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Console War 2012: Status Of Forces

Console War 2012: Status Of Forces

Thu 05 Jul 2012 6:32am GMT / 2:32am EDT / 11:32pm PDT
BusinessHardwareMarketing

A combat report on the marketing battle of Wii U vs. PS3 vs. Xbox 360

The tsunami of hype from E3 has receded, leaving behind a confused landscape of glitzy trailers, hyperbolic press releases and rampant uncertainty. Nintendo formally introduced the Wii U, while Microsoft and Sony avoided any hint of a new console in their future. Despite the lack of official information, the shape of the marketing battle for this holiday and beyond into 2013 is already starting to emerge. The Console War is entering a new phase, with even more combatants and greater risks than ever before. Let's look at the warriors and where they stand.

Microsoft: The current leader tries to hold on

Microsoft's E3 presentation was centered on their upcoming holiday titles, particularly Halo 4. The interesting sidelight was SmartGlass, their technology for connecting smartphones and tablets to the Xbox. The shadow of the next-generation Xbox loomed large, though it was never even hinted at. Microsoft, of course, kept the focus on all the great things coming up for the Xbox. The excitement didn't exactly reach a fever pitch when Internet Explorer for Xbox was announced, but everything else was well-received.

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We may have some insights into Microsoft's plan for the future due to the leaked document that purports to discuss a roadmap for the Xbox platform. Whether or not that document is real, its general direction matches the indicators we get from other Microsoft moves: The Microsoft Surface tablets; the investment in Nook; Windows Phone 8 and Windows 8; Kinect for Windows; new entertainment services for Xbox. Clearly Microsoft sees that the battle for the living room is on, and it's more than just Sony and Nintendo they have to worry about; it's Apple, Google, Samsung, LG and others.

Microsoft has been moving the Xbox 360 in the direction of a general entertainment hub for a while now. There are more and more TV and movie services, music streaming, pay-per-view, and other offerings for the Xbox. Non-game uses now account for more console time than gaming, and that's true across all consoles. Netflix has announced that June saw 1 billion hours of streamed video through their site.

Microsoft is probably looking at holiday 2013 for a new console launch. It may be more than one version, with perhaps a subsidy from a cable company or a payment-over-time plan as an option. The technical goal will probably be to get 60 fps games at 1080p resolution, with reasonable storage options for downloaded content. This may require expensive hardware, but Microsoft is probably prepared once again to lose hundreds of dollars on each unit if needed to get the price down far enough to drive rapid adoption.

"Maybe we'll see an end to Microsoft Points, which can join Nintendo's Friend Codes in a special circle of hell hosted by Clippy"

What can we expect from the next Xbox? A full array of connectivity with smartphones and tablets, an extensive set of media options for video and music, technical advances in Kinect to make voice and gesture control significantly better are all likely. Perhaps even DVR capability so you can record video, which would add great value. Maybe we'll see an end to Microsoft Points, which can join Nintendo's Friend Codes in a special circle of hell hosted by Clippy.

The most pressing concern for Microsoft is that they face a competitive landscape like never before in the living room. No one knows what Apple may do or when they may do it, but that Apple TV is already lurking out there in 5 million homes awaiting an App Store. Google is still trying to gain a place in the living room, as the Nexus Q shows. Microsoft also wants to bring some of the Xbox Live success to its other platform; it sees how the success of Apple's iPhone has helped sales of Macintosh computers. A successful ecosystem of content and hardware in all areas (consoles, smartphones, tablets, and PCs) is much greater than the sum of its parts. Microsoft is looking to construct that, and the next Xbox is a key part of that puzzle.

Sony: #2 is trying harder

Sony had a slick presentation for E3, which focused (like Microsoft) primarily on the great software releases they have coming up for the holidays. (With a painfully dull detour into 'Wonderbook'-land, the augmented-reality books that drained all the excitement out of the crowd, until finally Sony got back to some crowd-pleasing graphic violence.) Oddly, the PS Vita got only a fairly brief mention; most of the time was spent on the PS3. The most interesting new Sony technology was not talked about at E3, but has now become public: The acquisition of Gaikai.

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Gaikai's streaming technology can spread Sony's gaming properties to a wide array of hardware, extending their reach and perhaps offering some exciting new possibilities. Sony will even be able to bring many of Gaikai's capabilities to market before the advent of the PS4, whenever that arrives - which is probably holiday 2013.

Sony's ambition is similar to Microsoft's: gain control of the living room. Sony would love to see its TV line become a profit center instead of a huge albatross. (Sony's recently announced deal with Panasonic to create reasonably priced OLED TVsreasonably priced OLED TVs for late 2013 is a step in this direction.) Sony recently bought out Ercisson and now completely controls its smartphone destiny. Sony's Android tablets are in the market but not attracting much attention. Meanwhile, Sony still has an impressive music and movie business, with properties just waiting to be sent to an array of Sony and other devices.

"Will Sony let Microsoft get to market before them?"

Sony's plan even looks like Microsoft's: Bring out devices in all major areas (smartphones, tablets, consoles, TVs and more) and bring a broad range of content to those devices. The Gaikai acquisition brings them some interesting potential, but we still need to see a PS4. Will Sony let Microsoft get to market before them? Maybe, but there would be some market share benefits to Sony if they could beat Microsoft to the punch. Consumer dollars are harder to come by these days, and most would only consider buying one console costing hundreds of dollars. Once they've got it, other new consoles won't get their dollars.

Nintendo: The once and future king?

Nintendo's E3 performance has been widely panned, and they've spent the time since with various execs trying to generate some of the excitement that was lacking at E3. Nintendo showed a number of titles coming for the Wii U, with Pikmin 3 as the high point; sadly, that was the beginning of the presentation, and everything else was less impressive. Nintendo had a half hour of news crammed into an hour, given that they wanted to avoid specifics about the Wii U hardware. They avoided the specifics so well that both Jimmy Fallon and CNN thought Nintendo was introducing a new Wii peripheral instead of a whole new console.

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The unsaid story of Nintendo's Wii U introduction is that the hardware is launching well in advance of the software. NintendoLand, while appealing, is certainly not the high-def Zelda title fans were hoping that the demo from last year presaged. Super Mario is not a launch title, and other popular Nintendo franchises were relegated to a NintendoLand appearance. Nintendo is perfectly aware that gotta-have-it software is what sells hardware, but those titles take time to create. Nintendo cannot afford to wait any longer to introduce a new console, as Wii sales continue to decline. They seem to be calculating, not without reason, that there are enough hardcore Nintendo fans to sell a lot of new hardware merely on the promise of new software.

Many aspects of the Wii U launch remain unknown or unsaid. Nintendo hasn't announced a price yet, perhaps evaluating reactions and hoping for a break on exchange rates. NintendoLand may be bundled in with the Wii U, or it may not. Will the Gamepad be the only controller in the box with the Wii U? We don't know. Will there be some digital content included as well? No one knows. We don't even know the technical specs of the machine, or the amount of storage for games that it comes with.

"Nintendo may hit the 2013 holidays with a console that, while it may be less powerful than the competition, is half the price and has a unique controller"

Still, it's interesting to note how the console war may shape up for the 2013 holiday. By that time the Wii U may be at around $200 retail, and if the next Xbox and the PS4 launch in that time frame they may well be twice the cost. Nintendo may hit the 2013 holidays with a console that, while it may be less powerful than the competition, is half the price and has a unique controller. That is exactly where they were at with the Wii against the Xbox 360 and the PS3 at their launch, and Nintendo won that battle handily. Remember, too, that by the 2013 holiday Nintendo should have an array of titles featuring their core characters in compelling HD gameplay, and there should be plenty of software from third parties as well.

What lies ahead

Microsoft, Sony and Nintendo would all dearly love to just keep selling the current generation of consoles far into the foreseeable future. The hardware is finally at a point where it's sold at a profit, and the software generates nice profits - especially the $7 or $8 licensing fee each manufacturer has to pony up for every retail sale, or the 30% take from all of the downloadable games and content. A new console means a loss on each unit sold, usually, and far fewer units of software sold to earn royalties on until the installed base gets large enough - which may take years.

Sadly, the declining sales of retail console games indicate that it's getting to that time when new consoles are needed in order to revive sales. What happens if you wait too long? Nintendo clearly illustrates this, as Wii sales in the US have dropped from about 7 million in 2010 to 4.5 million in 2011, and continue to decline. Wii software sales are down 50% or more, and with few major releases there's no reason to expect any change.

So the strategy has become clear for the rest of 2012: Microsoft and Sony will try to keep things going with their current consoles by delivering the best software they can, and making sure that they have a great value compared to Nintendo's Wii U. Nintendo is trying to generate excitement for the Wii U and have a successful launch, and trying get back to to the top of the sales charts where the Wii used to reign.

The big divide is really between the strategy shared by Microsoft and Sony with the strategy Nintendo is employing. Microsoft and Sony see their consoles as entertainment centers that occupy a vital role in selling other hardware and software. Nintendo sees the Wii U as a game machine, first and foremost, with a few other capabilities thrown in for luck. But that's just the hardware strategy; what about the software?

One of the key factors behind console success for the past decades has been getting third-party game publishers to invest in the platform, then reaping the royalties. That grand bargain is eroding currently, and it's looking very shaky indeed for the next generation. Previously in a console transition publishers would choose which new platform to invest in; usually the third-party publisher would pick one or maybe two. Last cycle, most publishers skipped the Wii and went for the PS3 and Xbox 360 initially, then had to scramble to readjust when the Wii proved to be far more popular.

Now publishers have more options. Yes, they can choose a next-gen console to support, but they can also choose mobile, social, free-to-play online, and just scads of DLC. Worse, next-gen development costs are going to be more expensive; perhaps as much as double current development budgets. Time to market also matters. One title might cost $20 or $30 million to $100 million for the biggest, and take 2 years to develop. For that resource, you could develop dozens of mobile titles or social games; if you get a breakout hit there with a new IP your return on investment could look great., as Epic has revealed. They made a far greater return on investment for Infinity Blade than on any console title they've ever done.

"Whoever wins the title of top-selling next-gen console may be getting a prize worth less than the last generation of consoles"

Sony and Microsoft are certainly backing that old model, but preparing for a changing marketplace by adopting new platforms (like smartphones and tablets) and new business models (like DLC and free-to-play). The big question is how much does Nintendo believe in the old model. With the Wii it seemed like Nintendo didn't really care that much; it's always been their desire to make money on the hardware, and then license revenue from third-parties is a bonus. While Nintendo is saying that third-party development is very important to it, at E3 Ubisoft was the only major publisher to wholeheartedly support the Wii U. Oh, Warner had a port of Arkham City, and EA let it be known that Mass Effect 3 would be ported, but only Ubisoft had an original Wii U title on display (as well as several others). Is Nintendo really trying hard for third-party support and publishers aren't that interested? Or is it that Nintendo is really looking to make the most money on software it creates?

All three manufacturers face price competition from increasingly powerful tablets, and possible Apple or Android games coming to TV sets. Nintendo will lay down the first marker this holiday with the Wii U price; no doubt Sony and Microsoft will adjust their pricing and software bundles for the PS3 and Xbox 360 if they think it necessary to respond to Nintendo's move.

Whoever wins the title of top-selling next-gen console may be getting a prize worth less than the last generation of consoles, as the number of AAA console titles continues to drop and increasing competition means less money for the traditional console business. Will Nintendo's game-centric strategy, with a less powerful console at a lower price, win out over Microsoft and Sony who are planning more power at a higher price for an all-around entertainment device? This is going to be a fascinating battle to watch, with the outcome by no means pre-determined.

10 Comments

Rick Lopez
Illustrator, Graphic Designer

1,203 816 0.7
Look If Nintendo puts a console that i can afford then they have my money. If the other companies, put out a super console with amazing specs i cant afford then they dont have my money. And if they put out a console thats to expensive, it might just be better to get a PC. And if Nintendo has anywere twice the horspower current consoles do, then they have my money. WHY? Imagine games that look twice as great than Uncharted, Last of Us, Final Fantasy 13, Mass Effect3, Assasins Creed 3, Heavy rain, heavenly Sword, Grand theft Auto 5, Battle field 3...

You know what, I dont think its about having so much horsepower anymore, nothing I saw in unreal engine 4 or Square enix, Luminouse engine, I felt current consoles couldnt really do. Even if it was in a lesser but similar fashion, I think realism in games has flatlined to the point of almost real, and its just a matter of making games that have an appealing visula style, can run at HD resolutions and have unique, creative and appealing gameplay mechanics.

Lets just hope Nintendo can keep their console around 300$ and they have my money. Both SONY and Microsft, want to enter cloud gaming and I just feel they are exiting the console race all together. I feel the concept of cloud gaming is differant then console gaming. they are not interested in making a game console but rather a device that serves as a multimedia hub, that can stream different types of media, including games, movies and music.

One must wonder what the production Value of these games are gonna be like and memory, bandwith and storage issues that will arise. the dependance on servers, network maintenance, high speed internet connections, signal latency and lag issues. All this just to play a game?

I think console games are there own market.

An example is TV makes alot more money than movies, to the point were you ask why even make them? The profit margen is way bigger for TV shows than hollywood movies, but hollywood doesnt stop making movies.

Edited 2 times. Last edit by Rick Lopez on 5th July 2012 6:47pm

Posted:A year ago

#1

Tim Carter
Designer - Writer - Producer

535 221 0.4
I'm so tired of this shit.

Where would film be, as an artform, if the SMPTE hadn't laid down standards? (SMPTE being the Society of Motion Picture and Television Engineers.) If the theatre chains essentially owned the content, and you need to go to Theatre Chain X to see this movie, or Theatre Chain Y to see that one?

Same thing with TV. Where would it be without NTSE, PAL and Secam?

We need standardized platforms. So games can be about the games and the talent - not about the machines that you play them on.

Edited 2 times. Last edit by Tim Carter on 5th July 2012 5:26pm

Posted:A year ago

#2

Jim Webb
Executive Editor/Community Director

2,210 2,049 0.9
Tim, I think the difference is that film making companies are rarely the same company that owns the delivery system. Even before standards were in place. The original United Artists company were once of the few that did both.

In fact, back in 1948, there was a Supreme Court decision that forced movie studios to sell the movie chains they owned because of rampant anti-competitive practices. Not sure how UA was able to get around that after the fact.

With consoles, the lack of anti-competitive practices is what allows such exclusion to take place. The industry has thrived without the need for a standard so no standard has been formally tried...well, 3DO somewhat did.

Besides, you would lose so much of the creativity and charm that make up these consoles that I'd largely quit gaming.

Posted:A year ago

#3

Ove Larsen

28 10 0.4
Not trying to be that clever dude on the internets, but you clearly need to read up on how the movie industry operated back in the day. I'm certainly no professor on the subject, but it's not that different from the games industry timeline, except that the latter one did so at a much quicker pace. You had the big dogs back then too, and they also fought for consumers by offering exclusive movies.

Posted:A year ago

#4

Curt Sampson
Sofware Developer

564 278 0.5
Can someone explain to me why next-gen development will be more expensive than current-gen development? It seems to me that, for multi-platform games at least, we're going to get consoles that are at pretty much the same level as the high-end PCs for which current games are already being developed. And in fact, it's looking as if both consoles will be using hardware (particularly CPUs) much closer to a PC, which should serve to reduce, rather than increase, development costs, even if only by a relatively small amount.

Posted:A year ago

#5

Jim Webb
Executive Editor/Community Director

2,210 2,049 0.9
Curt, it's the art costs that are expected to continue to increase. As more textures are needed, and more detailed textures at that, you tend to increase your costs quite a bit.

The programming end doesn't usually fluctuate the costs as much as the art does.

That said, we certainly will not see the same massive increase in costs as incurred last generation.

Posted:A year ago

#6

Curt Sampson
Sofware Developer

564 278 0.5
Yes but, and excuse my ignorance about art here, aren't developers already in many cases doing art at the level that the next-generation consoles will need because that's also needed for current-day PCs?

Or is it perhaps that, yes, Battefield 3 and a few others are already doing assets at that level, but most others are not?

Posted:A year ago

#7

Jim Webb
Executive Editor/Community Director

2,210 2,049 0.9
Indeed they are, Curt. But with more complex environments would come more overall art required. More varied NPC's would also require more art. Certainly the initial high quality art used for in game character models would not require any increase now since they were usually scaled down for home consoles.

I agree with that costs certainly are not going to increase greatly but art may see some increase simply because there will be more of it. Though it also depends on the efficiency of the tools for next generation too. Better tools could negate or even reduce art costs.

Posted:A year ago

#8

Nicholas Pantazis
Senior Editor

968 1,161 1.2
It's not just art Jim, though that's a big part of it. AI, for example, takes much longer to program the more complex you want to make it. The same is true of physics, and because of this many companies will need to create or license new engines to keep up, which can cost a fortune. Unreal Engine 4 will cost quite a bit more costly to license than Unreal Engine 3.

See the problem is what console gamers expect. In a perfect world (see: PC gaming), development budgets would see a wide variety of acceptance, and games other than blockbusters could be very successful. On consoles people bitch and moan about any game that doesn't seem to technologically push the limits further than they were before.

What this has led to is what I call Blockbuster Syndrome, where all the big (Western in particular) publishers are committing the vast majority of their development costs into creating "the next big thing." The problem is, there can't be that many "big things." EA is not going to make Dead Space 3 as big as Call of Duty, but they're going to spend as much trying. Indeed, most of these games aren't actually making enough money to justify the investment, but publishers fear losing the mindshare of the gamers who demand that they invest this much in every major franchise.

Publishers like EA, who raked in the cash during the PS2 generation, find profits the exception, not the rule. Indeed most of the industry is not actually making ANY money, despite sales being higher than ever, and the whole situation has resulted in the closure of almost two dozen studios this generation alone; far more than the last two combined.

So when we talk about an increase in development costs, we're talking about a rise in costs for companies that are already teetering on the edge of survival. They're reinvesting every penny they make, and sometimes more than they make. Hopefully the rise of digital sales and a stronger focus on the less demanding PSN/XBLA/Nintendo Network style audiences will help improve this situation, but if publishers push for high-end content as much next generation as they did this generation, many will not survive.

Posted:A year ago

#9

Craig Page
Programmer

381 216 0.6
Didn't Microsoft already announce recently that they were getting rid of Microsoft Points and replacing them with an actual dollar value for each purchase?

Posted:A year ago

#10

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