I started wondering where it would go in the future. I came up with three main points:
First, there will be a lot more focus on AAA games. Gamasutra recently noted that the game industry succumbs to the 20/80 rule where 20% of SKUs are responsible for 80% of the sales. As budgets increase and the tolerance for risk decreases, publishers will keep looking for safe bets that could become AAA hits.
Second, and this is related to the first, there will be more consolidation in the industry. Publishers will need to have the financial strength to finance expensive games and will demand AAA hits to make good returns on their investments. One way of doing this is reducing the industry’s cost structure, which ultimately means bigger but fewer studios and more layoffs.
Third, the razorblade/razor subsidy model that the hardware part of the business will probably not stick around for the next waves of consoles. Nintendo has proved that you don’t need a state-of-the-art money-losing machine to dominate the industry. Microsoft is now turning a profit on its hardware business but it’s looking unlikely that the profits made in this generation will be able to subsidize the losses the company had for the original Xbox. Sony has learned that there is a limit to what customers are willing to pay even if the company was subsidizing nearly half the cost. It’s unlikely that the PS3 will recoup its losses and even if the PlayStation division, through its existence, is probably still profitable due to the first two consoles, Sony will make sure to keep costs in check for the eventual PS4.
It’s not entirely inconceivable now to imagine a game industry with one largely unsubsidized console, a few major publishers, and a handful of super-studios making games.
I’m wondering how many consoles we will have in the next generation. I don’t think it’s a lock at this point that both Sony and Microsoft will continue to compete. It’s likely they will, but it’s not a lock. Sony is in all kinds of trouble in general and Microsoft set some specific success requirements that I’m not sure have been achieved.
Actually… why do you see it heading towards AAA when it looks to me that its the opposite, there are more and more successful low budget games, especially for the Wii, but also on Xbox Live and Steam. Wouldn’t a publisher be more likely to try the shotgun effect of making several low budget games, where if one is a runaway success they still get massive profit, and if they don’t make any money, oh well, not much invested?
I predict I’ll still be playing indie and flash games on overkill hardware, and occasionally buy a AAA game that bores me within a week. I still won’t have a console beyond my DS.
Sony hasn’t quite gone the way of Sega yet, I don’t believe. This is one bad business decision that isn’t a ‘failure’ by any means other than by the success of the other consoles. I h8 the way the PS3 has been run btw and its the only console of this generation I wouldn’t ever consider buying at any price, but I don’t think Sony is out of the market. And something Ninty makes 3. Pretty easy.
Barring an outsider like an Apple console or something crazy (they’ll make a big mobile gaming move before they’d ever consider it, methinks, as they’ve never been strong on games), I think we’ll have the same old next generation, but we’ll see the next 3 consoles try to out-Nintendo eachother with some form of motion controls/‘split’ controllers like Nintendo have.
It’s no longer a numbers race (higher clocks, more processors, etc.), but an innovation race. And I agree we wont see consoles above $350 in the next generation.
The reason I brought up Sony is because they have serious problems that have nothing to do with the Playstation business. They are talking about major restructuring so it is unclear just what their focus will be in future.
Edit: Just to add to this, Sony released today their new projections for what their final 2008 numbers will look like. The company as a whole expects an operating loss of nearly $3 billion dollars with the game division losing about $338 million. That’s a total loss nearly three times earlier projections. The question is what kind of Sony will exist in the aftermath of this economic downturn, which is hitting them particularly hard.
I don’t think the razors/blades is going away. And it hasn’t with the Wii, either. The profit Nintendo makes per Wii is small, especially once you talk about marketing costs and the like - the real goal is still to trim all the fat away from the console to get more money on software and peripheral sales. Which they still do, charging license fees for software and peripheral makers and of course selling an enormous pile of their own games and controllers.
Not to mention, retailers’ margin on the consoles themselves, even the Wii, is so small it barely covers the labor/shipping/overhead it takes to sell the thing. They wouldn’t sell them at less than a 20-30% markup if they weren’t also selling the games. The razors/blades analogy holds true for more than just the big three themselves, it’s the retailers, too. That’s one reason why going fully to digital distribution seems unlikely without a major rethinking of how the hardware is made and sold. If EB/Wal-Mart/Gamestop/Fry’s/whatever suddenly gets game sales taken away from them, they’re going to want a way to make 20% on the hardware, or some other revenue stream that makes it worth selling 'em.
That’s a great point, Jason. I’m not sure if the subsidy will go entirely away but it seems likely that the $200+ subsidies will be going away. I would be extremely surprised if the next consoles out of Microsoft and Sony cost significantly more to make than they sell for.
While the first two seem sort of obvious, what I’m really getting at is that there’s going to less than a handful of really big publishers. I don’t see the likes of, for example, an Eidos or a lot of the current Japanese publishers hanging around.
Well, take a look at this article. And this quote in particular: “When you’re looking at the Wii, what’s really interesting is, when you look at 2008, the top ten SKUs accounted for 44 percent of the sales. There were 432 titles available in the market for the Wii… strictly retail.”
No. There’s no possible way Sony would do that. The Japanese side of the company would never allow it, both due to the shame involved and the fact that the system is doing okay in Japan. They’ve sunk way too much cash into the Cell Processor and the PS3 in general to not ride it all the way into the ground.
I think that we will see tech specs lowered to where consoles can launch at $300. MS and especially Sony saw what happened when they exceeded what the market will bare. I think that mistep has certainly aided the Wii’s meteoric sales figures. I wonder if the Wii would have been able to get as much traction as it did had the cometition not been so damn expensive (not to say the Wii wouldn’t have been a success, but I wonder if it would have blown out the competition like it did).
This, I totally agree on. MS had a big subsidy for a short time, and a smaller but still substantial one for a longer time. The support costs have killed them. It’s well known that they weren’t able to cost-reduce (and price-reduce) the 360 as fast as they would have liked.
I’m guessing the strategy for the next gen will be for the cost of entry to start at more like $299 rather than $399 (360) or higher (PS3). And to do that with more manageable losses, fairly quickly moving to break-even on hardware or at least more smallish losses with price reductions to $249. There still may be higher-end SKUs with more storage or whatever at higher prices.
Certainly, both Sony and MS are looking at the Wii and thinking it’s not just waggle controllers or cutesy Miis or whatever that make the system so popular. It started out by far the cheapest, and rode that momentum to the point where Nintendo hasn’t even had to lower the price, while Sony and MS have done so dramatically.
The next gen from Sony and MS will both likely be slightly more conservative in terms of maxing out hardware potential. It would serve the double-duty of lowering costs and prices, and will use less power and run less hot making it easier to build a more reliable machine. It’s one of the arguments for this current generation lasting a little longer - in order to build a machine that is more reliable, energy efficient/cool, and cheaper to produce right from the start than the current boxes were at their debut, while still being a true generation above, you need to wait a little longer for chip manufacturing processes to advance a little more.
Q: How do you build a $300 system that costs $350 to make that is 10 times more powerful than the system that was $400 and cost $550 to make?
Increasingly, I’m starting to see the PS3 going the way of the PSP. That is, the system itself seems to still sell at a steady pace, and there are games made for it and people seem to like them okay, but nobody cares anymore. And except for one or two spikes it never exactly burns up the software sales charts.
I agree. I don’t think that most console gamers compare consoles with what is possible on PC, but rather with the last gen console. Waiting could let companies create the perception of a huge tech jump.
Well, for all that people bag on the Wii for its low tech specs, they now have the ability to provide what will look like a massive tech jump while staying at a low price, while the other companies must either heavily subsidise or have a more modest relative leap. That may work out well for Nintendo, especially as more people may have HDTVs at the changeover point (assuming they didn’t all hock them due to Great Depression II)
