The Electronic Entertainment Expo is a big deal for the gaming industry, often providing a benchmark for the coming year. E3 2013 has been no different, with Microsoft and Sony setting the scene for the industry’s first competitive launch of gaming hardware in recent memory.
In the years following the release of the last generation, console gaming sales have reached a plateau, and while struggling sales have been blamed on ageing hardware, the impact of casual gaming and mobile gaming (spurred on by Apple and Google) is hard to ignore. Both Microsoft and Sony will hope that they can rejuvenate the console category, with the convergence of technology determining how both manufacturers have framed their latest offerings. With global console market revenue set to rise to $30bn in 2016, it is evident that there is a significant reward for getting this right. Following on from Microsoft and Sony’s launch announcements, has E3 enhanced our understanding of how the console market is set to evolve?
Lesson #1: Cost is likely to be a deciding factor in the console race
Highlight: Xbox One to retail at £429, Sony PS4 at £349
E3 is well known to include a few surprises and in the case of E3 2013, it is console pricing rather than hardware which has grabbed the headlines. The announcement of the price of the PS4 drew audible gasps from the conference floor, with the £80 price difference between the devices becoming a significant talking point. The enhanced media capabilities of the Xbox One (TV integration and the inclusion of Kinect) has meant that the Xbox One is retailing at a premium relative to the PS4, a bold strategy for a device that consumers are likely to perceive as a games console first and an entertainment centre second. Microsoft will point to previous launches as a benchmark for their pricing model, although with both consoles launching simultaneously, cost is likely to be more relevant differentiator than ever before.
Sony’s aggressive price strategy has likely been provoked by previous lessons learnt the hard way. The release of the £425 PS3 in 2006 into a mature market (The £299 Xbox launched in 2005), meant that Sony failed to recover market share lost to Microsoft - an experience it is at pains not to repeat. Sony will be hoping that the Xbox One’s enhanced media functionality will echo its early introduction of Blu-Ray – features some consumers may not be ready to pay extra for, especially when there are cheaper alternatives on offer.
Lesson #2: Perhaps the high street isn’t dead after all…
Highlight: Sony announces that it will not be restricting the sale of second hand games
Sony’s announcement that it would allow second hand games to be played on its console without restriction seemingly raised as much excitement as the £349 price point. While good news for consumers, it is retailers such as Game, HMV and GameStop that will be most relieved by the announcement. Specialist gaming retailers are almost totally reliant on the second hand trading of content, with second hand games offering increased margins over new releases. Both Game and HMV in the UK have undergone major restructuring over the past year that should shelter them from the majority of fallout attributed to this decision; although this is likely to act as an extension of life-support rather than sign of a high-street revival.
Lesson #3: Have we seen the end of the console exclusive?
Highlight: Traditional Sony stalwarts Metal Gear Solid, Final Fantasy and Kingdom Hearts will appear on the Xbox One
For many years your choice of console was often decided by what kind of games you’d want to play. Lara Croft, Mario and Sonic all championed their respective manufacturers in what could now be considered a more straightforward age for console gaming. In recent times console exclusives have been largely focused on DLC (Downloadable content) with Microsoft having lucrative deals in place with developers such as Rockstar games (Grand Theft Auto, Red Dead Redemption), and Bethesda (Oblivion, Skyrim) to release their DLC on the Xbox 360 first. This trend is likely to continue due to the homogenisation of console hardware (both consoles are now based on PC architecture), making it easier to develop for both systems concurrently. Microsoft and Sony have saved millions on research and development by taking this approach, which will likely mean larger amounts spent on DLC exclusivity deals. With publishers keen to widen their market to the most consumers possible, it is likely that console differentiation is going to remain in the realm - an annoyance for the consumer that is likely to be offset by the benefit of greater choice.
The exclusive has not completely died a death, with 13 titles including Xbox studio releases Halo 5 and Forza Motorsport 5 appearing exclusively on the Xbox One. Sony also announced 12 exclusive titles in development, including additions to Sony Computer Entertainment’s (SCE) Killzone and Gran Turismo franchises. While the console exclusive is unlikely to disappear (largely due to the studios that Microsoft and Sony own) it is apparent that the release of Xbox One and PS4 will feature the least number of exclusives ever - a summation of a declining trend. The wider eco-system now appears to be the more important differentiator, an area that Microsoft has heavily invested in with the introduction of Blu-Ray (a format previous exclusive to the PS3) and TV integration in the Xbox One.
Lesson #4: Subscription models are here to stay… but not as a monthly contract
Highlight: Microsoft subscription model to remained unchanged, Sony to charge for multiplayer gaming and additional content
Prior to E3 it had s been heavily rumoured that Microsoft were going to turn to a contract based service for their Live platform, selling the console at a lower base price along with a monthly contract (similar to the smartphone market). As it turns out Microsoft has remained with the pricing model that has served it since the launch of the Xbox 360 in 2005, with paid subscription only necessary for multiplayer and additional content. Sony has now followed suit in charging for online multiplayer (a feature that was free on the PS3), an announcement that has been met with a degree of ambivalence, suggesting that consumers are now resigned to the fact that paying for these services is now the norm.
As it stands it is evident that Sony and to a lesser extent Microsoft understand that while the games console has the potential to be the hub of a living room entertainment system, it isn’t quite there yet. It is conceivable that both manufacturers will start to test the water in this arena by offering more expensive subscription packages offering enhanced inclusive content and services with free access to game, music and movie libraries. If this trend continues, it is likely that the successors to the PS4 and Xbox One will be sold as entertainment hubs rather than games consoles, although the question remains as to whether consumers are ready for yet another subscription package (alongside their phone, tablet, and satellite television) in their living room.
 Digi-Capital, Global Games Investment Review 2013
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