Entries Tagged 'Crystal ball' ↓

A group of experts was brought together at GDC this week to discuss what the future holds for video gaming. On the panel were:

• Neil Young. General Manager, EA LA.
• Phil Harrison. Head of worldwide studios, Sony.
• Ralph Koster. Lead designer on Ultima Online and Star Wars Galaxies.
• Peter Molyneux. Boss of Lionhead.
• Chris Taylor. Dungeon Siege creator.
• David Perry. Video Game consultant.

Their universal opinion was that the future lies online with server based games. As has been covered here several times. All you need at home is a connection, a TV and an interface. It makes gaming a lot cheaper because there is no physical product, no distribution chain and no expensive home hardware. The only weakness of this business model that they discussed was latency on the net which can affect action games.

They seemed to think that consoles as we know them are only an interim gaming solution and that already the web is far bigger and more important for gaming than consoles are. And that with the coming upgrades to Flash it would be the next big platform, though there still isn’t a working business model for Flash games.

 Here are some articles about the meeting covering it in far more detail and well worth reading:

• Gamasutra and again.
• Next Generation.
• Gameindustry.biz.
• QJ.net
• BBC

OK, now the following is all supposition and guesswork, so don’t hang me for it in three years time. Also if you have any thoughts on this please add them as comments. This could be a fun debate. What I will do is take each of the three main home consoles in the order that I think that they will be replaced. I will write a quick paragraph about where they are up to this generation. Then a paragraph about what they may possibly do next.

First a massive supposition. Let’s regard the ideal life of a console as ten years with a new generation every five years. Giving the manufacturer a two model range at any one time.

The Nintendo Wii is really just a GameCube 1.5. It has become the fastest selling console of all time because of a brilliant gesture interface, because of some very clever software and mostly because of amazing marketing that has broadened the game playing demographic. Hardware wise it is very much last generation with no hard drive, no HD TV support and the weakest online offering of the three consoles. It was launched to the public in November 2006, so it is just 16 months old. It has probably sold over 20 million units.

Of all three manufacturers Nintendo has the most evolutionary approach to design. So I see their next console as being Wii 1.5. They will probably need to add a hard drive as the industry moves to a downloaded content business model and they will have to support HD TV. It could be given a new model name or just be called Super Wii (very likely) and will be relatively inexpensive to manufacture. It will be backwards compatible with the Wii to take advantage of all those amazing games and it will be announced within 18 months. The existing Wii model may well remain in production to give a two model range. It would be left as a $199 or even $149 entry level model.

The Microsoft Xbox 360 is not part of a two model range because Microsoft did not own the rights to the CPU and GPU in the original Xbox so could not drive costs down. The 360 was first of this console generation to market in November 2005 and has sold over 16 million units. It was designed with great care to be economic to manufacture and undergoes a complete internal redesign every year. Microsoft has learned their lesson and own the rights to the main chips.  When they integrate the CPU and GPU they will be able to sell it very cheaply indeed. $199 or even $149 for the base model, and still make a profit on each one sold. In fact when you look at the 360 it was almost designed to be the cheaper model in a two model range. It wouldn’t surprise me at all if this was Microsoft’s strategy. This machine has by far the best online support with Xbox Live, it is impossible to overstate how important this will be in the future of gaming.

Using our 5/10 year model the Xbox 3 is due in the shops in November 2010. But I think it will be earlier. Firstly because there will be room for it in a two model range and secondly because first mover advantage worked so well for Microsoft last time. It will have a sophisticated gesture interface. With this machine Microsoft has to make a major philosophical decision. Do they want users to store their content on a hard drive on the machine itself or on a remote server as favoured by Google? The remote server has the massive advantage of potentially going to a business model where you pay for what you play, not for ownership of the game. And the added advantage that the consoles can be manufactured more cheaply, which is useful in a retail price war. But maybe broadband won’t be fast enough for Microsoft to make this move with this generation, it is expected to be an adequate 60 Mbit/s by 2012, but that may be too late.

The Sony Playstation PS3 was launched in November 2006, over six years after the launch of the PS2, delayed by technology problems with it’s Cell CPU and BluRay disk drive. It forms part of a two model range with the PS2, which still sells very well. About 10 million PS3s have been sold worldwide despite it’s predecessor being the dominant console of it’s generation. This poor performance was caused by the very high retail price which was a consequence of all the new technology it used. Also it is difficult to develop games on which has been a major stumbling block in giving the customers the games that they want. And Sony showed some less than optimum marketing behaviour.

Playstation 4 should come in 2011 according to our model. I think that this will be the earliest that it will appear and that 2012 is more likely. This because the PS3 is still so undeveloped as a product in the market, it has a long way to go. Also Sony doesn’t have a lot of money to go sooner, a console launch can cost billions. And the year or two (or even three) delay after Xbox 3 allows them to use Moore’s Law to create something very special indeed.

So (and remember that this is rampant speculation) it will be Super Wii first followed fairly closely by Xbox 3 then a gap till PS4. All three machines will be even more webcentric, will be backwards compatible (maybe going back more than one generation), will have sophisticated gesture interfaces and will almost certainly be integrated with hand held consoles. According to Moore’s Law they could have four times the power of the current generation.

The gold standard in the games industry is currently the AAA blockbuster console title. An investment of perhaps $10-20 million or even more from a big publisher on a big team over a couple of years. And the global marketing costs run into the millions as well. The result is games like Grand Theft Auto, Halo and Assassin’s Creed. Well crafted global best sellers. And they can make a lot of money. But often they don’t.

It could be argued that these games are actually a big part of what is wrong with the games industry:

• They use up a disproportionate amount of the available development talent and finance.
• They hold the focus of the media when, in fact, there is a lot more going on that doesn’t get the media attention it deserves.
• They usually only appeal to a narrow demographic, thwarting the wider acceptance of gaming.
• They are usually difficult, inaccessible, for a non gamer to get into.
• Their genres and subject material are usually limited and intellectually and emotionally stunted. Let’s make another alien shooting game.
• They are far, far too expensive for customers to buy. A factor of their high development costs, their limited appeal, their high risk and the large slice the platform holders take out of each one. Most games would still be too expensive at half the price.
• They use the limiting distribution model of cardboard and plastic.
• Usually they have no room for user generated and/or episodic content.

But now the winds of change are blowing through the industry. Nintendo, casual gaming, free MMOs, handhelds, social networking. All of these and more are changing the way the public look at games. And the industry, eventually, will have to follow the customer.

Quite simply a publisher will find that they can get a better return with less risk by not doing traditional AAA blockbusters. They will see that they can use their finance and development resources in ways that are better for their business.

The film industry learned this a long, long time ago. If you are going to invest a lot of money in a film make sure it appeals to a very wide audience. Don’t spend the big money on art house movies. We will follow suit and the current generation of AAA titles will be looked back at as an anomalous growing pain of the video gaming industry.

And less aliens will be shot.

For Microsoft this is their biggest play in this generation’s war against Sony. They paid a lot of money ($50 million?) to get several episodes of exclusive content for the Xbox 360 version of the game which gives them a great competitive advantage over the Sony Playstation PS3. A competitive advantage that could see former loyal Sony customers switch to Microsoft.

Rumours on Surfer Girl and NeoGAF seem to indicate that Microsoft are going to spend heavily, similar amounts to what was invested with Halo 3, just to market this exclusive content, which would be a first for the industry. It makes sense. If they drop the 360 console price and release a Halo 3 bundle at the same time the results would be seismic.

The launch of GTA IV (April 29th!) will be the biggest event ever in the video game industry and will set up the HD consoles (and especially the Xbox 360) for a massive Q4 this year. With many homes also owning a Wii for casual gaming there will be a huge range of purchasing options. This is going to hurt a lot of other (non gaming) businesses which are going to lose a big pile of revenue, especially in an economic downturn. Q4 2008 will be when the world finally wakes up to how massive video gaming is going to become. Bigger than film and television put together.

The internet allows so much competition for everything that prices drop to zero. When I was young rich kids had an Encyclopedia Britannica at home which cost a lot of money. Now the internet brings me Wikipedia which is bigger, better and free. We have become used to this, Google searches for free and gives me my office applications for free. I can blog for free, join online communities like MySpace and FaceBook for free, engage in forum debates for free and even trace my genealogy for free. And, most amazing of all, the providers of all this free stuff seem to often make a lot more money than the providers of the paid for stuff!

Video gaming has evolved gradually from stand alone devices to connected devices. The PC led the way, of course, but now the Xbox 360 (the best online console to date) only reveals it’s depth of capabilities if you are online with it. All the major platforms are now internet devices. With this comes the internet culture. And the internet culture is that free works best.

Now here is something very, very interesting. NPD released research in October looking at kids (aged 2 to 17) gaming habits in the USA. They found that 91% of their online gaming was free. This is, quite simply, a revolution.

As you would expect Electronic Arts are up to speed here. As we saw in yesterday’s news article on here with Battlefield Heroes being given away free online. Their philosophy is revealed in this article : “Riccitiello says the $31 billion gaming industry will suffer if it doesn’t start to reevaluate its business model. Game executives at Sony (SNE), Microsoft (MSFT) and Activision (ATVI) must answer some tough questions in the coming years, like how long they can expect consumers to pay $59 for a video game. Riccitiello predicts the model will be obsolete in the next decade.

“In the next five years, we’re all going to have to deal with this. In China, they’re giving games away for free,” he says. “People who benefit from the current model will need to embrace a new revenue model, or wait for others to disrupt.” As more publishers transition to making games for online distribution, Riccitiello says he expects EA will experiment with different pricing models.”

So what are the leading games in this free revolution? I have written in the past about Habbo Hotel for which over 86 million avatars have been created worldwide, there are over 8 million unique visitors to the Habbo websites around the world every month, with 75,000 avatars being created every day. MapleStory has a combined total of over 50 million subscriber accounts in all of its versions. And RuneScape has approximately nine million active free accounts and more than one million paid member accounts. These are immense numbers which prompted Gamasutra to make it their number one significant MMO moment of 2007.

So free gaming is now well past the thin end of the wedge stage. It has become by far the most rapidly expanding business model in gaming. We know that the $59 boxed game in high street retail is doomed, will free online gaming become the new industry standard? What will be interesting will be to see how the industry adapts, there are bound to be casualties. Most interesting will be the game console manufacturers. Offerings like Microsoft’s Xbox Live and Sony PS3 Home give them the flexibility to react well to virtually any business model.

This has to be the biggest event in this generation of consoles. The point when 130 million (150 million if you include Wii) owners of old generation consoles decide to walk into a shop and buy an HD console. A Microsoft Xbox 360 or a Sony PS3. There seem to be three factors that, coming together, will decide when this event happens.

The first is the gaming. There are still far more AAA titles on the old consoles than there is on the new, HD platforms. Microsoft have released a lot of AAA games for the 360 but it has not been enough to tip the balance. Sony are way behind and there is still no compelling reason to buy a PS3 for the games. All that changes in 2008 with a whole raft of Sony AAA system seller releases. A lot of commentators think that GTA IV will tip the whole market on it’s own. That the power of this franchise is so great as to make the HD consoles become compelling purchases overnight. Maybe they are right, but Halo 3 didn’t have this power for the 360.

The second factor is public awareness of what HD is. Currently most people seem to be buying HD LCD and plasma televisions for their bigger size and slim form factor. Not for the HD capabilities. This is largely down to the scarcity of broadcast and recorded HD content. The format war between HD-DVD and BluRay is only confusing matters. As more and more HD content becomes available people will gradually switch over to it. Then they will no longer be prepared to watch non HD content. It will be just like the transition from black and white television to colour television. And if they only watch HD broadcast and recorded content then they will only be happy with HD game content. Watching four times as many pixels on screen makes a big difference in a game.

The third factor is price, as it has been for every previous generation of console. The early adopters are willing to pay a premium for the kudos of their position. But the real meat of a console’s sales curve only comes with radical price reductions. Both of the HD consoles are still too expensive to have reached the mass consumer, casual purchase price point. But they will get there and they may well get there this year. Both Sony and Microsoft have been working furiously hard behind the scenes to reduce the manufacturing costs of their consoles. When you are making tens of millions of something every fraction of a penny counts. They have been girding their loins for a price war and a price war is what we are going to get.

So as you can see these three factors will inevitably come together to create a massive demand for the HD consoles. But how sudden will it be, will 150 million people walk into the stores on the same day? Probably not, but it will be one event, probably a price drop, that is the trigger. So there will be an overnight surge in demand. The manufacturers can control this by rolling the price cut out, country by country, over a few months. But it will still be pretty spectacular.

Then we have to ask if the tipping point will come at the same moment for both manufacturers. Possibly if it comes at a certain point in the calendar, like say Christmas. But possibly not if Microsoft take advantage of their lower manufacturing costs and early adopter benefits. If they brought out a $199 Halo 3 bundle for the 360 in the same week that GTA IV is released it would be the biggest sales week in the whole history of gaming.

So when will it happen? Probably this year. Definitely by the end of next year. And how big will it be? When the market tips each HD console will start outselling the Wii by a significant margin. And over lifetime they will possibly each go on to sell a multiple of what the Wii sells. The 360 and PS3 will go on to become the biggest selling consoles ever, until the next generation. And who will win? Microsoft if they capitalise on their early adopter and low manufacturing advantages, the exclusive content for GTA IV is a marketing masterstroke that could win the generation for them. Sony if they can rediscover their core strengths and bring them to the marketplace.

The following is just speculative fun. But it is based firmly in reality.

The Microsoft Xbox 360 is very, very well designed. Part of this design genius is ease of manufacture and potential for cost reduction. So I see this console as having a ten year life. This should easily see it up to 2015.

This year Microsoft will use their manufacturing cost advantage to use the price mechanism to build market share in the face of Sony’s AAA game releases. This will leave headroom in the market for them to introduce a new premium console giving them a two model range, just as Sony have had for a few years now. It will also make the 360 a cheap mass market machine which will have the effect of growing Xbox Live enormously. And this is the most important thing for Microsoft. It is the online platform which, ultimately, will be the main event.

The new premium console (Xbox 3) will feature a gesture interface and probably integration with a new handheld game console.
Microsoft have a great incentive to go for this two model (plus handheld) strategy sooner rather than later because Sony are currently too weak to respond. So it would be a knockout blow that could give them market supremacy.

The new Microsoft handheld will be son of Zune with iPhone and Nintendo DS features. This device looks pretty inevitable and will give access to Xbox Live anywhere and everywhere and with it’s integration to Xbox 3 it will bring a whole raft of new capabilities to the consumer.

Another factor to remember is that Nintendo will have to do something about the Wii. This machine is really Gamecube 1.5 with a gesture interface. It’s old technology will find it out. So Wii2 cannot be too far away. And it is something that Microsoft must have an answer for.

So when will we see Xbox 3? The normal console cycle is for new models every 5 years. Which would put availabilty at the end of 2010. I can see Microsoft bringing this forwards a year to 2009. The current year year is too soon as they still have to build the market position of the 360.  So next year it is then! And rememeber that for just about every new product area that Microsoft has entered it is their third generation of that product that gives them world domination.