Current Game Plans of the Console Makers

[VideoGameAccountant]

RolStoppable said:
Microsoft is slowly retreating from the console market because their reasons to be in there have vanished. They aren't making any Xbox-exclusive games anymore, they focus on multiplayer games because Xbox Live subscriptions have been the only positive aspect of the Xbox business.

Sony is benefiting from Microsoft's change of course, but the growth potential for AAA gaming is limited. In the near future Sony will also face the problem of catering to a generation that grew up with smart devices, so stationary home consoles have a built-in disadvantage of being restrictive in how and where they can be used.

Nintendo is forward-thinking with Switch and well-positioned for the future. It's already a foregone conclusion that Nintendo will dominate Japan. It's also looking good in the USA and realistic that Switch will have higher yearly sales than the PS4 there. The Switch concept should work in Europe as well, but it's harder to monitor because sales data gets released so infrequently.

In summary, Microsoft doesn't really care anymore, Sony has to think of how they can adjust to a changing world, Nintendo has already found the solution. Therefore Nintendo is in the best position. This should be pretty evident because Nintendo is currently the only console manufacturer with a presence in both the home and portable market.

I would say this is the best analysis in this thread. I think you really get it, but I want to add to this.

First, a lot of people are saying Sony because they look at PS4 sales and say "Wow, Sony is selling a lot. They must be doing something right." It's a fair assessment, but Sony's success this Gen has more to do with not dropping the ball and consolidation. Beyond appearing "gamer friendly" in contrast to DRM happy Microsoft, Sony didn't make any amazing business moves. Look at this generation compared to 2009 and 2010 (3-4 years in Gen 7). We have 5 systems that were at least selling alright. Nintendo Wii dominated, but Sony and Microsoft were selling well enough in their own right. The DS dominated, but the PSP was still able to find a footing and sold well in Japan. Despite the Wii phenomenon (which was sold out until around 2009), it never exceeded 50% of the home console market. Now look at the market. The 3DS is doing, OK, but it has no competition. PS4 is selling well, but that is more due to the other two doing so bad. PS4 has over 50% of home console sales. No one has ever thought that the reason the PS4 is doing so well is it has taken potential XBox customers. Its success is consolidation. Nevertheless, people are still buying PS3s and 360s now. If you remove PS3 and 360 sales, total hardware sales are way down. Generation 8 has been the generation of the great recession.

Now, there are two major Macro events in Gen 9

 

1. TVs are dying - TV viewership keeps going down. Post people watch shows through Netflix or Youtube. Cable subscriptions are down. The major news sites keep losing views and the viewers they do have are quite literally dying off (average ages are in the 60s and 70s). The next generation is growing up in a mobile world, so "taking over the living room" is a fool errand.
2. The economy is about to boom - There are two major factors here. First, we are moving away from Demand Side economics with President Obama and moving towards Supply Side Economics under President Trump. If you want to know why one works and the other doesn't look at the Great Depression. There was a study that came out that found the Great Depression was prolonged for 7 years due to Government intervention. Likewise, Obama has the lowest growth of any president since WW2. This is in spite of doubling the national debt and being able to spend over a trillion each year on top of three rounds of QE. The other reason is more subjective. Immigration, which Trump and others on the right in Europe are against, lead to suppression of wages. This also means companies don't have to automate. The same thing happened with the Industrial Revolution. It only happened after Britain and the US ended the other cheap labor programs know as slavery. Curbing immigration means companies need to invest in labor-saving devices which mean they invest in automation. Potentially, the US and Europe could enter an automation revolution.

So with these in mind, who has the best strategy. As Rol mentioned, Microsoft is leaving. This has to do with mobile computing. Microsoft entered the market because Sony was a threat but now their biggest threat is Apple. XBox has never made money but the brand is strong. Microsoft will likely use the XBox brand to protect Windows. I wouldn't be surprised is the next XBox is just a mini Windows computer. 

Nintendo has already prepared for the death of the TV with Switch. If you look at Nintendo's business, they essentially had two consoles for two different regions. Despite the success of the Wii, it never took off in Japan. It sold less than the NES or SNES. Trying to do two consoles wasn't going to work. The Nintendo Switch can connect to the TV but you can play the thing entirely like a handheld. In 5-6 years, the generation who grew up on mobile with be 15-25, and the next Nintendo console won't focus on the TV (there may be a dock but it won't come with the system). Nintendo was also lucky to come in at the start of a financial boom.

The worst strategy right now is Sony. From what it looks like, Sony wants to say in the warm safety of the PS4 rather than try and deal with the next console generation. But if they don't release anything by holiday 2018, then they will have given the generation and there will be no reason for a PS5. And how do they release it? Nintendo Switch kind of makes a traditional home console pointless. The PS5 will always lose out due to the portability of the Switch. Moreover, more gamers are moving to the PC as Sony and Microsoft focus too much on power. Basically, why buy a PS4 when you can build a PC, get more bang for your buck and still have all the games. Sony's first party lineup is not strong enough to retain customers on its own.

So when I look at Sony, I don't see them addressing the macro environment. They have VR, but how is that going to do? VR hasn't really caught on and I don't see it going anywhere. They have the streaming service, which can help defend against the PC, but consumers look to be going more physical and less digital. People are buying vinyl and physical book sales are up. Retro gaming carts are going up in price. The digital-only doesn't seem like its going to work. Sony has benefited by there being no strong competition but that is over with Switch. They need a new strategy and it looks like they don't have one.

To summarize

• Microsoft is exit the market and use XBox to defend Windows
• Nintendo will sell a lot of Switches and will move towards handheld only in the long run
• Sony is a wild card, but my expectation is they will stay under the PS4 covers too long and get swept away by Gen 9. They exit the market in Gen 10 or 11 as the mobile generation grows up and gravitates towards handheld gaming (which Sony is ill-prepared for)

E3 will tell us more. Thankfully, we are less than a month away.