For a while, I’ve wanted to use the word “secular” on this blog and Sony’s new Playstation game console presented the perfect opportunity. As I learnt or rather, figured out, not too long ago, when you say “secular” – it means you are talking about something that is industry-specific, not company specific…generally in a not very nice way.
Anyway, lets get back from that linguistic digression and take a look at the video game industry.
The worldwide video game industry is estimated at $70 B (or more, or less, depending on whom you ask) and is currently dominated by Sony, Nintendo and Microsoft. The first two have been around for a long time…and Microsoft is the upstart that broke into the scene in a big way in 2005 and controls a respectable chunk of this market today.
It is widely believed that each of them either barely breaks even or loses money on the systems that customers buy. They make money instead on individual games that cost, on average, around $50-$60. Which is why, every few years, they release new gaming systems that have 4 or 8 processors, the latest GPUs and obscene amounts of memory to make their games ever-more realistic. Sony’s recently previewed Playstation 4 is the latest example of this. [For specifics on why and how the PS4 is innovative, consider reading this article from BuzzFeed.]
Unfortunately for them, at least in the US, gaming system sales have been declining. According to an article in The Economist, short-term, potentially recoverable reasons are the unemployment amongst the core/target consumers and consumers potentially delaying purchases while waiting for newer consoles.
But what worries the industry is that this could be an irreversible “secular” decline in console gaming – thanks to the rise of “casual games” such as Temple Run or Angry Birds that can be played for 5 or 6 minutes a day. No console. No controllers. And certainly no $50 games. And the game costs just $1.
The other thing that worries the industry, per the article:
Meanwhile, other companies are experimenting with streaming games to consumers directly over the internet. That allows the complicated number-crunching to happen remotely, freeing users from the need to own anything more than a television and a controller. The growth of these sorts of games—and persistent rumours that firms such as Apple or Google may make a co-ordinated push into the living room—have persuaded some analysts that expensive, stand-alone consoles such as the Playstation are doomed.
Hopefully though, especially for Sony, which desperately needs (my earlier post on them here) a hit line of business, the market will bifurcate.
On the one hand there will always be those that will be willing to spend $300 or so on a console (hopefully…) and then $50-$60 on hit games over and over. And perhaps this segment will slowly expand over time, instead of the three dominant players simply stealing each others’ customers endlessly.
And then on the “lower” end, any number of casual game makers will leverage the Apple and Android ecosystems (regardless of whether they are being played on home TVs, Tablets or hand-held Smartphones) to hawk their wares and make millions in the process.
Will that be as simple as that? Or will the 1st group slowly devolve into the 2nd group? Many will closely track this industry’s evolution in the next couple of years.