http://www.gamasutra.com/php-bin/news_index.php?story=14384
In a newly published report, Nick Parker of UK-based analyst group Screen Digest takes an in-depth look at the long term prospects of all three major consoles, wondering if the Xbox 360 has hit a wall, stronger investments in the Wii might "reduce the pot to invest in the other two platforms," and when hardware-driving exclusives might hit the PS3.
The report is reprinted here in full, with the permission of Screen Digest
"The industry is witnessing short term performance indicators of next gen console sales but doubt still remains as to their scalability in the mid to longer term. Some platforms are waiting for stronger software launches to drive hardware volumes while software publishers are waiting for installed base growth – one comes with the other but without one the other cannot thrive – a real chicken and egg situation. Screen Digest takes a look at some industry debate.
For Xbox 360, European hardware sales seem to have hit a wall. The target market is still too focused on adult males and the brand does not enjoy the same cachet in non-Anglo Saxon markets as it does in the US and, to a lesser extent, the UK. The FPS / shooter genre is well served on the Xbox 360 with numerous high quality titles, so satisfying the adult male demographic is not a concern, but failing to break out of a small number of genres and thereby appealing to groups outside of hardcore gamers is.
A scratching of heads has started over questions concerning the long term viability of the platform in some territories. With the UK underpinning European performance and without year on year sales improving across the rest of the region, the platform could be in jeopardy on a global basis. Despite this, some of the most eagerly awaited titles for Q4 cited by consumers are on the 360 (eg, Halo 3, Bioshock).
Xbox Live (6 million users globally) is the beacon of hope until the end of year catalogue arrives. Publishers are keen to develop smaller more nimble games for the arcade service as they enjoy 70% of sales for much smaller development costs and often high consumer take up – money for old rope? So be it: it is a proven business model. However the question remains as to how long can the XBLA catalogue grow while maintaining high or even worthwhile levels of profitability for publishers?
While some commentators have bet their farms on the outright winner of the next gen war being Nintendo's Wii, others are more cautious, with some suggesting the current market of casual gamers could dry up. Hence the Wii's target market could be saturated more quickly than its competitors as the technology looks increasingly tired by comparison.
Publishers in the past have been loath to invest in Nintendo consoles to the same degree as Nintendo 1st party, so 3rd party titles have often not been as competitive. This time round, on one hand some publishers are investing much less saying they will leave the platform drivers to Nintendo and ride their coat tails by spending very little on mediocre quality titles but ones which will give some return.
"We're running a business, not to win awards but to make money – if we make breakeven plus on Wii then we are happy", said one of the largest Japanese publishers. On the other hand, some publishers recognise the unique gaming experience of the Wii has attracted a wider, more casual market. The combination of lower development costs and fastest growing next generation installed base confers significant economic advantages in publishing games for Wii relative to competitive consoles, and this has lead to some third party publishers increasing investment levels in developing for the platform – see EA, Disney and UbiSoft (whose net income is up 70%).
One banker has concerns that lower publisher revenues from taking a bet on Wii will reduce the pot to invest in the other two platforms. "Viewed at a macro level, the share shift currently taking place where the Wii, and even PS2, are the share takers, our concern is that if software sales also begin to skew along those lines that publishers will be trading higher wholesale revenue for lower wholesale revenue," he said. "This is coming at a time when publishers are continuing to increase R&D spending for the more expensive platforms."
Nintendo has announced a forecast of 14 million global shipments of Wii during fiscal 2007/08. To end March 2007, global sales had reached 5.8 million. There are still concerns over Wii hardware supply constraints throughout 2007. Nintendo expects a strong summer line up from third parties. 40% of Wii owners are connected to the net and have proven enthusiastic in their adoption of online delivered, back catalogue games through the Virtual Console service, downloading over 4.7 million as at the beginning of June 2007. However online multiplayer gaming has only just begun with Mario Strikers (this is the first online Wii game to be launched).
Competitors to the Wii have been more vocal recently in attacking the Wii or in suggesting they will be introducing some of the technology of the Wii to their own devices. This suggests that competitors are concerned at how Nintendo is growing the market and, perhaps, starting to panic.
The PS3 has reached 1 million sales in PAL territories according to SCEE. A price drop before year end is becoming inevitable and would be in line with previous PlayStation first time price reduction timings. This is certainly what is needed to boost sales however the education of consumers as to what is in the box and what its benefits are has not been forthcoming from Sony. Marketing material has tended towards the esoteric and abstract and has seemingly failed to resonate with the consumer. Senior marketing execs at SCEE have said that it was decided to build a brand rather than inform consumers as to the technical benefits and value of the PS3 platform.
Most publishers European management teams feel that the PS3 will win out, especially in Europe where the brand still appears to be impregnable. Brand PlayStation has always commanded respect from a broad parish to come up with what is required to prevail in the marketplace. Some commentators point out that it took Gran Turismo 3 to drive a slow launch of the PS2 after 7 to 8 months on the market.
There is no doubt that currently there is a lack of distinctive content to drive hardware sales but Q4 2007 and Q1 2008 could reveal some unrivalled games which are exclusive to PS3, not least because competing platforms would be technically incapable of offering them. SCEE is promising a bombshell in order to provide a fillip to the PS3's fortunes before the end of the year, this is likely to be in the form of a price drop and the arrival of the new PSNetwork virtual world in the autumn.
The online Home virtual world is a topic of gossip but cynics ask the question why trawl through this world to source content when the simple look up bar is easier and quicker. Others reply that building communities and user generated content are key components drawing consumers to the platform and maintaining its stickiness in what is an increasingly networked world of entertainment."
Comments:
I agree with the general assessment that Europe is the most up in the air. Japan seems to have broken up it's commitment to Sony with the release of the DS. In Japan, the timing of the DS gave it just enough time to reestablish the strength of Nintendo's brand before the launch of PS3. Here in the USA, I felt like Microsoft was making serious inroads to Sony's PS2 strength after the launch of Halo 2. To many here, I think the DS proved that Nintendo could beat Sony. With these inroads in perception, sales dynamics began to change in the USA leading up to the E3 when Sony announced "$599", at which point 360 became the default choice of many consumers. Europe I see as the most resistant market to change at the moment. It was impacted by the DS and changes in the USA & Japan, but I think Europe has the fewest hardcore gamers, so even though the DS change happened sooner that in the USA, it had less impact overall, and of the three territories did the least damage to Sony. At the same time, the 360 still seems to have limited appeal in Europe. I imagine the PS2 userbase will splinter into three demographics - 1) Sony supporters, 2) casuals, and 3) the hardcore. Sony will keep all of group one, and maybe 1/2 of group of three, while retaining almost none of group two. Xbox 360 will end up with 1/8 of group 2, and about 1/3 of group 3, in addtion to most Xbox owners not already included. In contrast, Wii I expect to keep most GC owners, 80-85% of casuals, and 1/6 of the hardcore.
Expected size of market:
Japan - 33 million consoles (30% growth.)
Americas - 100 million consoles (20% growth)
Europe/Others - 72 million consoles (20% growth)
If current trends continue I would expect the market to end up divided like this. This is not my prediction however.
Japan - Wii 75% (24.75 million), PS3 22% (~7.25 million), 360 3% (~1 million)
Americas - Wii 39% (39.0 million), 360 36% (36.0 million), PS3 25% (25 million)
Europe/Others - Wii - 37% (~26.65 million), PS3 - 35% (25.2 million), 360 - 28% (~20.15 million)
Worldwide:
Wii - 90,400,000
PS3 - 57,450,000
360 - 57,150,000
People are difficult to govern because they have too much knowledge.
When there are more laws, there are more criminals.
- Lao Tzu
