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Shattered Market

The market is more fragmented than ever - and the whole playing field has changed

57 million. That, at a rough estimate, is the number of new-gen consoles - Xbox 360, PS3 and Wii - that have been shipped worldwide to date. Thanks to this week's flurry of financial results, we have the first reasonably accurate breakdown of sales in ages, informing us that the Xbox 360 has hit 19 million units, the PS3 is within shouting distance of 13 million, and the Wii, leading the field by an impressive margin, is sailing around the 25 million mark.

57 million. It's an impressive combined figure - but even if we assume a neutral scenario, where this generation of hardware only reaches the same installed base that the last generation did, we're still only a third of the way through the sales curve of the systems. In the more likely eventuality that this generation sells significantly better than its predecessor, that proportion is even smaller.

It's worth taking a moment out here to consider the fact that the last generation isn't doing so badly itself - nearly 14 million people last year decided that they need a PlayStation 2 in their lives, giving it healthier sales than either the Xbox 360 or the PS3.

That's not bad for a console that celebrated its 8th birthday back at the start of March. Even allowing for the continuing slowdown in its sales, it seems likely that the PS2 is going to gasp past the 150 million unit milestone before it breathes its last - the first console ever to do so, just as its predecessor, the PlayStation, was the first to break the 100 million mark.

Such figures put our 57 million number in perspective, to a large degree. They illustrate just how new to the market the new-gen consoles are, and how far they have to go to emulate the sales success of their predecessors.

The figures also illustrate very effectively the enormous change that the games market has undergone from the last generation to this one. Some would argue that the biggest change has been high-definition, or online. Some would argue that it's the rise of "casual" gaming. Those are valid viewpoints, but I think that from a business standpoint, the single most important change in the gaming market is fragmentation - the diversification of the industry's output, and the accompanying fragmentation of consumer spending.

In the last generational cycle, if you were a consumer who was keen on videogames, you essentially had two choices - you could buy a gaming PC, or you could invest in a PlayStation 2. With a single, incredibly dominant console on the market, the alternatives (the Xbox and GameCube, and handheld gaming in the form of the GBA) were essentially niche interest devices, platforms which cultivated vocal and enthusiastic userbases but whose broad commercial relevance was minor.

This was the pattern which had persisted for several years in the games market. The PlayStation dominated its generation in a similar fashion, and even in the era of famous rivalry between Nintendo and SEGA, Nintendo's systems were the undisputed commercial champions. Over 20 years of gaming history, there have consistently been no more than two realistic options for consumers with money to spend on videogames.

That has changed dramatically in the current generation. The PC, of course, remains a viable and even healthy platform for many game genres, producing million-sellers fairly regularly despite issues with piracy and hardware expense, and the new generation of hi-def consoles, the PS3 and 360, are locked in a proper battle for sales supremacy for the first time in decades.

That's only the tip of the iceberg, however. The choice for consumers is no longer simply between PC gaming and one or two high-end console systems - instead, there's a whole fragmented universe of choice out there, each sector exerting a pull on the finite (but growing) collective wallet of the gaming public.

Take handheld gaming, for example. Despite the success of the GameBoy and GBA, this was always previously a side-salad, with console or PC gaming as the main course. The DS and PSP have changed that - dramatically. 70 million DS consoles are in the hands of gamers, along with close to 35 million PSPs. Even allowing for a lower software attach rate than the home consoles enjoy, that's still a hell of a lot of Pounds, Euro, Dollars and Yen accounted for.

Then there's the Wii - a console which arguably sits outside the new-gen race, since its hardware specification belongs with the previous generation of consoles. At the very least, it's indisputably a very different beast, and it's got the most impressive sales curve of any console in the history of the industry. 25 million today (more than the GameCube sold in its lifetime), and 50 million projected by the end of the year - that's way more than the N64 sold, and astonishingly, if Nintendo hits that target it'll also pip the lifetime sales of the legendary SNES. Again, more consumer bucks disappearing into a bucket that isn't marked "new-gen consoles".

Of course, there's the PS2 - as I already mentioned, it's still doing handsomely for itself. More than handsomely, in fact. Never mind the hardware sales, check out the software - 154 million units of PS2 software sold in the last financial year, another big fragment of "wallet-share". Hell, there are even individual games biting big chunks out of the pie. Blizzard's World of Warcraft eats up over a billion dollars a year of "videogame money". (That's even before you consider how many games WoW players would potentially buy if they weren't spending all their gaming time grinding virtual gold to pay their repair bills from Serpentshrine Cavern raids. Or whatever.)

In many respects, this picture is positive. The fact that high-end consoles and PCs aren't the be-all and end-all of the market any more suggests a newfound diversity which will help to grow the demographic reach of the whole medium. Moreover, it puts the brakes on the headlong rush to more and more powerful systems which characterised the past decade of progress. That rush will continue, but it no longer constitutes the entire games business - and the existence and commercial success of lower powered platforms, both handheld and home, means that the barrier to entry for new developers is lowered significantly. That's a good thing.

On the other hand, for publishers, the newly fragmented games market does bring new opportunities - but it's largely just a massive, thumping headache. For twenty years, they've been able to base their business on supporting the PC, a dominant console platform - and maybe a niche console platform if they were feeling charitable (or if a platform holder greased the right palms).

Now, that's no longer the case. The 360 is leading the hi-def race, but the slowly shrinking margin isn't large enough to justify doing anything other than supporting the PS3 to an equal degree. However, even those two consoles, for all the headlines they make and shelf space they occupy, don't actually account for even half of the market. The active handheld installed base is huge. The Wii is huge. The PS2 is huge. Weird niche markets like MMOs are gradually getting around to being huge.

With all these huge areas crowding for space (and more importantly, cash), will any console hit the 100 million, or 150 million, figures we saw last generation? Possibly, yes - but not because of genuine dominance. Nobody is going to dominate this generation like the PlayStation and PS2 dominated the previous generations - in fact, not even the PS3 and 360 combined will have that kind of dominance. Fragmentation is going to be tough, expensive and difficult for publishers - but it's also laden with opportunity. The success stories of the coming years will be those who learn to stop worrying and love the diversity.

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