The Death of the Gaming Console. You're Kidding, Right?
March 2013
In 2012 the successor to the ultra-popular Wii, the Wii U, was released. In February of 2013, the announcement of the latest Playstation console, the PS4, was made and it is rumored that Microsoft will be unveiling their next generation console soon as well. It should be a time of great excitement for gamers across the world, and it is. But accompanying these announcements are a bevy of analysts and articles declaring that none of these machines matter. To them the console is as dead as the dodo. I think not.
Let's explore the core argument being made. Most of these pieces focus on the mobile app industry which has enjoyed phenomenal growth since the release of the first iPhone, and saw that growth accelerated by tablets and smart phone competitors such as Android. All this market expansion has occurred while console and related game sales have declined. People put two and two together and point out that one impacts the other, that gaming on smart phones has trumped console gaming. People like cheap games they can play anywhere it, has been said -- no one wants to fork $60 down on a game anymore. In addition, experimental platforms like the Steambox are being created to bring PC and Android gaming to the big screen. Analysts can't help but look at the data, see the competitors on the horizon, and then rush to a rash judgment. Here is what they are missing.
The Gaming Market Does Not Equal the Wii Market
The Wii was something unique. Something that may never happen again in the console business (see Wii U). The Wii was basically Tickle-Me-Elmo for two holiday seasons. Everyone had to have one. It was a combination of price point, innovative motion controls, and great marketing. It wasn't just gamers who bought the Wii, it was grandparents and other people who had shunned gaming before. The Wii became one of those sensations every business wants but very few actually achieve. It was a phenomenon that had to end, and it did. The powerful sales and then inevitable collapse of demand for the Wii made the console gaming market look artificially high, and the ensuing drop off an apparent sign of collapse. But all the while, the "core" gaming market has marched on, and that force remains.
Game Companies Will Struggle to Make More Money Via Apps Than With Expensive Games
It's important to understand that good console games have Hollywood type budgets, and corresponding staff to produce them. This makes it hard for small players to get into the market, and creates barriers for entrants that are relatively new to console gaming. The result is a migration of game companies to the hot app world where innovative pricing schemes seem like a panacea to these developers who cannot find a market in the console arena. Some of this migration is a very tangible and permanent thing. The problem? Can you say app bubble? There are some articles that have noted that the profit opportunities in apps already may not be what they appear. After all, it's hard to make money back on a dollar game. But some companies do. A handful, in fact, do quite well, and are dominating the market. Their presence is a big obstacle in the way of independent gaming companies, and that's at a time when the app market is on fire. I don't suggest apps will go away soon, however I do suggest that the growth will taper off and you'll see consolidation as the market matures. Few companies make serious money in the app market now, and that won't get much better in the future.
The Economy Will Help the Console Market Gain Strength
The rise of mobile gaming fits fairly neatly with the collapse of the American economy. The Great Recession the United States, and the world, experienced was a damper on a lot of industries, but none greater than the entertainment industry. No wonder console and game sales were down at this time. And conversely, it's easy to see the allure of the app market with their inexpensive products. Will this trend continue as the economy recovers? We've seen something like this before. In the Great Depression, movie houses were the escape for millions of Americans who were jobless or struggling to get by. Other entertainment venues suffered, but they did not die. Sports went on, popular music continued to be produced, etc. I suggest that consoles will survive just as well, at least for the next few years.
The Console Fills A Niche That Is Hard To Replicate
Ultimately the question about the success of consoles rests on the answer to two critical questions. Do they provide something that isn't replicated anywhere else, and will people pay for them? The answer to both is 'yes'. I explained the latter question in the section just above, so let's focus on what exactly consoles do that is worth noting. Actually, consoles can do a lot these days. The PS3 for example, can leverage streaming services so a user can rent TV shows and movies and watch them on their television, it can play the latest media format in blue ray disks, and it can play complex games that most other mediums cannot replicate. In addition, it can do numerous other small things like stream music, display pictures, and more. There are other devices that can do some of the things gaming consoles can do. There are blue ray players, video streamers, etc. The next generation of consoles, much like the current one, has two key advantages over these competitors. First, consoles are unique in that they do so many of these things while the competitors can only do a few, and second, they create an accessible environment where engaging in these tasks is easy and fun. I hate to use this phrase since it has been so overused, but I can't avoid it: consoles provide an experience that is unique and difficult to challenge. Can you set up an entertainment system that does everything a console does? Yes, but look at how many un-integrated pieces are needed to make that happen. And then count the cost of all that. The one device that comes closest to matching what a console can do is a PC, but consoles are generally cheaper and provide an easy interface the PC struggles to match (and only achieves with significant effort). The bottom line is that the next generation of consoles provides value that is unmatched, and for that reason they will continue to exist.
It would be folly to say the console market hasn't, or won't go through substantial change. We're a long way from the Atari 2600. But to declare its death is to misunderstand the value they contribute, and the demand that remains. This is a tight margin business, and lingering concerns about original gaming titles (as opposed to sequels of popular franchises) are legitimate areas of concern. But there is a space for gaming companies, especially larger ones, to operate in the console market and generate a profit. This won't change with the rise of the mobile market, no matter how much analysts want you to believe that it will.
