As we await the release of the next-generation of consoles, we’re being bombarded by predictions about the success of this new hardware, and the console market in general. GameStop has worked hard to analyze its many years of data on sales, particularly for the period during the decline of an old console generation and the rise of a new generation, and based on that they predict a jump in the business by 20 to 30 percent for next year. Publishers in the console business will tell you how they expect great things from the new consoles, and of course console makers are bullish on the prospects for their new hardware.
Here’s the real truth: Nobody knows for sure what’s going to happen to the console game market in the next few years, and the data from past console transitions is of little value in predicting the future.
Sure, one thing that looks like a lock is that both Sony and Microsoft will sell all the new consoles they can make for at least a couple of months, based on the actual pre-orders received by retailers. Beyond that . . . well, we’ll probably see some kind of drop in sales in the early part of 2014, if for no other reason than that’s usually the slow time of the year for retail game sales. Will new consoles continue to sell strongly Will their sales grow over time, or will they drop like the Wii U sales did for most of 2013 No one really knows.
Why is it so hard to predict the future of the console business now, when it’s followed a regular pattern in the past through console transitions Let’s look at the major factors that are different in this console transition.
First, and perhaps most importantly, the fundamental business model that dominated the game industry for decades is no longer the only model, or even the most lucrative one. Yes, putting games on discs in boxes and selling them at retail stores is still a business model that generates billions of dollars every year. Just look at Grand Theft Auto V, for instance, selling 29 million copies (most of them in boxes) in just a couple of weeks. Yet the gaming industry has experienced tremendous growth at a time when the retail business has been shrinking every year since 2008. Why Because of a variety of business models like free-to-play, subscription, virtual items, ad-supported, and the many hybrids and variations of those business models.
This change in business models means that console games are far from the only way to play games these days. Yes, consoles are trying to adopt many of these business models, and they may be very successful at doing so. But the reality is that for the most popular games 20 or 30 years ago, you had to buy a console in order to play them. Now, the most popular games, and the most profitable games, can be found in many places other than consoles. The consequence is that getting a new console is no longer the only or the best way to have access to the many (perhaps most) of the best new games of the future.
We’ve also seen a loss of console game publishers, and the middle tier of games is vanishing as companies reduce their new product slate from dozens to just a handful. Yes, console makers are striving to get more indie development on the new generation of consoles. This is, however, a very new thing for the console business, and no one knows who well it will really work. Yes, there have been some successes in downloadable games on XBLA and PlayStation Network, but none really compare to the top boxed games in terms of revenue.
Gamers used to have very few choices when it came to finding a new game to play. There might be just a handful of new console games in the store in a given month. Now, thousands of new games are released every week on a wide variety of platforms, as well as new content for existing games. Even that console game you bought last year probably has some new DLC available — which may make it less likely you’ll risk money on an entirely new game.
Console games are still, for the most part, an expensive proposition with a $60 upfront charge. You can start playing top-quality games like League of Legends or World of Tanks for free. Most mobile games are free to play, and even if you can’t really progress too far or too fast without paying something, there are so many games to choose from it’s easy to find something else to try.
Even the nature of games is changing, with many becoming multiplayer, long-term, community-dependent activities rather than the solo beat-the-game experience that formed the basis of the console business. Games are now a global phenomenon, too, and publishers are very interested in getting revenue from around the world. Restrictions on console sales in many parts of the world make that difficult or impossible for console games. While China is making faint noises about finally allowing game consoles in, we don’t know how fast that might happen — or if Chinese gamers will even care. Brazil’s import duties and fews are driving the PS4 price to stratospheric heights, which means that’s not going to be much of a market for PS4 games unless that situation changes.
Publishers are taking note of the growth and horizontal expansion of the game industry by becoming brand-centric rather than platform centric. They don’t think of games as belonging to a given platform; they are trying to think of games as a branded experience that they will strive to make available to everyone, any where, at any time. Look at FIFA as an example of where publishers want to take their best titles — it’s available in different forms on console, PC, online and mobile, and it’s generating substantial revenues in all those places.
Even the tools are better than ever for cross-platform development, as Unity and Unreal Engine and others work to become useful for games on any platform. Games not as reliant on hardware performance any more, or on shiny graphics as the main selling point (hello, Minecraft), which makes the optimized graphics performance of consoles less necessary than it was.
This is not at all to say that next-gen consoles can’t succeed. They may do as well as the current generation of consoles, or even better. Microsoft and Sony and Nintendo are trying hard to work with the changes in the gameplaying marketplace. None of the trends discussed has escaped the notice of console makers, and they are implementing mobile device integration and second screen gaming, embracing indie developers, making sharing and community easier, and expanding the array of business models. All of these things are happening to various degrees.
The point is that the success of this new console cycle cannot be predicted from how the last console transition proceeded, given the massive array of changes in the marketplace. Smartphones, tablets, Facebook, messaging, new business models, global game markets — none of these things were factors the last time we had a new generation of consoles introduced. So when you see someone predict just how well new consoles will do in 2014, take that prediction with an appropriate amount of healthy skepticism. We’ll know when we get there.
