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Imagine that you needed a special TV to watch HBO’s Game of Thrones, then another television to watch Showtime’s The Tudors, then, to watch the Super Bowl, you needed yet another TV. This is exactly what we’re dealing with in the games industry with consoles. It’s pretty ridiculous when you stop and think about it.
I recently read an article about one of the big console manufacturers’ finances. It reported quarterly revenue reaching more than a billion, but after all costs, it netted less profit than what some PC games will take home in a month. The math pointed to a roughly 2 percent margin of profit. And, based on its performance over the last decade, this was an awesome year for the manufacturer! Remember, it’s not always about how much revenue you generate, but what you take home that matters most.
This begs some deeper scrutiny. Are consoles really that profitable? When they are, who stands to gain the most? If we follow the money, I think the results would astound most people.
The academic approach here would be to not do much from a first-party side, where costs and expenses tend to be higher, but instead convince third parties that they’re getting some value and charge a royalty for the privilege of bringing your content to a proprietary platform. Sounds great, doesn’t it? Well, not for most developers. This line of thinking has a long and distinguished trail of dead ISVs who bought into the hype.
Based on performance, we have to wonder if the emperors have any clothes. For all the propaganda spread about PC gaming dying, the reverse has been true. There have been two consoles that died in the last decade, and PC gaming is picking up even more momentum than before.
Here’s why I predict consoles will continue to die:
1. Gaming will move ubiquitously to the cloud. Why do we need a proprietary device if the game plays on the Web? Since most games that play on consoles aren’t largely latency-bound, this will eat at the margins necessary to fund future consoles.
2. Gaming will continue to adopt the free-to-play option. Due to the low attach of free-to-play on micro-transactions, you need a very large market to make it sustainable. PCs tap into 600 million households, whereas consoles are lucky to exceed 50 million households. Free-to-play is far more interesting and flexible from a consumer’s standpoint, especially when faced with $50 to $60 game price tags.
3. Piracy and secondary sales will be a double whammy against consoles. Since they’re primarily subsidized by games, consoles are doubly at risk with secondary sales and the rise of piracy.
4. Globalization will continue to grow. There are several countries coming out of an emerging status and maturing. Their middle classes are expanding and they have more money to spend and consume. However, there is still a huge disparity in their disposable income rates. PCs, smartphones and TVs will continue to be prioritized.
Again -- there were two consoles that died in the last decade. We’re likely to see history repeat itself again in this decade. The future of consoles? There isn’t one. Ask yourselves this: Are consoles looking more like PCs or are PCs looking more like consoles?
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