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iPhone 5 places "Tremendous pressure on games, hardware"

Analysts speak out on the potential impacts of the iPhone 5

Apple's finally revealed the new iPhone 5, which comes with a bigger screen (4" diagonal, with 1136 x 640 resolution), faster A6 processor, 4G LTE, longer battery life, and assorted other enhancements, all in a thinner, lighter case. At the same time, Apple also announced a refresh of the iPod line, including a new iPod Nano and a new iPod Touch that shares many of the features of the iPhone 5. What impact will these announcements have on the gaming industry? Will this put even more pressure on handheld consoles? GamesIndustry International queried some industry analysts to get their views.

Scott Steinberg of TechSavvy Global feels Apple's announcements will indeed have an impact. "What we're seeing is a rapidly accelerating technology curve, as smartphones and other multifunction devices rapidly make exponential gains in graphics, connectivity speeds and processing power," he said. "This places tremendous pressure both on game makers and hardware manufacturers to raise the bar, and helps companies like Apple make further inroads into territory previously reserved for traditional game makers."

Steinberg feels that the battle for those scarce consumer dollars available for hardware is getting tougher. "The real takeaway here isn't the iPhone 5 itself - it's what the device heralds for the future of the business, and the speed at which iteration and evolution must occur. With millions of users enjoying growing on-demand access to thousands of high-quality free or low-cost gaming applications, and soon to enjoy the potential of bridging the gap between platforms and devices, the race to win hearts and minds is quickly entering its final heat."

"This places tremendous pressure both on game makers and hardware manufacturers to raise the bar"

Scott Steinberg, TechSavvy Global

John Taylor of Arcadia Investment feels that the indirect effect of the new iPhone may be the most powerful impact on the game industry. "Apple continues to apply pressure, by rapid tech iterations and innovation. These devices keep getting better and better. That said, they are still a luxury item, especially for kids who are the most likely users of a dedicated handheld," Taylor said. "I think the hand-me-down Apple device market is as much a competitive challenge for Nintendo and Sony (each new generation of course creates an older generation for kids)."

Taylor sees the challenge for Apple as not so much keeping pace with hardware, as finding games for the iPhone that are amazing. "What would really make Apple a more direct competitive threat would be a slate of truly exceptional games that are sui generis developed for the new phones, especially games that really nail down the consumer friendly free to play business model," Taylor said. "Just one more screen to play on isn't going to provide the killer game app to change Apple's already solid status. Rather, a from-the-ground-up game that really shows off the new device's capabilities (for a mass market), could have impact."

As far as the effect on the console market goes, Taylor see that as coming more from Apple's other hot product line. "The real challenge to consoles in my mind will be constant iterations and improvements in tablets (not so much phones). These devices, with HDMI output to larger screens can bring a much more immersive, engaging and graphically intense game experience, which could woo gamers away from consoles. Again, especially if the business model is attractive."

Colin Sebastian, senior analyst for RW Baird, acknowledges that smartphones are having an impact, but sees the opportunity for developers. "I have no doubt that the iPhone 5 along with other iOS and Android devices are already legitimate gaming platforms, and are taking wallet share and mind share of the traditional video game market. I think the issue for game developers will be how much profit can they generate on a game across the different platforms."

Billy Pidgeon, senior analyst for M2 Research, sees the impact more from the general advance of the smartphone market rather than this one new product. "Apple's iPhone 5 is not a major upgrade from 4S and I expect the iPhone 5 launch will have an incremental effect on the gaming sector," Pidgeon said. "The processors are faster and the screen is bigger, so games will look great on the new phone. Major games publishers are spending on higher production values for new titles to stand out on new higher end phones." The higher development budgets are where Pidgeon sees a threat to handheld consoles. "This will further narrow the gap between smartphone games and high end games on dedicated handhelds. I think there will be a growing number of consumers who will spend more on smartphone games and this spending is likely to cut into potential sales of games on PS Vita and Nintendo 3DS."

"The hand me down Apple device market is as much a competitive challenge for Nintendo and Sony"

John Taylor, Arcadia Investment

Like Taylor, Pidgeon sees the potential for older smartphones to spread to a wider audience. "Price reductions to earlier iPhone models in stock will grow the installed base below iPhone 5 specs, and better performing iPod Touch units will add to the potential market," Pidgeon noted. "The base of Android smartphones is also growing, and Windows 8 smartphones will have a far bigger impact than previous Windows smartphones. As more consumers acquire smartphones, the larger installed base will mitigate the typically low conversion rate for paid games and in-app purchases."

The growth of the smartphone market is not without its dangers for developers, though. "On the downside, the volume of mostly free titles continues to grow aggressively. Higher development costs and the rising quality and quantity of titles will make it more difficult for smaller developers and publishers to compete in the smartphone market," Pidgeon warned.

Ted Pollak, analyst for Jon Peddie Research agrees that smartphones have had an impact on gaming, but doesn't see that as a negative. "The iPhone and iPod Touch have both had a huge positive impact on gaming. So have Android devices," Pollak said. With that said, Pollak notes the problems smartphones have when it comes to gaming.

"Smartphones are currently limited in gaming application in various ways, regardless of how much processing they can handle," Pollak said. "Most people figure this out after they tire of a few of the most popular titles. The devices burn through battery during gaming and these devices are people's primary communication and information devices. Smartphones require you to cover limited screen real estate with your fingers for control, unless using the movement sensors." Pollak does give a nod to tablets, though. "I should note that tablets like the iPad and Kindle straddle the handheld and smartphone gaming markets in regards to quality and interface."

Pollak feels that handheld consoles offer an unequalled gaming experience. "Gameplay on a device like the Sony Vita is a completely different animal that offers a superior gaming experience, with a control interface designed for games. Both platforms (smartphones and handhelds) are fun but most serious gamers, given the choice, would opt for a dedicated control interface. So while smartphone gaming is a big business, and has unquestionably reduced the addressable market for handheld devices for the more casual crowd, I believe handheld gaming will maintain its position and probably grow to some extent."

The future of smartphones in gaming may bring them into a closer conflict with consoles, though. "I think the most important questions are how will smartphone, tablet, handheld, console, and PC gaming evolve? How will they overlap, how will they merge?," Pollak asked. "What if you were able to place your phone in a cradle charger at home, and play on a large display with a controller bound to the cradle? Or what if there existed a smartphone gaming cradle with a control interface designed for games, and additional battery (possibly even processing) power? The new smartphones are already there from a processing perspective for over 50% of gaming. But there is no generally accepted way to transmit this power into a large screen environment or ergonomic handheld platform."

" I believe handheld gaming will maintain its position and probably grow to some extent"

Ted Pollak, Jon Peddie Research

"This is the ultimate threat and opportunity to platform and game makers. What happens in the next five years could drastically alter the gaming landscape, or further entrench the existing players. Some of this technology is possibly being withheld from the market for fear of cannibalization. However in the end, the consumer is boss, and will support gaming solutions that make sense and meet the individuals formula for developer support, cost, control interface, ergonomics, and power. "

The iPhone 5 and its older cousins will likely sell in the millions; analysts have projected that Apple might sell an astounding 30 million iPhones by the end of this year, enough to raise the GDP of the USA by half a percent. If nothing else, that represents a large amount of money that won't be available for purchasing other hardware this Christmas. That will be at least ten times the number of any console sold in that time frame, and several times the number of all consoles sold put together. Hard core gamers may shrug at that, but you can bet game publishers are paying attention to those numbers when they're thinking about where to invest money in game development.

The indirect effects of the new iPhone may be the most powerful effects, as John Taylor noted. We're already seeing smartphones being used by younger and younger kids. When mom or dad (or both) get a new iPhone, they could trade in the old one for some fraction of its value... or they could give it to their child, with or without an active phone number. Such hand-me-downs are becoming more common, and it tends to crowd out possible purchases of handheld consoles for younger kids. After all, why give Jane a 3DS for Christmas when you already gave her your nice iPhone 4? This pass-along effect could well move millions of iPhones into the hands of younger kids, and make it even harder to sell handheld consoles to those families. Increasingly, those kids will become used to using a smartphone, and download hundreds of apps, and thus become ever more invested in that area rather than interested in a new handheld device where you have to pay $30 or $40 for each new game.

The iPhone 5 and the iPod touch won't be purchased because of their game playing capability; anyone searching for the best gameplaying experience in a portable device will be looking at the 3DS or the PS Vita. It's inevitable, though, that games will be the most popular category of app for iPhones and iPod Touches, just as it is for earlier models. Apple even said this about the iPod Touch: "It's the world's most popular music player... but a lot of people don't realize that it's also the world's most popular videogame player as well."

It's not happenstance that Apple said something like that in their presentation. The only two third-party apps shown were both games, and Apple made sure to talk about the 150 million people registered in Game Center. Games will be an important marketing focus for Apple; and the message is clear that Apple thinks games are important.

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Steve Peterson avatar
Steve Peterson: Steve Peterson has been in the game business for 30 years now as a designer (co-designer of the Champions RPG among others), a marketer (for various software companies) and a lecturer. Follow him on Twitter @20thLevel.
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