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Video Games 2009: Who Will Win the Console War?

In 2008, titles like Grand Theft Auto IV (5 million copies) and Wii Fit (4.5 million) helped the game industry reach $21 billion in sales. But with the recession, gaming may struggle to stay on top in 2009. So how will the big three game-makers fare? Nintendo

In 2008, titles like Grand Theft Auto IV (5 million copies) and Wii Fit (4.5 million) helped the game industry reach $21 billion in sales. But with the recession, gaming may struggle to stay on top in 2009. So how will the big three game-makers fare?

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Nintendo Wii

Nintendo

The Nintendo Wii will continue to dominate console sales this year, as evidenced by a record-breaking holiday season — the company’s strategy of innovative controls coupled with casual games marketed to the mainstream proved successful. “It’s possible Wii sales will decline this year,” says Wedbush Morgan Securities analyst Michael Pachter. “But even if it goes from 29 to 22 million, it will still outsell the others.” The Wii will also benefit from the improved controls found with the Wii Motion Plus, which increases the precision of motion-detection — resulting in more natural character movements on screen. Nintendo will also continue to lead the portable field. The Nintendo DSi, which features a camera and memory card slot and is already available in Japan, is expected to be released in the U.S. in the second quarter of 2009.

And beyond? In 2010, hardcore gamers will flock back to the Wii, after many months away due to a lack of games that appeal to the enthusiast niche or have any innovative content. New Mario and Zelda titles, both likely making use of the Wii Motion Plus, will be released. And details about the Wii HD (comparable to the small improvements of the DSi) will set the blogs a-twitter. This hardware update will help bring the Wii up from its technical inferiority to the high-def generation, but don’t expect a completely new Nintendo platform until later. “Major new designs for consoles are on a 5 year cycle,” say David Shippy and Mickie Phipps, authors of The Race for a New Game Machine. “All of the console-makers are well on their way with designing next generation game hardware. But the next major new game consoles will probably be in the ’11 timeframe.”

Microsoft Xbox 360

Microsoft

Microsoft will continue to outpace Sony in 2009 (they sold twice the number of 360s than PS3s in November and December 2008). But, it is doubtful they will ever catch up to Nintendo’s system sales. The Xbox 360’s interface and online experience will continue to evolve and improve, and the company will continue to push the system toward the casual gaming public with family games and still more price cuts.

Microsoft will also find itself smack in the middle of one of gaming’s biggest controversies. When the economy tanks, used game sales increase, which creates friction with publishers over the sale of second-hand games. GameStop is estimated to have made $2 billion in used game sales this fiscal year. “Given the enormous costs of the blockbusters these days (north of $20 million) it’s a huge, huge bone of contention between publishers and retailers like GameStop,” says John Davison, cofounder of WhatTheyPlay.com. Used games have a large profit margin, and represent 42% of the GameStop’s gross profit — and game developers and publishers didn’t get a single cent.

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Microsoft will have the opportunity to capitalize on the industry’s used-sales-abhorrence with the Xbox 360’s successor, likely announced by the end of 2010 and released in 2011. Pachter believes the wait will be longer, “I predict 2013. It used to be hardware manufacturers decided when a new generation begins, now they can’t get away with that.” When Microsoft does launch, I expect a console that plays downloaded content only and forgoes any discs (rather than supporting Sony’s Blu-ray format). Retailers will likely be up-in-arms, resulting in Microsoft supplying download kiosks that sell games on USB flash drives or solid-state memory cards. Game creators, however, will support the digital transition, as there will be no disc to sell back to retailers for their used game racks. Publishers will also get a larger percentage of profit, since the lack of distribution costs will lower game prices and result in more copies sold on average.

Sony PlayStation 3

Sony

Sony may drop the PlayStation’s price by $50 or $100 come the start of their fiscal year in April, increasing sales, but the resulting competitive playfield (Xbox 360 for $199, Wii for $249, and PS3 for $349) will not favor Sony crawling out of third place, as the cash-strapped public continues to side with the cheaper game systems. Strong sales of the PSP (and of the last-gen PlayStation 2) will help Sony’s game division mitigate the slowing PS3 growth. And a solid-state-equipped PSP 4000 will spark a resurgence in the portable’s popularity.

But Sony’s future is rather staid. It will put all of its attention into a smaller and cheaper PS3 to capitalize on the Blu-ray format, but will delay a new system launch as long as it possibly can. As Pachter put it, “Sony will absolutely not launch a new system first. And Microsoft won’t do so until it is absolutely right to.” Sony can’t afford to be the first to jump to another generation with expensive systems that are sold at a loss — the company took a major hit on the launch of the PS3 and it will not look to repeat that mistake. With a new Xbox probably coming in 2011, I expect Sony, like Nintendo, to wait until 2012. It will need something truly game-changing, unlike the PS3 launch, to compete.

The Game Industry

Overall, how will the video game industry do in 2009? Titles, on average, won’t sell as well as before, but the drop won’t be as profound as in other forms of entertainment. “In times of trouble people do like to ‘nest’ and spend more of their entertainment time at home,” says Davison. “Video games fit into this particularly well, as generally speaking the entertainment ‘ROI’ is pretty high.” Companies may respond to the decline by dropping prices. Furthermore, companies will take fewer risks, banking on sequels and remakes rather than original IPs. Exclusive games being released for a single console will be few, favoring multi-system releases, as publishers strive to push their products to as many eyeballs as possible and recoup their investment.

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The biggest publishers, Electronic Arts, Ubisoft, Activision Blizzard, and the hardware manufacturers themselves, will continue to dominate. But, with improved digital marketplaces on the consoles’ respective online services, independent developers will survive in their niche — a considerable portion of Sony’s at least 170 million downloads (PDF, right click to save) are games that have been purchased, and over 28 million games have been sold on Xbox Live Arcade. Downloaded games and digital movies account for over a billion dollars in earnings in the last three years. And the big publishers will use digital expansions for existing games to reap additional profit from already published games.

There is no reason to panic for the video game industry, recession-proof or not. There are plenty of good games, such as Killzone 2 and Halo 3: ODST, on the horizon.

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About the author

His work has also been published by Kill Screen, Tom's Guide, Tech Times, MTV Geek, GameSpot, Gamasutra, Laptop Mag, Co.Create, and Co.Labs. Focusing on the creativity and business of gaming, he is always up for a good interview or an intriguing feature.

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