Are 4K-enabled consoles backing into a niche?

We're in the middle of a very unusual year in the games business; a mid-cycle year that doesn't feel remotely mid-cycle, containing as it does three major console hardware launches in the space of 12 months (and even more if you count VR headsets as "platforms" in some form). Of those three major launches, one is a reasonably major departure, as Nintendo's Switch reimagines the relationship between home and handheld consoles, while the other two are iterative in one form or another; both Sony's PS4 Pro and Microsoft's Scorpio are presented, in varying degrees, as more powerful and capable siblings to the PS4 and Xbox One respectively, as new members of the family rather than outright replacements.

There are various reasons why both companies have chosen to update their hardware mid-cycle; in Microsoft's case in particular it's very much a relaunch, aimed at leapfrogging the technical and brand advantage that has allowed Sony to put so much clear water between PlayStation and Xbox in this generation. For both companies, however, a key motivation, or at least justification, for the new hardware launches is the requirement to do something about 4K. Having sat around on the periphery for over five years, there's a sense that the 4K "moment" is finally upon us, and neither Sony nor Microsoft wishes to give the other party the competitive advantage of being able to crown itself as king of the 4K hill.

"Microsoft's desire...will be to present Scorpio as a genuinely future-proof option, compared to the stopgap half-measure of PS4 Pro"

It will be interesting, in this context, to see how much airtime the question of 4K console gaming gets at E3 next week. Sony has really already shown its hand in this regard; if you want to play PS4 games in 4K resolutions, PS4 Pro is an option that's existed at retail for several months now. Microsoft's Xbox One S also added a variety of 4K options, primarily for media playback, but the main event will be Scorpio - a device whose technical specifications, as revealed though Digital Foundry well ahead of E3, seem to have been created with 4K gaming firmly in mind. (High quality VR is another possible reason for the specs lining up as they do, but Microsoft seems adamant about not talking about VR on Scorpio this year, leaving Sony as the only player in the console VR space for at least the rest of 2017.)

My suspicion is that Microsoft won't talk all that very much about Scorpio's technical specs at E3 - that the entire point of dumping a lot of information through Digital Foundry ahead of the conference was to avoid overshadowing its software announcements with hardware chatter. I hope that's the case, because what Microsoft really needs to prove at the moment is far more about software than about hardware; Xbox One S was an attractive and well-received update to the Xbox One, essentially solving most of the core gripes about the Xbox hardware, and it didn't really move the needle on sales relative to PS4 for very long. Scorpio's impressive specs are already on record; obsessing publicly over teraflops rather than showing people what those teraflops will actually do for them would be a gross strategic error, and is almost certainly something the company will be at pains to avoid.

What's perhaps more likely, though, is that Scorpio's unveiling will be brimming with references to 4K, much as the unveiling of PS4 Pro was. After all, the official justification for the existence of Scorpio isn't "Sony's beating us, so we had to do something dramatic"; it's about the progress being made technologically, and the desire to have a console that remains on the cutting edge of that progress, of which 4K is a central aspect. There's a good chance that much of Scorpio's messaging will be focused around its status as a "true" 4K console, capable of driving every pixel in that gigantic array without any of the (admittedly impressive) tricks and shortcuts to which PS4 Pro resorts. Microsoft's desire, aside from hopefully allaying disquiet regarding its capacity to measure up to Sony and Nintendo (both of whom have recently been firing on all cylinders) in software terms, will be to present Scorpio as a genuinely future-proof option, compared to the stopgap half-measure of PS4 Pro.

"Even if we assume that 4K adoption will rise relatively rapidly from here on - 30% to 35% of new TVs is probably a fair estimate for 2017 - the reality is that this still leaves 4K as a pretty small niche within the market"

Assuming that 4K is a core part of Scorpio's message - and it is an assumption, though not exactly a very wild guess - it's interesting to think about what this means in terms of actual numbers. Adoption of 4K has been slow; five years after the first consumer 4K displays arrived, only around a quarter of all new TVs being shipped are 4K. Last year, that figure was under 20%, which meshes closely with Sony's recently released estimate that 1-in-5 of PS4s being sold at the moment are PS4 Pros. Essentially, it seems that PS4 Pro has settled into the market as the device you buy if and only if you own a new 4K TV; consumers without 4K, still in the vast majority, are perfectly happy to stick with the existing PS4. This is probably the best balancing act Sony could have performed; it takes much of the thunder out of PS4 Pro, sure, but it's also managed not to upset its existing installed base by making them feel that their system is obsolete before its time.

Even if we assume that 4K adoption will rise relatively rapidly from here on - 30% to 35% of new TVs is probably a fair estimate for 2017 - the reality is that this still leaves 4K as a pretty small niche within the market. The jump to 4K is far less dramatic than the leap from SD to HD TVs, and more problematic in various ways; 4K content has been much slower to appear than HD content, for example, not least because of the switch to streaming instead of physical discs, which leaves a huge swathe of consumers incapable of accessing 4K media either due to limitations on their broadband speed or concerns over how quickly they'll hit download caps. As a consequence, consumers clearly don't feel quite as compelled to make the 4K upgrade as they did the HD upgrade, and the low percentage of new TV shipments which are 4K tends to suggest that a great many consumers are choosing between spending money on 4K resolution or getting a larger screen, or perhaps a better sound system, with a majority prioritising other features over 4K.

This is a temporary state of affairs; as prices tumble, 4K will become the default, much as it's become vanishingly rare to find an HDTV that isn't 1080p. However, even once almost every decent-sized TV is 4K, it'll take a long time for the tech to filter into the market, because large TVs are uncommon purchases. My current TV is five years old; I'd still be perfectly happily using a 1080p set I bought about 11 years ago, had I not got rid of it when I was moving country a few years ago. This is far from atypical; if you've bought a TV since decent quality HDTV became fairly standard in the mid-2000s, you're probably not feeling too driven to upgrade it just yet. 4K is good tech and has been more successful than 3D was in driving consumers to upgrade more quickly, but it remains a fairly marginal success.

"How Microsoft manoeuvres to balance out the large and loyal Xbox One installed base against the niche but growing 4K market will have major consequences for its console business"

Given these two data points - the slow uptake and low penetration rate of 4K displays, and the apparent willingness of non-4K ready consumers to simply ignore the PS4 Pro - it's questionable whether a focus on Scorpio's 4K abilities would actually be a good strategy for Microsoft. The future-proofing story is a good one in some regards, but it relies upon the notion that consumers think they're going to upgrade their TV before they next upgrade their console - and since Scorpio itself is so instrumental in compressing consumers' expectations of console timescales, that may not be a successful message. The concern is that the vast majority of consumers who don't have a 4K TV and don't plan to buy one in the next few years will view Scorpio as a console for 4K and thus not relevant to them. In Sony's case, the relatively "stopgap" nature of PS4 Pro allows those consumers to just shrug and buy an ordinary PS4, but it remains unclear whether the much wider performance and branding gulf between Xbox One and Scorpio will permit the same kind of consumer behaviour.

One thing is certain; while Scorpio and PS4 Pro may appear like devices that fill a similar strategic niche, this impression is only skin-deep. In reality, they enter very different markets to fulfil very different roles, and while their relationship to 4K adoption is interesting to compare, the range of strategic options available to Microsoft and Sony for their launches is very different. We've seen Sony's solution to its own unique set of problems play out - ultimately, a fairly safe and cautiously handled solution - and next week we'll start to see how Microsoft handles its own situation. How Microsoft manoeuvres to balance out the large and loyal Xbox One installed base against the niche but growing 4K market will have major consequences for its console business as a whole over the coming year.