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End of the line for "razors and razorblades"

The old business model of subsidising console hardware is finished. Welcome to the era of break-even hardware, says Rob Fahey

The console business model is in trouble - or at the very least, in flux. Major changes are buffeting the industry from end to end. We're at the tail end of the longest hardware cycle in memory - the Xbox 360 appeared at the end of 2005, meaning that it's now in its eighth year on the market, consumers are buying tablets and smartphones at a rate of knots, and some of the most interesting game experiences of last year cost less than £10 on Steam or were free-to-play on the iOS App Store. PC gaming, indie development, mobile gaming, free-to-play, tablet gaming, games as a service; all areas that are booming or resurgent, leaving many to wonder what space is left in the market for the inevitable arrival of Sony and Microsoft's next-gen offerings, which will take their place alongside Wii U later this year or in early 2014.

"All areas of the market are booming or resurgent, leaving many to wonder what space is left for the inevitable arrival of Sony and Microsoft's next-gen offerings"

Into the breach of this uncertainty pours a torrent of speculation and crystal-ball gazing. The problem is, there aren't very many uninterested parties speculating on this. Analysts and journalists alike are often more focused on controversy and attention than on accuracy. Publishers, developers and other "involved" types tend, unsurprisingly, to fit the available data to the conjecture that most favours their own business. This isn't dishonesty - the horse is usually before the cart, in that they have chosen this business based on their belief about where the market is going, not vice versa - but it does come with a whopping great side-serving of confirmation bias, all the same.

(By the way, as a quick test to check if someone's analysis is even worth the bother of reading it, try checking to see if they include Nintendo, or if they're conveniently constructing a narrative of the downfall of the entire console market, a specific gaming genre or human civilisation itself based on looking at the second- and third-place consoles of the past hardware generation - a bit like claiming that the 100 metres event at the Olympics was slower than usual, as long as you covered up the bit of the TV that had Usain Bolt on it.)

The narrative which most of those courting attention have settled upon is this one - dedicated games hardware is dead. Squeezed from the resurgent PC (with the vaunted Steam Box in the vanguard) on one side and the rapid rise in tablet and mobile gaming on the other, console gaming finds itself in a shrinking no-mans land, a tragic polar bear, doomed by its own inflexibility in the face of a rapidly changing climate, floating off on a steadily melting piece of once-solid ice. A BBC nature documentary crew will be along to film the final moments shortly, no doubt.

I'm not convinced. The market is changing, absolutely - but more home game consoles were sold in this generation than in the previous one (in spite of the extraordinary success of the PS2 in the past generation, and in spite of significantly higher prices and slower discounting in this generation), and there certainly seems to be a slowly growing "core" audience of over 50 million consumers for relatively expensive dedicated games hardware and software. I'm being conservative, in fact - the number may even be several tens of millions higher, as it's tough to say how much overlap existed between PS3 and Xbox 360 consumers in the early years of this generation.

"More home game consoles were sold in this generation than in the previous one in spite of significantly higher prices and slower discounting in this generation"

On top of that, you've got the 3DS performing pretty well (and that's before it gets the just-announced new Pokemon title, which will probably do wonders for the installed base), with well over 20 million units sold by last Autumn. Not to mention that countless PCs are sold almost exclusively as gaming systems (and I do mean countless, in that nobody is counting them), a number which will certainly rise as Valve's push to get Steam-powered boxes onto the market continues. I'd argue that the market for "dedicated gaming hardware", if that's how we're going to define a console, looks pretty damned healthy from here; the core market is going nowhere, even if the casual fringes are more comfortable as iOS consumers.

I'm not alone in feeling that way. Since last year's immense Kickstarter success of the Ouya console, an Android-based system that's due to appear in the coming months, new console hardware has been springing up like desert flowers after a downpour. Gear like GameStick and NVIDIA's Project Shield are the high-profile ones; plenty of other companies reckon they've got what it takes to make a commercial success out of an Android (or Linux, in some cases) based home or handheld console. I'm willing to wager that 2013 will see more launches for dedicated games consoles than any previous year on record. Few of them will be successful, of course, but they do rather question the "consoles are dead" narrative.

The problem with that narrative is that it conflates under the banner of "consoles" two things that aren't actually the same - dedicated games hardware, and the razors-and-razorblades business model, in which a company subsidises expensive hardware to build market share, then gets their money back from license fees on game sales. The "consoles are dead" crowd are half-right, in a sense. The notion of dedicated games hardware is alive and kicking, more so than ever - but the razors-and-razorblades business model is dead in the water, even if Sony and Microsoft don't seem to have noticed yet.

What's killed razors-and-razorblades? Not, as you might expect, free-to-play or casual or social or any of that stuff. That's just froth; important froth, but nothing more than bubbles on a much larger tide. The economic movement that's killing off the razors-and-razorblades model is much slower, more basic and vastly, vastly more important, and it's to do with the cost of manufacturing - of building real, physical things. While our attention has been focused on digital distribution and F2P business models, something insanely important has been happening elsewhere - quietly and largely unreported. Manufacturing of electronic goods has become easy, accessible, fast and - most of all - cheap.

"Manufacturing of electronic goods has become easy, accessible, fast and - most of all - cheap"

Ten years ago, if you wanted to build a console, you had to be Sony, Microsoft, Nintendo, or some other giant firm. The R&D and set-up costs required to put high-performance chips onto a motherboard and send that off to manufacturing were immense. The set-up costs for manufacturing itself ran into tens of millions, and the number of units you had to order to justify the costs of getting a production line running were huge. The overall costs were so high, in fact, that in order to get your product onto the market at a reasonable price that consumers were willing to pay, you'd have to take on yet another huge cost - subsidising the hardware - and then you'd need to spend on marketing to build an installed base and on developer relations to make sure you had software, so you could recoup your sunk costs through software licensing fees. The price tag on a launch like that was billions.

Today, two big things have happened. First, the price of cutting-edge (or very close to cutting edge) hardware has fallen off to much more acceptable levels. This has been a gradual process for years. We all pay so much attention to the ongoing "hardware cycle", in which last year's gear costs half as much this year, but this year's gear has replaced it at the cutting edge, that we often miss the bigger, longer-term picture - a piece of kit which cost $1000 last year only costs $500 this year, but its cutting-edge replacement only costs $950. The cutting edge drops slowly but surely towards affordability. From a manufacturing standpoint, this also means that truly cutting edge tech is sitting there in off-the-shelf packages which you can drop onto a motherboard without spending years in an R&D lab.

The second process has happened much faster, as first China and Taiwan, and latterly south-east Asian nations like Thailand and Vietnam, have come on-stream as manufacturing sites. Once, "Made in China" meant low-quality plastic goods; today, a start-up with modest resources can have an extremely complex and high-tech piece of electronics being made on a production line in China or Vietnam with minimal start-up costs and low unit prices. The barrier to entry into this market has fallen through the floor.

Why does this kill razors-and-razorblades? Two reasons. First, it means that being a "console platform holder" is no longer the big deal it once was; once, it meant you had billions to invest and a huge commitment that few other companies could rival. Today, it means far less, and far more companies can get involved on some level in creating and providing dedicated game hardware. Second, it means that the actual advantage to the consumer of having their hardware subsidised is increasingly small. Companies like Apple and Samsung manufacture consumer hardware in the form of tablets which, far from subsidising, they sell on for a significant profit margin - now, nobody's going to say that an iPad is cheap, but they sell at a price consumers are pretty happy with, and as a consequence of Apple not needing to recoup money from software, the App Store teems with free, free-to-play or incredibly cheap software, something a console maker in the razors-and-razorblades model could simply never permit.

"Hardware remains important, but only as a base specification and as a statement on the consumer's part. With hardware commoditised, the software platform is the new console"

Where does this leave the console market? Actually, in a pretty healthy place - but perhaps one that Sony, Nintendo and Microsoft are going to struggle to adapt to. The market for dedicated game hardware isn't going anywhere, not least because the purchase of a dedicated games device is a statement on the consumer's part - it's a way of saying, "I'm a gamer, I love this hobby, I've made an investment in it", and that's a seriously powerful thing, not to mention being an action that marks you out as a valuable consumer who's going to dump a lot of disposable income into games. The new platform holders, however, aren't going to be those who control something like the PlayStation, a single hardware model with an exclusive OS and distribution system behind it. Rather, they will look more like Valve and its Steam platform - a software platform and a set of specifications, running across a variety of hardware from different manufacturers - or, less commonly, Apple with iOS, a software platform and a much tighter set of specifications, running across a variety of devices from the same manufacturer.

The hardware remains important, but only as a base specification and as a statement on the consumer's part. With hardware manufacture commoditised, the software platform is the new console. When I look at the proliferation of Android and Steam powered gaming devices that are emerging now or set to appear in the coming months, I'm not sure I see a single "winner" out of the whole mess of them - but there's no doubt that Android and Steam themselves are clear winners from the whole situation. I don't know if Sony, Microsoft et al., still wedded to the old ideas of subsidising a closed-box system and imposing strict business rules on software as a consequence, understand that yet. Their learning process may have to be a speedy one. Dedicated games hardware isn't going away - it's set to thrive, if anything - but there's no guarantee that Xbox or PlayStation will be among the names on the boxes.

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Latest comments (22)

Thomas Dolby Project Manager / Lead Programmer, Ai Solve8 years ago
It's an interesting take on things, but it seems to ignore what we've seen Microsoft doing for the past year. From what I can see of Microsoft's strategy, they're already trying to make an ecosystem like Apple. The next Xbox could even be running Windows, so you'll have the Xbox for the TV, Windows tablets, Windows phones and of course your Desktop all running the same ecosystem, buy one app on one, get it on them all, so you can access them wherever and however you want..

I can't really see Sony surviving through this next generation though, they don't seem to have any tricks up their sleeve, and don't have much else to bring to the table in terms of a similar ecosystem to Apple and possibly what Microsoft is planning. They might have the Playstation as a media hub, they may have Playstation fleshed out as a mobile service more than what it is offering now, but ultimately they don't currently have an emerging strategy that I can see turning the ship around. I guess we'll have to see what happens when they reveal their hand sometime this year.
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Daniel Hughes Studying PhD Literary Modernism, Bangor University8 years ago
Great article, as usual Rob, and plenty of food for thought.

Personally, I think Sony are in the most danger here, and not just because of their financial situation. They managed to turn PS3 around, sure, but after nearly 12 months of miserable performance for Vita, there's no visible rescue plan in sight. There's no acknowledgement that a premium portable device can't be a mainstream success: just ask Nintendo. They launched 3DS at a premium price point, without enough features or software, and were rapidly punished for it. Unlike Sony, Nintendo responded after three months and have clearly upped their game since then. 3DS's sales have lifted in every market, though it's clear by Nintendo's own admission and by this week's announcement of the first simultaneous global Pokemon release, that they still have work to do. Whereas Nintendo maneuvered quickly in the face of failure, it took Sony several months to acknowledge that Vita was under-performing. That's not a good sign when the market is changing more quickly and in bigger ways than ever before, and it honestly worries me that a brand once synonymous with console gaming, could be on the way out.

"a software platform and a set of specifications, running across a variety of hardware from different manufacturers - or, less commonly, Apple with iOS, a software platform and a much tighter set of specifications, running across a variety of devices from the same manufacturer."

Quite likely this is what Microsoft are aiming for with Windows 8, their tablet and smartphone drive, and the next Xbox. A more expensive (paid for through subscriptions), dedicated device, and a smaller, cheaper box, to go on sale with many of the same games and media as their tablet and smartphone devices, not to mention the same OS. That's hardly a new thought, though.

As for Nintendo, as I said, they turned themselves around with 3DS, and have got off to a decent start with Wii U. I still think there are serious question marks around them, but unlike many, I think their short-term future is relatively solid. Even with the industry in a state of upheaval, I think Nintendo will manage to sell their systems and sell a lot of disc and cartridge based software (not at DS/Wii levels, but still at significant levels) in the next few years, and build install bases in the tens of millions. In the long-term, though, will a paradoxically conservative company (when it comes to business practices) be able to adapt? I'm firmly in the "don't bet against Nintendo" camp, but they're in serious danger of becoming a smaller and smaller player, as they did during the late 90s and early 00s, when they failed to keep up with the pace of change and offer substantial home console alternatives to everything else on the market. Hopefully last month's sale of 500,000 digital copies of Animal Crossing, and continuing under-performing sales of retail software on 3DS, will make them realise that a more digital friendly, flexibly priced path is the way to move forward in the near future, and a way to ensure continuing relevance and success in the long-term future. A cross-platform (even tablet/smartphone enabled) Virtual Console would be a great start, and Miiverse is a tantalising start for a gaming dedicated social network, and dare I say it, baby steps for a cross-platform Nintendo OS: it's coming to 3DS, PC and smartphones, remember. Apple have proven that a big enough, flexible enough walled garden can be a tremendous success, but do Microsoft and Nintendo have the vision and the adaptability to realise and recreate this?

That being said, I'm looking forward to seeing how these new consoles pan out. A more diverse, more successful industry is to be applauded and eagerly anticipated. Hopefully at least a couple of these new consoles will succeed in the coming months and years, pushing new ideas onto the market, bringing in new consumers, and making the older players realise it's passed time to up their game.

Edited 2 times. Last edit by Daniel Hughes on 11th January 2013 1:12pm

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Daniel Hughes Studying PhD Literary Modernism, Bangor University8 years ago
Now I know I've left an essay above, and I have to apologise in advance, but I have one more thought to share that's just occurred to me.

The best thing Nintendo can do with Miiverse, while rolling it out onto 3DS and other web-connected devices, is to sync it with wider social media. So when you turn on your Wii U or 3DS, you don't just see what the wider community is playing, you see what your social media circles are playing. Not just your Wii U friends list, but Wii U owners you follow on Twitter, subscribe to on Youtube, and are friends with on Facebook. It advertises games and services without explicitly advertising them or interrupting the game experience, prioritising those on your friends list or social media contacts whose tastes you may share or opinions you may trust, and better yet for Nintendo and other publishers, it advertises them the second the system is turned on.

And of course, it works the other way too. Your Facebook contacts, Twitter circle and YouTube subscribers see that you own a Wii U. They see what you play, what you enjoy, et cetera et cetera. Nintendo need positive word-of-mouth to sell Wii U--god knows word-of-mouth helped to sell the Wii--and a social media synced Miiverse is word-of-mouth in the digital age. It's less expensive, more focused, and more flexible than a conventional advertising spree. Get on with it, Nintendo.
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Show all comments (22)
I only have two brief points to state:

1/ Microsoft has lost billions on the XBOX brand, and will continue to not hesitate to do so if it means success. Of course they are a very profitable company, so it doesn't matter much to them.

2/ The 3DS is the perfect, current example of "Razors and Razorblades" still working. Drop the price of the hardware, make a loss per unit, and look where it is now (of course software helps).
Meanwhile, Sony seems determined to wring a profit out of PSV hardware sales ... and look where it is now.

Price is becoming more important than ever, and it seems that those with the deepest pockets (and the biggest wills) will win.
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Simon Smith CEO, thumbfood LTD8 years ago
Sony are actually *kind of* experimenting with a cross-platform approach through the PlayStation Mobile system. The idea is you write one game and it runs on PS3/Vita/PlayStationCertifiedMobileDevices.
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just reduce console game pricing to 19.99. Sorted!
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Craig Page El Presidente, Awesome Enterprises8 years ago
I think the next generation will be break even only because they're going to cheap out on the hardware so much. The graphics cards rumored for the PS4 and XBox 720 sounded so awful, they might not even be able to run Call of Duty and Battlefield natively at 1080p.
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This was well thought out, reasoned and written. It could have used some actual figures to back up its contention that creating new hardware has gotten really inexpensive, but it still was one of the better articles I've seen you publish.
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Actually Microsoft has made a handsome profit on Xbox360

And the man responsible for both the Zune and original Xbox is no longer with the company.

Edited 1 times. Last edit by Jeffrey Kesselman on 11th January 2013 7:35pm

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@Jeffrey - over its entire lifetime (XBOX & 360), MS have lost a huge amount of money.
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Morville O'Driscoll Blogger & Critic 8 years ago
Well, yes. But surely the original XBox was an expensive learning curve. Taking that into account now is like taking the PS2 into account when dealing with the PS3 - it's good for a historical perspective, but bad when comparing like for like in a generational comparison.

I, too, think Sony is going to be the worst out of the lot, purely because, if you look at the historical perspective of hardware companies that are no more, the most obvious example is Sega. Sega, who have decent IP, got out after the Dreamcast failed and are still going. Whilst they might rely on Sonic and HD retreads of classics a little too heavily (oh, hi, JSR), they are generally doing well (partially due to their HD retreads and partially due to the studios they own). Nintendo have IP to die for, and if everyone stopped buying Nintendo hardware tomorrow, they could just cosy up to Valve (something which I think will happen eventually, given how closely their ethos' match), and produce startlingly exceptional PC games. MS aren't too badly off (heya Halo!). But Sony? I don't see their gaming division particularly surviving if the Vita continues like it has been. And what IP do they have? Uncharted? LBP? I'm genuinely struggling to think of any others.

Edited 2 times. Last edit by Morville O'Driscoll on 11th January 2013 9:23pm

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God of War, Gran Turismo, Ratchet & Clank, Last of Us, Quantic Dream, Team Ico. As far as exclusives and high quality first party studios go I'd say they are still ahead of MS. Unfortunately that seems to be the only thing they have going for them and I too am afraid that won't be enough.
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Keith Andrew Freelance Journalist, Keith Andrew Media8 years ago
I can't help but think you've got the ammunition right, Rob, but you're aiming it at the wrong targets.

It's clear watching the mobile scene every day that, as you suggest, software is now the new console, rather than hardware. But I think, aside from projects such as Shield, of the exiting players it's Sony and Microsoft that are more aware of this than anyone else. PlayStation Mobile and SmartGlass are, however flawed, the first steps along a path towards platforms that span hardware - hardware that is increasingly just a gateway to a console that essentially exists in the cloud.

Play around with a Surface, Windows Phone or Windows 8 PC for five mins, and you'll see the whole experience is built around the idea of 'Xbox' being a platform - I'll be very surprised if the next actual piece of Xbox hardware for the living room doesn't push us further down this path. It's clearly the direction Microsoft (and, indeed, Apple and Google) are going.

To go back to your opening, though, the one party that doesn't realise this - that's still relying on locked-in hardware pushing locked-in software priced at 30 or more is Nintendo. Wii U is increasingly going to look out of its depth, not this time because its rivals pass it on a graphical level, but because it is bound to the old rules of the game, while everyone else chases each other around in the cloud. That's why it's Nintendo, and not Sony - despite its perilous financial position - that is most in danger by this change in direction.

Sony is, if it gets its act together, equipped to deal with this change. Nintendo is not.
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Morville O'Driscoll Blogger & Critic 8 years ago
@ Laurens

Ah, thank you... I knew they had other IP, I just honestly couldn't bring them to mind. Not bad IP, though (personally speaking) some of them are wearing a bit thin, I think. God of War and Gran Turismo especially. But *shrugs* all in the eye of the beholder. :)

Edited 1 times. Last edit by Morville O'Driscoll on 11th January 2013 11:02pm

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Greg Wilcox Creator, Destroy All Fanboys! 8 years ago
I'd say Sony ONLY has its PSN service and more exclusives than Microsoft going for them at this point (both first and third-party) and their refusal to do smart things such as not put out products that don't work together and/or use expensive proprietary storage will hit them hard if they don't wise up quickly. I don't know how their other gadgets are selling outside the PS line, but I know in general TV and home audio sales are slow around here and in terms of other products, people are spending less in general for lower-quality brands that do the same things some of the company's other products do.

If you overlook the overly-hyped AAA titles, The Vita is actually getting the games it needs, I'd say. The problem is more people aren't buying the hardware because it's too expensive and even with one of the bundles, you're stuck with a memory card that's not big enough for you to get onto PSN and start downloading everything they'd like you to.

I've never used the near function on the Vita at all until yesterday when I decided to see if anyone was actually in my area with a Vita. I was quite surprised to hop on and see something like 114 people gaming within range and the interesting variety of games they were playing. Of course, the funny part was the "prize" I got for using near - I was immediately recommended a new game to buy (NFS Most Wanted, which seemed to be a popular game in this area). Anyway, it's something anyone here who either has a Vita or knows someone with a Vita (as it seems that a lot of people here don't have or use one) should take a peek at just for information's sake.
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Daniel Hughes Studying PhD Literary Modernism, Bangor University8 years ago
@ Keith

I'd say with the amount of resources Nintendo have--particularly in cash and IP terms--they're in a better position than Sony by far. I'd agree with you that Microsoft have best positioned themselves to face the future, though; it seems they've spent the last three years of the 360's lifespan rehearsing what they need to do in the next five years.

With Nintendo, though, I'd point out they ignored things like high definition and a dedicated online experience in the years that those technologies, and in terms of online services, business models such as subscriptions and downloadable content, developed, yet it didn't have a severe impact on their ability to continue to compete. I think that in the near-term Nintendo's reliance on retail sales and and locked-in hardware won't drastically hurt them or put them at danger of going out of business. If Wii U fails, they have enough in the bank to change direction. It's not as if they're completely ignoring the way the wind is going, either. Digital is going to be a big focus for them now they've seen how much money they can make. They can go another four or five years relying on Wii U, 3DS and a primarily physical market for their own business, but if they fail to change after that they'll be in trouble. Behind the scenes now, I fully expect that they're preparing to embrace new business models and new market realities: Iwata has already said we could see a new, free-to-play IP from Nintendo in the near future, something that 12 months ago was unthinkable.
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Curt Sampson Sofware Developer 8 years ago
Sony's trying to head in the right direction, but their most serious problem is that, while consoles used to be all about hardware, gaming is now all about software, and Sony's simply not very good at that. The PS3 isn't nearly as smooth to use and featureful as an iPad, Steam or even the Xbox 360, and their recent new version of the PlayStation Store managed to make it both slower and harder to use by showing less information on the screen. It doesn't help that their customer service also doesn't work very hard to help out customers with issues, and of course they're expensive compared to many other platforms, too.

Nintendo has a similar issue on the software side: they're not good at writing software and building software-based systems either. They're moving faster to improve than Sony is at this point, but they were so drastically bad that that's not difficult. The question is not can they get to some semblance of adequacy on that front, but can they then carry on and become good, or even great?
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Paul Johnson Managing Director / Lead code monkey, Rubicon Development8 years ago
I personally think Sony are doomed and won't even get bought out when it all comes crashing down.

They had a reputation as the go-to company across the board once - TV's, HiFi, etc. Now, they're just don't. People know that the Matsui TV that costs half the money comes from the same sort of factory as the Sony model, and in pressing times are less likely to buy the big brand just for the sake of it.

There's nothing now in Sony's massive range of stuff that isn't being provided cheaper or better by someone else. Those laurels have become crumpled and old now and it's too late to start watering them.

TV: Sony -> Any "no brand" set is a good one
HiFi: Sony -> Dead?
Walkman -> iPod
Portable gaming: Nintendo -> Nintendo/Apple
Console gaming: Sony/MS -> Nintendo/MS/Sony/Other

Edited 2 times. Last edit by Paul Johnson on 13th January 2013 11:58pm

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Greg Wilcox Creator, Destroy All Fanboys! 8 years ago
The small point being missed here is for all their faults, Sony, Microsoft and Nintendo have a certain brand loyalty among a large enough group of gamers who will support them, albeit in less numbers than the previous console cycle once a shunk are chopped off from content they can't access because it's only available digitally.

This isn't a "failure" in terms of on the street (non-industry) folk who only want to see those first and third party games they expect (yeah, more sequels, boo - but I'm a new IP guy myself) and yes, will still pay for them (although, YES, game prices MUST drop, "AAA" quality or not).

I'd also say folks who keep thinking Apple will go on and eat everyone's lunch in terms of incremental innovation (making people buy new devices every year won't work for pure gamers) or who thinks all these new boxes and devices from Ouya to Steam to Razer and whatever will take the more "core" user away from what they want in a console experience may be surprised if we don't all roll over and let our bellies be rubbed until we submit to the charms of basically overpaying to play mobile games or "free" stuff that ends up costing more than something in a retail package in the long run.

That said, there's room at the in for all, folks - let's stop trying so hard to kick the old out because they're sticking to their guns on some fronts.

Yeah, stubborn to the end, but hoping there's more people playing MORE games on whatever they want to when they want to.
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Klaus Preisinger Freelance Writing 8 years ago
The last company who thought they could leverage their brand loyalty against a new competitor was Nokia. Did not go well.

Also let's not forget that Sony already had one generation during which it had to leverage its brand loyalty to hang on. Microsoft easily took half of the PS3 sales this generation.
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Bruce Everiss Marketing Consultant 8 years ago
@Paul Johnson

Me too. I cannot see them surviving.
Historically they were able to charge a brand premium. Now that Samsung (and many others) make better stuff for less money they are screwed.
They made a huge number of mistakes with the PS3. The Cell CPU, the Bluray drive, backwards compatibility, naff GPU hacked in at the end of development etc etc. They had total market domination and they threw it away through sheer ineptitude. And their different divisions work in isolation, so there is no synergy. Their first party games aren't closely synchronised with their film and TV studios (a very rich source of IP), their mobile phones aren't closely integrated with their gaming division etc etc.
They have been incredibly slow to adapt to online (but not as slow as Nintendo) so market share has been eroded and at the same they have become badly equipped to face the reality of the future market.

All that kept them in the game market was the Playstation brand, but in the process it has lost much kudos. Does it have the legs to compete against Xbox, Nintendo and Apple? Hardly. And now Sony are financially precarious whilst all their competitors are rolling in money.
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Whoever gets in with the HD cable and fios will win. Right now we all have these HD boxes sitting under our TV's, nothing more than glorified clocks with old tech as of right now, but why.. I predict soon these may have powerful gaming console capabilities built in them, the company that wins that battle to become part of the tvset box wins the living room. IMHO
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