Are the Next-Gen Consoles Coming Too Late?

Microsoft and Sony really want you to wait a while before playing their next generation systems. They want you to sit tight.

Before launching anything new, they want to hold off until the last
possible moment. They want to skip out of the tottering, crumbling
edifice of the current generation just before it comes crashing to the ground.

Their anxiety about making the move is so great that they are prepared to allow Wii U a free run
at the market for at least year, and they are even happy to wave each
other through as first-to-market. Disappointingly, there has been none
of the mind-games or competition on launch timing that we've come to
expect (and enjoy) from hardware warfare. There is no sense of an arms
race -- of two mighty rivals manfully striving to beat each other to the
punch.

The reason is simple. The current generation is finally making money
and declining at a seemingly manageable rate, adding much-needed loot to
Sony and Microsoft’s coffers. In contrast, the next generation will
cost a great deal of money and will continue to do so for years. And
with both technology and consumer behavior changing fast, launching
games consoles has never been riskier. In short, Sony and Microsoft have
too much to lose by rushing to market, while Nintendo has nothing to
gain by waiting.
Microsoft and Sony are seeing returns on their huge investments of
the last decade. Game sales are declining but the businesses are largely
predictable and clustered around big, profitable franchises. Also, they
have finally reached a critical mass of online subscribers who are
willing to buy highly profitable digital-only games. This is a situation
both firms have invested heavily in achieving. They are not about to
screw it all up by rendering their lead products obsolete.

As Microsoft’s Phil Spencer told me at E3,
”Our business is really in a sweet spot if you think about the
installed base and the number of people -- the addressable audience --
of a platform like Xbox 360 right now. So as somebody who's running a
publisher, a first-party publisher, but still, an entertainment
publisher, it's a great time to be on Xbox. We've got tens of millions
of people out there, so when we put out something like Minecraft, we
sold two million units. That's a great business.”

And Sony Computer Entertainment America boss Jack Tretton is equally
good at spinning positive on the company’s reluctance to move forward.
He told Gametrailers,
“We have never been first [to launch], we have never been cheapest, it
is about being the best. If you can build a better machine and it is
going to come out a little bit later, that is better than rushing
something to market that is going to run out of gas in the long term."


Credit: Gamasutra


It’s interesting that the third-party publishers are in no rush for
their first-party cousins to make the leap. Given that their sales are
declining, you might expect some sort of call-to-action. Not so. One
leading exec told me that he is “delighted” that neither Sony nor
Microsoft had anything to say about new hardware at E3. The publishers
do not want you saving up to buy a new console next year, based on fancy
promises and lush previews. They want you buying their current-gen AAA
games this year. They don't want you thinking that there's something
better around the corner. They want you to be happy with your lot.

Of course, they are seeing serious declines in games retail sales in
2012, but they still don’t want the market to do anything rash, like
introduce exciting new products. Because that would trigger an expensive
third-party arms race of polishing and marketing all that new IP
they’ve all been secretly working on. For now, the game companies would
rather manage the gentle stroll of decline than face the extreme
challenge of a new generation.

But this conservatism is risky. Downward trends have a habit of seeming predictable right up to the point when they are not. If Malcolm Gladwell is to be believed,
it’s the trend-setters, the most knowledgeable consumers, who make the
difference, who change behavior so sharply that it precipitates
calamitous consequences. In other words, people like you make all the
difference.
The gaming industry relies very heavily on trend-setters, just the
sort of gamers who are most impatient for new hardware, and most likely
to set buying trends for games on old hardware. The whole strategy
relies on you continuing to be excited about the current generation, and
continuing to influence the mass market by your enthusiasm. And sure,
there are lots of things to like about the games coming out on
PlayStation 3 and Xbox 360. But should that excitement wane, the
consequences are dire. The big games season of 2012 looks dandy, but
2013? Maybe that's a year too far.

Right now the business is relying on the millions of people who’ll go
out and buy the new Call of Duty. But the people who really matter are
the first million who bought the original Call of Duty and put the whole
thing in motion. And, by the end of 2013, these guys will have been
playing the same console for an unprecedented seven years (PS3) or eight
(Xbox 360) without a new generational introduction.

Let’s just come out and say it. The current generation is old.

Meanwhile sales of retail games are dropping, fast. Earlier this month, in his excellent regular column for Gamasutra, statistics-analyst Matt Matthews made this startling observation:

“In each of 2008, 2009, and 2010 the 50 million annual unit
software point was crossed sometime in March. But in 2011, it fell back
into early April, indicating a significant slowdown. This year, unit
sales just crossed 51 million units at the very end of May.”


What’s happening is that the percentage of the installed base
actually going into stores and buying games is declining. In other
words, people are ceasing to use their consoles. This is what happened,
catastrophically, to Wii and it’s now happening to Xbox 360 and PS3,
albeit less drastically

Matthews and some third-party publishers are calling for hardware
price cuts, and this will certainly help to sell more games. But if you
haven’t gone out and bought a PS3 or Xbox 360 at any point in the last
eight years, your likely dedication to spending lots of time and money
on games has to be in question (assuming that youth isn’t the biggest
factor.)

Game consoles do not exist in a competition-free zone. There are lots
of products vying for your money. Gamers have other options, including
PCs and fancy tablets, and while these two options have significant drawbacks, they are both clearly making their mark on gaming.
For gamers with money, PCs are looking like an extremely good way to
embrace the future, while tablets, despite their current drawbacks as
gaming machines, are so significant that they are becoming a core part
of Microsoft’s console strategy, as illustrated with its SmartGlass initiative.
They are becoming more powerful with every passing day, and do not
require seven-year gaps between new iterations. Then there are unknowns,
like TVs with built-in streaming games services, and whatever the hell Apple is planning.

The next generation consoles will offer significant graphical
improvements, and this must be the single most exciting innovation. They
will also offer cross-media adaptations that allow you to consume more
non-games entertainment in more ways, which is less exciting. And
they’ll probably offer new ways to interact with games, too, like the
improved Kinect outlined in last weekend’s leaked documents, which for those of us who are pretty much okay with pressing buttons, is even less exciting.

So they are interesting, much-needed improvements, but unless there
are secrets as-yet undreamed of, they are hardly revolutionary. In the
days of tablet computers and Smart TVs, games consoles just aren’t as
gosh-wow-amazing as they once were. There was a time when game consoles
were the magic boxes of the living room. To you and me, they are
essential and useful devices that do what they do better than anything
else. But to Microsoft and Sony they are platforms for controlling
entertainment in its entirety. There comes a point when the
core consumer's interest and the manufacturer's interest diverge, and
that's not good, especially if the issue is something as crucial as
timing.




This week, Michael Pachter claimed that Xbox 360 probably wouldn’t
make it to market until spring of 2014 in the U.S., almost two years
from now. He told X360 Magazine,
"If I were a betting man (and I am), I would say a spring 2014 launch
makes more sense, since hardcore Xbots could get a console without
having to compete with moms buying gifts at holiday, and it is likely
that they won't manufacture more than a few million units for launch.”

The longer Sony and Microsoft wait before telling us what their
console plans are and before actually launching these machines, the
higher our expectations will be that they blow our socks off, and the
bigger the disappointment if they fail.