At the Game Monetization Summit last week Wedbush Securities analyst Michael Pachter made some bold statements about the state of the game industry and what lies ahead. He see the future of games as one that’s broader than ever before. “More people play on a greater number of devices than ever before,” Pachter noted. This device proliferation is a key reason why he believes that non-traditional games are augmenting the core gaming market, and that “The console installed base has peaked,” Pachter said. “I don’t think you’re ever going to see 500 million consoles out there” which some people have predicted.
Pachter sees the future of console games as looking to expand beyond the standard retail mechanism and some DLC sales. “Destiny will have a recurring revenue model,” Pachter said, referring to the upcoming title being developed by Bungie and published by Activision. “I’m not sure what it is, but they’ll have it.” Later, Pachter made a guess as to the nature of Destiny‘s recurring business model: “I think Destiny‘s going to be weekly installments for a dollar. I think that’s a smart model,” he said.
The digital market is the future for games, but Pachter believes not all game businesses see it that way. “Publishers should embrace new business models, not fear them,” Pachter opined. “The migration to digital is an opportunity, not a threat.” While downloadable content is only 15 percent of packaged goods revenue for console games now, that will change, Pachter believes. He feels publishers should learn from the successes and failures of others, looking at why Activision didn’t succeed with the subscription price for Call of Duty while people continue to pay for a World of Warcraft subscription, though that revenue is declining.
The casual and social game areas are still attracting new entrants, and “There have been some phenomenal success stories,” said Pachter. “But most publishers only have one or two hits.” It’s imperative that publishers learn how to generate new hit titles in those areas. Part of the difficulty in that market is the sheer number of casual games appearing on mobile. “The low barriers to entry keep some players away, like Activision,” noted Pachter. “And free-to-play is free, making profits elusive for most.”
Pachter’s vision of the future for business models is a broad one. “There will be $50 games as downloads on the iTunes store, and people will be fine with that,” said Pachter. He sees a variety of payment methods, including installment options. “Microtransactions and subscriptions will become ubiquitous,” Pachter noted. While packaged goods will still exist for traditional gamers, every game will have a digital component. The non-traditional game audience will continue to grow, and advertising is likely to proliferate. “Look at Pandora, where about 4 million people pay $3 per month to avoid ads,” Pachter said. The rest of Pandora’s audience accepts the ads in return for getting free music, and Pachter thinks that will happen more and more with games as well.
The platform picture continues to evolve. “Smartphones are cannibalizing the dedicated handheld market,” Pachter said. “Tablets are the new laptop, and the games are getting more sophisticated.” Other avenues are being exploired, too and Pachter sees cloud gaming as becoming more important. “Onlive flamed out, but Sony’s Gaikai acquisition may reinvigorate cloud gaming eventually,” Pachter said. “Storage will become less essential if the cloud works.”
“The next generation of consoles is probably the last,” Pachter said. “We expect frequent model updates instead of new consoles.” Moreover, there’s going to be renewed interest in the PC, he predicted. “I think the PC is going to make a comeback, the PC will be the hub of all this stuff,” Pachter stated. He feels Smart TVs are a dumb idea, noting that you don’t have a smart monitor connected to your computer. He envisions there will be a number of screens around the home, perhaps controlled by a tablet, being driven by a supercomputer in your pocket that we call a smartphone.
You can read more about Pachter’s view of the game market, and his thoughts about consoles, at GamesIndustry International.