will do is get right to my predictions for the console cycle. On Attack of the Show last Tuesday the editor of EGM said that during this generation the three consoles are going to be so close together that the number of units will not matter but how much money the console maker and their software developers make from the consoles. So I will give you two placements of the major companies and what I think their spread will be.
Number of Home Consoles (- with out Handhelds)
1. Microsoft (@65million systems, ---)
2. Nintendo (@64.5 million systems, -500k system)
3. Sony (@63 million system, -2million systems)
Amount of Profit for the Console Makers and Developers
1. Nintendo (High Profits for both manufacture and most third parties)
2. Microsoft (Low-Moderate Profits for manufacture and moderate profits for most developers)
3. Sony (Break Even for the manufacture and low profits for all but major developers)
If you notice I am only predicting a total of 195 million units being sold which is about the number of units that were sold this generation, this isn’t a step back for the industry, some of the numbers were inflated by drive problems that were prevalent in one manufactures consoles and some suspect that it drove the sales of the units up since replacement consoles were bought. I doubt this will happen this generation because of the price of the consoles is prohibitive and the overall world economy is slower than it was during the last cycle. In addition some analyst suspect Sony will not be able to cut the prices of its consoles as deeply as last because of troubles through out its different departments and not to mention legal troubles. Microsoft and Nintendo on the other hand can and will out price the PS3 at every turn since both will be making a profit from each console it sells. (Just recently Microsoft started to make a profit off the 360, and Nintendo will make a profit off of Wii out of the gates.)
This leads into profits Nintendo has consistently beat Sony these two generations in profit because of the way they handled their console marketing and manufacturing, Sony being the leader had to spend a lot more on advertising and keeping its name out there to stave off its competition. I believe it will keep this attitude initially that it is the leader of the market and spend a lot of money on advertising which will drag on the company and divisions and will not help if there is no systems to back up the advertising. None of the companies will drop out of the race this or next generation, the worst is that one of them may be forced to restructure all but its most profitable departments.
In my last two posts I predicted that software prices would rise. And it did for some of the reasons I outlined. (Higher Tech = more development time = more $) I still think it will raise some more for all consoles, I’m guessing an average of $70 for Xbox 360/PS3 titles, up to $80 for exclusives. For Nintendo this highest I see is $60/65 considering the “ease” that companies are having making titles for the Wii. That is not the worst of it, there will now be hidden costs of owning a console and playing its games. A good example is Grand Turismo HD which was show cased recently on XPlay, they are not allowing for normal unlock-secrets-by-play model but using an unlock-the-secrets-by-pay. The show brought out that to get the entire content unlocked, it could cost a player in the terms of $125 or more to unlock the entire game. This opens the door to hackers and mods that will try to get around this model especially if they have the content on disc (which I doubt they will do or continue once this happens) which will effect the PS3 profits.
Indie Gaming will come but not in a form that will be expected at least for the Wii and Xbox 360. In an editorial to its users, Garage Games said that Microsoft will not allow a free flow of software into its Market Place and they have taken steps to make sure of this. First off you will need to know C# and have a good grasp of DirectX to make your games (for obvious reasons), the second is a one time licensing fee of $100 (I’m guessing per game), which may change considering the number of applications. This will help keep the quality of the game showcased at a certain level, and make it cost prohibitive to some users. But they have been the most open to Indie developers, even offering the XNA development suite (currently in Beta form and only for computers) for free, and it works with Garage Game’s Torque Game Engines. Nintendo is still looking at the possibility of allowing new content onto its Virtual Console, creating the infrastructure and constructing the best model to make money. I seriously doubt Sony will allow Indie Content onto its service in lieu of getting hack or modded because during GDC I was talking with a company that helps Indie Developers and Sony basic told them “Screw off”.
In the next few sections I will cover each console, bringing out their strengths and weaknesses and how their actions can effect how well they do this generation.
Sony Playstation 3
Sony is coming off a stellar showing with the PS2 which outsold its closest opponent over 2-to-1. It released its PSP which was received by the market with mixed reactions and is selling moderately well abroad, but not so well in Japan. Sony seemed to be coming into this generation like an unstoppable force but with a lack-luster showing at E3 it had most analysts saying that they wouldn’t even be a show for this generation. With TGS behind them and a better showing some analysts are putting them back into the race and having all three too close to call.
This brings us to Sony’s first strength and that is the “Playstation” name. It might not be enough to dominate the hand-held market, but it is enough to get noticed in the home console market. A good example of this comes from my local Gamestop, they are in a mall and were only allowed to be open 2 days this week at midnight, the two they chose mystified me. The first was for the Microsoft Zune, a MP3 player, and PS3. Why did this mystify me? well they only pre-sold 14 units and they will only be getting at most 14 units. (I haven’t check back this week to see how many they actually received, but at most it was only going to be enough to cover their pre-orders.) On the other hand the Wii, which is a game console, will at most get an early opening of about 8am, and there will be more then what was pre-ordered, and it’s a game system.
The next strength is the Playstation’s fan base it has constructed over the past decade. They can and should be able to keep the system and company even if the PS3 “fails” which I don’t consider a possibility. The best example is Nintendo’s fan base which kept the N64 and Gamecube profitable during Nintendo’s slowest years in the home console business. And I can tell you at some of the area Wal-Marts there are more people camping out in tents then those Wal-Marts are going to be getting. (I asked how many at two locations tonight before coming home.) Some resorted to a chair system which ended in violence at another nearby Wal-Mart, which they are blaming the police because they asked for help during this event and there was not much help.
The press also helps the non-game oriented, press has only been covering the PS3 launch since its is the “big” launch this week, I have only heard short sentence tacked on that the other two consoles even exist, and they do hype the availability of the system, and that if you miss it you will have to either pay thousands of dollars on Ebay, or wait until next year.
The final strength, and the first point of what I like to call the “gray area” I wish to cover is also considered a weakness in the console industry, and the PS3 is the most powerful system statistically out of the three. This may be a selling point with its Blu-Ray Discs, where you can play the movies in that format, the cell processor. The reason it is considered a liability in the console market is that since the market inception, none of the technologically superior consoles ever controlled the market. Also the most technologic console also costs the most to make. The Sony loses about $262.30 per console sold. (IGN report on this and came up with less then $250 a console which is misleading, because they only took the sum of the losses on 20 and 60GB versions and divided by two. I used the ratio that the Magic Box reported as how many sold (shipped) in Japan which is how Sony is manufacturing and shipping them and considered that there is going to be a sell out so there are 2 60GB sold for every 1 20GB version which is a total of $788 of loss (I rounded down) for every three consoles and divided by 3 to come up with my number. (Sorces: ps3.ign.com
www.the-magicbox.com)) This leads into profits in that they have to have a tie in ratio of about 26:1 for software to cover the lose which leads to an analyst saying that Sony may take 5 years to break even with the console. (For third party games the manufacture takes in around $10 per title, based off of last generation estimates, this may of changed. Sony’s first party titles are cheaper but they still take home a little more than that per title. In the same article from ps3.ign.com as the last note the costs do go down but they don’t expect Sony to make profit off the console ever so titles have to sold to cover that cost which isn’t factored in.)
This leads into another gray area and that is Blu-Ray movie support. According to Sony’s official PS3 faq number 10, the Blu-Ray player found in the Playstation 3 will not play all Blu-Ray movies. This is a moot point because in a recent survey of gamers only a small percentage considered this a buying point, but it will hurt a little bit, especially if this is the only reason they buy the PS3 as a cheep Blu-Ray player. (In the gray print of the Sony’s 10th faq there is a reference that some Blu-Ray discs may not operate properly. (
www.us.playstation.com/PS3/About/faq))
The next gray area for Sony is their production problems. They at first had similar estimates that Nintendo games for the Wii, but today there were fears that at most Sony would only deliver 200,000 units to the US at launch and a total of 750,000 units through the end of December. This will put Sony behind Nintendo who will ship about 1.5 million estimated to the US and 6 million worldwide by March. It’s hard to catch up in this industry when you start at a deficit; the PSP/DS is a good example, though it is hard to figure out until the winter sales season of the year is finished.
The launch problems are another gray area some should be fixed by firmware patches/upgrades, (Fun patches!) while others are labeled as “rare”. (A few of the “rare” issues are HDMI not working for PS3 games but working for the menu and overheating. But with so few consoles on the market, and a lot of the console in the hands of redealers (i.e. Ebay Speculators) its hard to tell if these are more than “rare”. (ps3.ign.com)) The only major problem that has come out of the launch is that of screen resolution. If your HDTV doesn’t support a native resolution of 720p, which most of the launch games are made in, the PS3 doesn’t up-scale the games, instead it sets the resolution to 480p, which is the Wii’s resolutions. IGN hopes it will only take a firmware upgrade but fear it might be something that can not be fixed by software alone, which would mean that a person would have to get a new TV, or be happy with Wii resolutions.
Another point I want to cover is their 3rd party support. The big publishers can afford to support “all the consoles no matter the price.” But the developers that made the PSX and PS2 great were the smaller developers which may have moved to the other consoles to stay within their budget. There are also rumors that Sega has moved most of their staff that were working on PS3 titles to other projects on other consoles. And currently we see some of that in the game projection for next year such as Namco Bandai, who has 30 titles coming out for the Wii, 10 titles for the PS3 and 10 for the Xbox360. (Several of them may be virtual console titles. source: ign)
How their Internet Service turns out is also in question because as of right now the PS3 is released and I have only seen mock ups of what the service is to be like after it is set up. I understand it is built on top of the PS2’s network and offers more choices. But the coming year will show how many of these promises Sony will keep.
This last point can turn real ugly if Sony doesn’t handle this carefully, Sony has decided to follow the Xbox360 lead and offer micro-transactions to supplement their games. But in Sony style some will say they are going a little too far. I talked about Grand Turismo a few paragraphs back and how the service may be free but there are hidden costs. And I don’t think ending up paying over $100.00 to fully play a game I bought is fair. I can see adding content but taking away one of the fundamental reasons why some play a game isn’t funny, and in my opinion is a step back, and not forward, for the industry. And I can see this getting ugly if Sony decided to take steps to keep content on the disc “safe”.
The first weakness I would like to bring up after the last point is Sony’s weak launch window lineup. At launch there is really only one A+ must have non-multisystem title and that being resistance. And the next title of this calibur being Devil May Cry which Capcom is shooting to get out within the launch window, which ends in March, but they might not make it. The question arises, is Resistance a $600.00+ title, and most will say no. This will make some buy the system latter, but the longer it takes to buy a system the probability they might buy the 360 and/or the Wii rises to get their gaming fix and that only deludes the amount of money Sony will see from that gamer.
The final weakness is Sony’s apparent attitude that mirror Nintendo’s attitude during the N64 generation. Sony seems to be making similar mistakes that cost Nintendo not only the lead but a lot of respect in gamer’s eyes. On a technical standpoint Nintendo made the most expensive system to program for, the most costly media of the three consoles. Sony has done this with the PS3 a multiprocessor system with a distinct architecture (it is different enough from the PS2’s set up that developers have to relearn the how the system handles things) makes programming a challenge. Blu-Ray discs are the most expensive media out of the three consoles which means publishers will see less profit from each disc sold, where as the proprietary regular DVD formats of the Wii and Xbox360 are much cheaper to burn to. (I will cover this with the Xbox 360, but I really don’t think Game Developers will embrace the HD-DVD format as well as they would if it was included in the system, after launch add-ons tradition fair poorly. ) Nintendo alienated developers by having the attitude that there “Dream Team” of development houses will support the console, and it ended up only Nintendo and one of that team came through. Sony is showing this in that their attitude towards smaller developers and indie developers, which help Sony come on top. But in Sony’s case it the big three or four third party developers are all that matters. And in this changing market where almost all big third party titles sees another system that view is dangerous.
To close this section I would like to say that Sony will be going through a difficult time in the next few years where they may need to restructure, while it will not endanger the life of the PS3 or their “gaming division” it will have it effects on when and if prices come down and whether game prices go up. I have no plans to buy a PS3 that may change if Sony can pull off a miracle and keeps some big name titles exclusive, and prices go down. But currently that doesn’t look like it is going to happen. And that is why I’m saying the PS3 is going to be the last place in both number of console and profits. There is no doubt that currently they are going to fly off the shelf but with production problems keeping them in the apparent rear, will their sales pick up after the units are there to purchase or will they stay flat much like the Xbox360 earlier this year.
Xbox 360
According analyst Microsoft’s Xbox 360 is the PS2’s heir apparent. The Xbox 360 is currently making money for Microsoft, and early in the game. Also the 360 has been out for a year so it has an established user base and the second cycle of games are coming out that look better than any of the titles for the other two systems. I believe Microsoft can keep the lead by doing what it is doing, and the third parties will naturally bring in titles that will fill out their library giving Microsoft a chance to focus on its own games. The only apparent weak point in Xbox’s market is Japan and Microsoft has made considerable effort to win that market with little results.
Microsoft’s head start is Microsoft’s biggest advantage at this point. This puts there software library an entire cycle a head of the PS3 visually which should attract gamers that were not able to get a PS3 and keep their business until the latter cycles of this generation. And as I mentioned in the pervious paragraph the 360 should sell at a steady rate so it will keep a gap between it and it closest opponent, which will probably be the Wii. The only trouble it may have is if the Wii show the sales resilience that the DS has shown and kept for the past 2 years. (People still camp out in Japan when they hear a store is getting a shipment of DS in stock, keeping DS sales well over 100,000 units a week.)
The 360’s next strong point is the Xbox Live online service, thanks to Microsoft experimenting during the pervious generation it is stable, has a loyal user base, and offers a good experience to its users. The other two console manufactures might experience problems with their new set ups. (Sony’s network plans are a slight departure from what they did with the PS2, by adding Xbox live Type features. Nintendo has dabbled with such network setups as early as the SNES (they had some capabilities even with the NES) and through the DS. But most of these services never made it past Japan, and the DS service is still relatively young, and the Wii’s service is modeled after it, with some major changes.)
A final strong point is the Live arcade and their plans with the XNA development suite. It shows that Microsoft is indeed committed to helping the market grow. It also gives a new reason for some to own one of Microsoft’s console. The service will provide 360 owners with another way to control their user base’s available finances and make it less likely they will go else where to get their gaming fix when the current library or upcoming releases don’t appeal to them. And by open this up to independent studio by releasing the XNA which provides tools to easily make games for both the computer and the 360, creating a forum where future talent can show off their works and possibly be recruited. The only down side to this is that currently the beta version do not support the Xbox 360, and Microsoft has plans to, rightly, prohibit what type games by adding barriers to development, such as one time licensing fees.
Since the Xbox 360 has been out for over a year most of the finer points of the console have been ironed out, the only “gray” area would be how far reaching the XNA/Live services will be. But it seems that Microsoft is looking to broaden the appeal of their Live service while keeping tabs on the quality of what the service contains.
There are three, minor weak point that will keep the system from achieving the status that the PS2 enjoyed the last generation. The first is while the Live service is great and its defiantly more refined then the other console’s offerings. To play games online Xbox 360 users have to upgrade to a pay account to play games, and recently Microsoft has been trimming what is offered on the free silver membership to entice some of the 360 owners to upgrade, such as making some demos only available to its Gold members.
The next is sales, the winter sales season is only beginning and its effects haven’t been factored in but the 360’s sales haven’t pick up from the levels they had been during the time the 360 was suffering from supply restraints. This might just be because the months that the system has been readily available are considered the “slow” time of the market’s cycle and it could very well pick up to a more robust pace. But this also allows it competitors to close the gap that Microsoft has spent the last year developing.
The final has to do with its recently released HD-Drive; I don’t expect that many games to be developed outside of Microsoft. This is a trend in the market for after launch add-ons. Developers are not willing to devote that many resources to including these add-ons because the user base effective reset to the level of penetration. And since this is a drive and any games make for the HD-Drive will not be able to be used with owners of just the 360. This will factor in greatly in the last year or so of this console generation as the benefits of the PS3’s Blu-Ray disc start to out pace the 360 and Wii’s formats. (I include the Wii because both are fundamentally the same basic media technology.)
With its year head start and stable sales rate the 360 should be able to maintain its gap. Costs of advertising will rise slowly as we head further into this generation’s cycle, since Microsoft will have to spend more to fend off its competitors much like Sony had to keep the market’s mind share this last generation, causing Microsoft’s profits from the 360 to be fairly moderate.
Nintendo’s Wii
The Wii is Nintendo’s newest console and they are targeting the casual gaming market with this offering. A notion that originally was mocked when they presented the idea with the DS, but with the handheld success a notion that may very well keep them in the “race” through-out the entirety of this generation’s cycle. But they are not forgetting their fan base that has been so loyal to them this past decade, Nintendo is offering new looks at it older franchises and offering a dose of nostalgia with its Virtual Console, which in itself is a very strong selling point.
I will cover the price of the console first, which is $250, the smallest of the three consoles but Nintendo makes a profit off the console right out the gate. Nintendo could have done this for numerous reason the biggest being it doesn’t make the console look cheep at the beginning when compared to the others, it provides a flow control. Nintendo has have trouble with the DS supply since it release in Japan. They continue to have trouble keeping it in stock. To avoid this problem Nintendo could have choose to have such a high price point to allow the early adopters, made up of primarily of Nintendo’s loyal fan base from previous consoles. Another reason is Nintendo can easily match any price drop from any of the other’s companies and justify it as the console is doing well.
Nintendo is coming out this generation swinging, with an impressive library of launch games for both the system and the virtual console, about 65 titles by the end of December almost equally divided between the two. On the Wii side there are numerous ports and multi-console titles, which may not be necessarily a bad thing, two of the developers have spent time polishing the title and building them up from the ground to take advantage of the console’s strengths. Two publishers have specifically set up development house that will only focus on making titles for the console, making these ‘ports’ games that stand on their own. (Madden is a good example, and I look forward to actually playing a sports title for the first time in a long time.)
Developers are willing to do this because out of the three consoles the Wii is the closest to it pervious console than the other three. (Some call it Gamecube 1.5 because of this) But this cut costs for the developers; some may use this saving to dump cheep conversion onto the Wii and hope for the best, while some will use this saving to making game that is stable and a joy to play.
The lower development cost also means that the Wii’s software will be the cheapest to purchase of the three and should keep them the cheapest. Meaning its users base can buy more titles over its life span, from hopefully a wider array of developers, giving developer more reason to make games for the console.
The virtual console gives both developers and users something else to look forward to on the Wii. I believe this will eclipse the Xbox Live Arcade because titles are slated to be released faster, an average of 10 games from Nintendo’s library are slated to released every month, that doesn’t include releases from the Sega, Turbo Graphics, or MSX libraries, this potentially allows the virtual console to feature literally a potential of over 10,000 titles, which is doubtful but a possibility, in just retro game titles. The developers, or console manufactures (in the case where the developer when bankrupt) get an alternate flow of revenue with little-to-no investment on their parts.
The downloads will be relatively cheep costing users between 5-to-15 US dollars on average, for ownership of the licenses, and if you lose them Nintendo will help you require the downloads. The games will be stored on the consoles internal memory and can be transferred to an SD card and potentially USB storage, or external HD. ( The original firmware will not allow USB or external HD drives but Nintendo plans in the future to offer this in future firmware updates.) To help stave off piracy, which has been one of Nintendo’s and industry prime concerns the games will only be able to play on the console that downloads them. This is considered somewhat prohibitive but the console is small enough to carry around so it wouldn’t be a problem to take just the unit to a friend’s house that has the console and player their games.
Nintendo also ensured that there will be plenty of consoles to go around, learning a bit from its DS launch and continuing trouble keeping it in stock. Nintendo could have easily released earlier but by making sure of no problem in supply they have virtually ensured second place out of the blocks by default. Also there are a fair stable of games from all developers involved in the launch window. This will help in that their second cycle of software titles which will be more refined will come out faster, and the first crop of games will have plenty of titles that are fun to play and demonstrate that Nintendo’s new look at gaming can be something more then a gimmick.
Nintendo’s first party titles have been also about their franchises, this allows Nintendo to bring titles that will appeal to gamers of all types while they work on new titles and franchise. In the past they have use this to attract development, a tool which I believe will extend into this console cycle. This has tradition served a deterrent to third party development because of the strength and polish of most of their titles when compared to early titles from the third party. Nintendo has reduced and spread out their titles and when they are release this frees up their user financial resources to be used else where.
Nintendo has done a decent job of marketing, long having trouble with TV ads they have resorted to more Viral means, an approach which they have had success with the DS. And the companies they have hired to do so have reported good success that planting the seeds of Nintendo’s vision. (They targeted different groups that also have an active internet presence and each time they have had almost totally success in getting these groups to spread the word.) But Nintendo hasn’t totally ignored traditional means of advertising; they have started to air commercials early this week on select networks. And game advertising has picked up, for example last week Ultimate Alliance advertised for all consoles this week the advertising is just for the Wii version of the games. And this has bore results, they are listed as a must buy item this season by some of the more influential gift buying list, even taking the most innovative electronic device against Sony’s PS3 in Popular Science Magazine. They are also included in the Toys ‘R’ Us gift guide, featured predominantly in Best Buy’s Video Game section (The PS3 has only slightly less space), and is recommended by Wired Magazine and PC Magazine.
Nintendo has also received some “help” from its competition. In the days after E3 both recommend the console as a complement to their consoles. While these comment where “with drawn” by one company, and down played by the other. The point still remains while the other two consoles offer similar experiences the Wii offers something different and if a person buys a second system it will more than likely be the Wii. (Also the price issue factors into this.)
Nintendo has numerous gray areas, the biggest on whether the controller scheme will continue to be a fun new way to look at games or will it become gimmicky over time. The first generation show promise if this continues it bodes well for Nintendo and if they can encourage developers to actually take time to make ported games fit the control and not just dump the game’s old scheme onto the controller. (Especially mapping to the d-pad) The future looks great in that publishers are also making studios that will just focus on developer which will keep quality up in the games.
The next is Wii Connect 24, it is built off of the DS’s scheme, requires friend codes but the codes are now not game specific which means the friends you have lists doesn’t have to be reenlisted just because you change games. Also by being on 24 presents some new options for developers similar to what a real-time clock offered last generation. Your games can grow and continue when you are not playing and you friends can visit and hopefully help and make your games more enriching.
The final point deals with VC original content Nintendo has expressed interest in allowing indie type content on its console, so this may carry into the VC space which would be a more friend environment to smaller developers to exploit. (I talked to Nintendo reps about this, and their responses seemed positive. Now the hard part of making the game, and seeing what happens.)
The Wii has currently two fundament weakness the biggest being it is the weakest technologically. This may slow them down in the last few years of the cycle. And I see them taking steps similar to Microsoft and being the first out the gate next generation.
The other is the foolish “kiddie” perception of the company. This has diminished but it still lingers, I recently read a comment that contain contained this argument.
The DS acts as a model that Nintendo’s approach can grow legs. And I expect that during parts of this next generation Nintendo may in fact “lead” unit wise for periods, but fall behind as the technical limitations it has start to drag on it.
Conclusion
The only thing I can say about this next generation is that I’m looking forward it. Its going to offer some really good entertainment options, not to mention a little drama. And in the end all three will prepare to do this again in 5-to-7 years.
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