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Straight Talk Media & Entertainment

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At E3 in Los Angeles this week, in addition to a number of interesting announcements around VR titles and new games, both Microsoft and Sony highlighted "new" versions of their consoles – with more processing power, and supporting 4K, HDR, UHD Blu-ray (confirmed in Microsoft's case at least) and better VR. This is markedly different from other mid-generation announcements in that the hardware will be more powerful, with additional functionality, not just cheaper and in a smaller box (as was the case with Xbox 360, PS3, PS2 etc). In a shrewd move, Sony actually talked about "Neo" prior to E3 as both a spoiler tactic and a way to not draw attention away from current offerings on the E3 main stage.

In Microsoft's case, Project Scorpio could almost be viewed as a new "generation," but was announced just 2.5 years after the Xbox One release. This paints a future in which the concept of console "generations" – the five-year minimum static target for both developers and buyers – ceases to exist, replaced by a more fluid hardware more reminiscent of PC gaming and smartphones. Nintendo, naturally, moves to the beat of its own drum, but now looks even more isolated with its NX console due in 2017. This move by Microsoft and Sony has both positive and negative connotations for console gaming.

Games consoles will be more responsive to future needs . . .

One of the problems with a hardware architecture that is fixed for five or more years is that it's bleeding edge at release, but long in the tooth by the time there is a massive installed base and developers have mastered its nuisances.

  • Neo, Scorpio, and Xbox One S focus on incremental improvements. We already have 4K STBs and VR on high-end PCs; waiting until the next scheduled console generation (probably in 2019) would leave console gamers out in the cold.
  • Building in 4K and UHD Blu-ray pushes console media credentials back to the fore. The PS2 was for a long time one of the best and most reasonably priced DVD players, and the same could be said for Blu-ray and the PS3. Of late, consoles' role as the living room "media hub" has been eroded by more capable, cheap Android STBs and streaming sticks. The new iteration of these consoles will help Sony and Microsoft recapture some of that past glory.
  • For developers, the changes to the platform are small. So developers now have to cope with two SKUs for the PS4 (original flavor and Neo) and three for the Xbox One (original flavor, S, Scorpio), but the underlying architecture and tools remain a constant. This means tweaking and some overhead, but not wholesale rewriting of code.

. . . but the contract with gamers and developers is broken

One of the main promises of consoles has always been that stability – buy (or develop for) a console today and you're guaranteed three to five years of all games working and a constantly increasing community of owners. Taking that away removes one of the console market's few remaining USPs.

  • When consoles become even more like PCs, why not get a PC? Suddenly a gamer can't just buy any PS4 game or Xbox One game and expect the same experience, as this will depend on the hardware version – in two to three years' time you may even find games that, while theoretically compatible, are all but unplayable on the original iterations of the console. This becomes like the expensive graphics-card upgrade/envy cycle dedicated PC gamers will be intimately acquainted with. So maybe just getting a PC (or a Steam Machine) is a better choice.
  • Developers and publishers suddenly have to rejig their plans. Much like consumers, developers count on being able to build console games that can potentially sell for three to five years – ideally tapping into the "last year" of the generation when the installed base is at its peak. Suddenly they have a bunch of extra milestones: making games PS4 Neo compatible, adding 4K and HDR support, and building optional modes for "enhanced" gaming on Neo or Scorpio.
  • The price curve is broken. Consoles start out expensive, and are adopted by keen wealthy (US and Western European) customers, but get smaller and cheaper over their lifetimes – this is largely what creates such an impressive installed base at the end of a console generation. Now both Microsoft and Sony are touting much more expensive versions of their consoles (exact pricing TBA) before the price of the original models has declined that much. Will gamers, even avid gamers, accept $500 for a new console every two to three years instead of every five?

Appendix

Further reading

Videogame Revenue Forecast Report: 2015–20, ME0002-000588 (July 2015)

VR Headset Unit Sales, Installed Base, and Hardware Revenue Forecasts: 2015–20, TE0004-001080 (May 2016)

"While VR offers opportunities for digital media firms, AR may also be a good long play," ME0002-000650, (April 2016)

2016 Trends to Watch: Videogaming, ME0002-000634 (December 2015)

Innovation Primer: Virtual Reality, ME0002-000563 (March 2015)

Author

Paul Jackson, Principal Analyst, Digital Media

paul.jackson@ovum.com

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