The videogame industry, upended by a surge in the popularity of
'casual' mobile and social gaming apps, faces some dramatic years
of rethinking and evolution. At the beginning of the current gaming
'generation,' the model comprised two broad categories: consoles,
like Microsoft's (
) Xbox 360 and Sony's (
) Playstation 3, and PC games running on home computers.
The widespread adoption of smartphones - used by over half of U.S.
consumers and over two-thirds of the key demographic aged 25-34,
- disrupted this dynamic, opening up the portable and versatile
world of mobile gaming. At the same time, the rise of Facebook (
) as the world's dominant social network, with over 800 million
active users to date, spread fallow ground for the growth of social
games, such as Zynga's (
) FarmVille and CityVille.
The new model more closely resembles the traditional structure of
PC gaming. The consumer buys or downloads applications onto a
multi-purpose piece of hardware that they already own, rather than
purchasing or renting software for a dedicated game console hooked
up to a TV. In many cases, social and mobile games use a "freemium"
model in which the product is offered for free up front but the
structure of the game pushes the player towards a series of
addictive micro-transactions, garnering cash on the back end from a
minority of dedicated, high-spending players. That, in turn,
challenges the traditional development tracks of major companies
like Electronic Arts (
) and Activision Blizzard (
), encouraging a transition to more subscription-based models
rather than a reliance on major annual releases for their revenue.
Videogames created in the old way changed the face of the
entertainment industry, proving, for instance, that games could set
first-week sales records which blew traditional movie revenues out
of the water. Witness, for example, GTA IV's $500 million opening
week for Take-Two Entertainment (
) and Halo 3's $170 million first-day sales.
However, the last five years of change in hardware, software and
business model mean that the next generation of hardware and
software will evolved in radically different ways than they have
over the last decade and a half.
Recently, leaked documents purportedly from the Microsoft firm laid
out a potential roadmap for development of the Xbox 360 sequel,
dubbed the Xbox 720. Key details include a $299 pricepoint, holiday
2013 release date, Blu-ray drive, upgraded Kinect motion
capabilities and integration with the company's recently-announced
Surface tablet and an as-yet augmented-reality glasses tech called
"The document goes into great depth about Microsoft's plans to
dominate the living room entertainment space, offering video on
demand, transmedia entertainment and other applications as well as
gaming. It lists the company's key rivals as Apple, Google and
OnLive - all producing TV and streaming content solutions.
There is also plenty of material related to Microsoft's recently
announced SmartGlass app, designed to allow cross-platform
interaction between the Xbox console, smartphones and tablets," the
British paper writes. "There is 'information', too, on the Xbox 720
tech specs. A slide refers to processing power 6x in excess of the
current Xbox 360 - although there seems to be ambiguity over
whether the CPU will be based on ARM or Intel processors."
for 'traditional,' couch-based gaming remains massive. Witness the
success of Activision's Modern Warfare 3, which
an all-time record for an entertainment release reaching $1 billion
in revenue last year, hitting that mark in just 16 days (1 day
sooner than Avatar). Microsoft appears to want to have its gaming
cake and eat it too, pushing for a bigger
of the mobile and tablet industries with its Windows 8 platform and
Microsoft has neither confirmed nor denied the authenticity of the
leak, but the details seem plausible. As laid out, the plans for
the Xbox 720 appear relatively attractive to consumers, but much
will depend on rise or decline of demand for big-
, console-based games and the penetration rate of the new
mobile-focused Windows ecosystem. The Redmond, Washington company
also needs to shed some of its image as a dowdy office application
provider to appeal more effectively to the Apple (
) iPhone and Motorola (
) Droid buyers of the world.
In this, it may take some cues from the history of its competition.
The best-selling console of the seventh generation, as it's usually
called in the industry, was Nintendo's (PINK:
) Wii. This device helped gaming reach out to a broader and more
diverse audience, expanding beyond the company's traditional
popularity with young men to draw in more women, older gamers and
those who previously had no
in the medium, largely by employing motion controls, cartoonish
graphics and a market-beating low price point.
While some purists decried the company's efforts to appeal to these
previously ignored demographics, Nintendo rode a wave of critical
acclaim and financial success for years. However, discounts on
Microsoft's and Sony's offerings eroded the cost advantage of the
Wii console, while the new markets it sought out appear relatively
saturated and distracted with the novelty of cheap and accessible
social and mobile games.
Nintendo also failed to focus on online gaming with the same fervor
, ceding critical advantage in the market for unified
entertainment. Microsoft and Sony happily grabbed that baton and
ran with it, mutating their offerings from simple web-enabled game
platforms to multimedia centers drawing together services from
Hulu, Netflix (
), ESPN and other sources.
by Penny Arcade Report editor Ben Kuchera suggests that Nintendo
may have lost its way, fumbling the launch of its new console - the
Wii U - and missing the boat on hardware upgrades. The Wii U's
controller - a fusion of traditional gaming peripheral and tablet -
seems poorly understood by the gaming
. While Nintendo has definitely boosted its processing power, the
Wii U won't be able to compete with whatever offerings Microsoft
and Sony debut in the next few years.
"Many writers have spilled gallons of ink underestimating Nintendo,
but as the company struggles to give the Wii U a strong identity it
becomes clear that the system is already troubled. New systems work
when they launch with a strong vision and a clear idea of their
identity, and right now the Wii U has neither. If Nintendo can't
fix that problem, and create an attractive elevator pitch for the
market, the holidays are going to be a bloodbath," writes Kuchera.
Of course, everything won't necessarily come up roses for its
competitors. Little is known about Sony's replacement for the
Playstation 3, which entered the market in 2006 at an eye-watering
$500 pricepoint for the most basic model. Though its Cell hardware
was innovative, it proved difficult for developers to efficiently
code for it, meaning that only a handful of games looked and ran
better than competing offerings from Microsoft. The combination of
higher prices, late introduction and similar catalogues relegated
it firmly to third place behind Microsoft and Nintendo in terms of
sales, while high manufacturing costs prevented Sony from making
Microsoft ran on a similarly loss-leading model with the Xbox 360,
and massive hardware failures (the Red Ring of Death) hurt the
console's reputation early on. However, Microsoft's deep pockets
allowed it to bring the hardware to market faster and discount it
more aggressively, allowing it to beat the Playstation 3 handily
for second place.
The next generation of console wars won't look like the last set,
and the surge of social and mobile gaming appear poised to upend
traditional juggernauts while creating new champions. It's not
clear whether hardware, software or hybrid companies will perform
better. Finally, investors should remember that's what good for
gamers isn't necessarily what's good for shareholders - and
?Disclosure - the author holds long positions in Zynga (