Console Makers 'Shouldn't Rest Easy' says SteinbergIndustryGamers recently talked with Scott Steinberg, marketing expert and industry analyst of TechSavvy Global, about the new hardware that's coming to market in 2012 and how it will affect the current console makers. How will they respond, and when? He spoke before Nintendo's announcement of the Nintendo Network, but his concerns are even more pointed in light of that news.
IndustryGamers: We've been hearing many iPad 3 rumors, saying that it will feature a higher resolution display, a faster processor, better than 1080p resolution, and output to TV. Will this impact the game market?
Scott Steinberg: Despite the higher price point, over time it could begin to chip away at the increasingly fickle casual gaming market, and also allow Apple to gain a foothold in the living room. There have been rumors of an Apple TV for some time. If there's a way to bridge the gap between tablets and consoles with a device that's capable of outputting high-resolution graphics, delivering not best-in-class processing performance, but powerful enough that it's capable of delivering 3D games that look as good as front-runners on the market today, then you very quickly enable not only casual customers but the hard-core customers. Those who wouldn't necessarily consider themselves gamers per se experience the world of living room gaming, because of the sheer selection that's available on the App Store now and the increasing prowess of titles on these platforms. What you're not going to see is titles that are going to go toe-to-toe with the best the Xbox 360 or PS3 has to offer in terms of AAA blockbuster experiences in the immediate sense. What you are going to see are games that scratch the basic itch that most customers will have and that appeal to that broad cross-section, young and old, who've been taken in thus far by the iPad's ease of use and accessibility.
IG: They have your credit card, so buying a game is just a couple of taps away. The games are inexpensive, and if they look really good, and they're easy to play, why not?
SS: Not only do you expand the audience, you allow people to piggyback and springboard off their existing collection of games, and suddenly you're bringing a library of thousands of titles – I guess tens of thousands would be more accurate – right to the living room screen. At the end of the day if you have a storefront that's accessible any time, virtually on demand, whenever you need it, it will be very popular. Then you run into the issue of in most cases, unless you're an enthusiast or a hard-core gamer, when you sit down and say 'I'm looking for a specific type of game', you're not walking out and saying 'Boy I gotta have Diablo III,' Right? Guys like you and I might do that, but to the average joe in the street it's still going to be 'OK, I'm into fantasy, I love Game of Thrones, I love Lord of the Rings, what's out there?' Maybe a title from Gameloft which still looks pretty damn sharp, especially on a 1080p living room set. Suddenly you're not walking out to the store to buy something to slip into your Xbox 360.
IG: And you're probably not paying $60 for it either.
SS: Exactly, right. If you think about it, the set-top systems are still largely propped up by hard-core enthusiasts - which is why you've seen so many publishers attempt to double-down. You remember two years ago it was like 'Oh, casual games and social games!' and suddenly now, if you look at what game companies are turning out it's still stuff for the hardest of the hard-core because that's what sells. Again, it could be a potential game-changer because just as with mp3, there were a lot of critics who said it's not the best in class, but it was good enough and it was convenient and it was accessible and it was affordable. And at the end of the day we found that convenience and value win.
IG: Google TV is taking another run at the market this year with many new ones announced at CES. I'm not sure what the resolution and performance is going to be, but they're bringing the Android Market to the living room. I see no reason why Amazon couldn't do a version of the Kindle Fire that is a set-top box. With that, and the rumored Apple iTV or Apple TV with the App Store coming to the living room this year, is that a perfect storm for the console business?
SS: Let's just put it this way, if I was a shareholder at any of the majors I wouldn't be resting easy at this point. I would certainly be casting sideways glances. I don't think they're suddenly going to drop a bomb on the market and disrupt everything. I think what is going to happen is it wouldn't be unforeseen to think that with the introduction of a set-top box or dedicated hardware such as the Apple TV, that Amazon, Google or other companies would attempt to make a play for the living room, which is quickly becoming the next frontier. The issue is that we're rapidly seeing consoles and publishers migrating to additional environments; it's inevitable that we're going this way. Take a look at what GameStop's doing, they can see the handwriting on the wall. Even though physical goods still represent the bulk of the revenue at this point, the handwriting is on the wall.
When you bring a trusted brand name and a trusted source of curated content that's extremely accessible and the customer base is already trained how to use it, suddenly you put yourself on the fast track to take a chunk out of the broader market's bottom lines. Now, I don't think that's going to happen overnight, but if Apple for example decided to make inroads into this environment and do it through the App Store and do it through a hardware device or set-top box or TV set that piggy-backed on its existing systems and framework, and allowed you to access much of your existing content and didn't require you to log in but once with the same name you've been using the entire way along, and then promised some sort of cross-platform connectivity, maybe just sweetened the deal, then suddenly you're looking at a very compelling value proposition and a very real threat to traditional gaming manufacturers going forward.
IG: I think the hidden threat to retail sales is the fact that you've got a 50% margin on the digital goods versus maybe a 25% margin on physical goods, so that's very compelling to publishers to push them towards digital distribution.
"If I was a shareholder at any of the majors I wouldn't be resting easy at this point."
SS: We also have to keep in mind we haven't talked about things like OnLive, right? They've made no secret they're coming to tablets, and they're in set-top boxes. What happens if you see more and more content and more and more purchase programs being rolled out that way, and suddenly if I can hook an iPad or some sort of box up and I've got streaming games on demand, I've got App Store style purchases, I can have premium content if I want it. Unless you're really passionate about a particular brand, realistically, if I already own an iPad or I happen to be an App Store user, or I happen to be fond of Amazon and I've got my Kindle Fire, and I have something that will very easily integrate or better yet let me use my existing device in a natural and intuitive manner and extend it on to the set-top box or the screen... It's very hard to see why 9 times out of 10, when the mood strikes, why you wouldn't simply turn to said device than actually sprint to the store to buy something?
IG: The people at Sony and Microsoft aren't stupid, they must see this too. Does that mean that the next generation of the Xbox and the PlayStation are happening sooner rather than later, and that they're going to be designed to deal with this threat?
SS: One would hope. Realistically, probably we start to see systems in 2013 or 2014. Industry leaders are not unaware that digital is making growing inroads and having a larger footprint. You can see some of their strategies being played out in what they're doing, with added features and services that are being introduced. Obviously Microsoft with the TV content, Kinect speech controls, the ability to have more music and movies added on as options, as well as Sony with the PlayStation Network trying to incorporate all sorts of video and audio components. The worry is that the next generation of boxes is going to have a much larger emphasis on online; maybe it's not a worry, but it's almost a foregone conclusion. Connectivity, community, streaming on demand playback. Where it becomes a little murky is, if you have so many players going forward, what are you going to do to continue to really capture that share of audience?
GameStop to some extent has a wise idea, saying 'We're a trusted brand name. People look to us as a curator” When you buy games for the Nintendo system typically you have an idea from the very start that it's a family-friendly game, typically you think it's going to be a very polished experience. What's happening is a lot of these guys are trying to position themselves to have the best exclusive content and features available. What they're really trying to do is re-establish distribution channels albeit in the digital arena and really what they're trying to say is look, we know you have 15 different places you can turn now for content, but if you're getting it on the PlayStation Network, if you're getting it on Xbox Live Arcade, if you're getting it on WiiWare, or whatever the hell they're going to call their games or systems, not only are you getting the very best of premium retail content, but it's going to be our promise to curate and deliver to you the best high-quality game content and media content we can find, and make it very accessible and affordable, and put it all in a context that allows you to connect and communicate with the friends that you've been playing with all along.
IG: Does that put Nintendo at a disadvantage, because their online offerings have lagged way behind Microsoft and Sony?
SS: I think Nintendo desperately needs to play catch-up on the online, connected, and streaming multimedia fronts. Nintendo's not unaware of the challenges it faces, but traditionally it's been a company that in the past has been very profitable and has very cleverly straddled the line between game and technology toy. They've almost been operating in a different market entirely. They've had their loyal fan base of Nintendo fans, they had family-friendly content which they've been content to pump out, and they've always gone a different direction, in most cases, from the industry at large.
I think where they overplayed their hand was in allowing the Wii to sit too long without a major refresh. When it was put to Reggie Fils-Aime last year around, they had a very aggressive idea in mind. The plan was for the 3DS to be the most widely distributed 3D viewing experience, because 3D TVs were so expensive. Here's this thing you can hold in the palm of your hand, they were going to stream videos to it, and there was going to be a lot of content available. The execution wasn't quite so smooth. Today I still don't know quite how many 3D movies, I think that people don't realize that they have a 3D viewing screen in the palm of their hand, there's not a lot of content available in 3D.
They're aware of the challenges, but every organization is different. Some are driven by engineers, some are driven by financiers, some are driven even by developers. Ideally, tomorrow's console sits somewhere at the nexus of all three existing systems. Each has its strengths, but if I had to place my bets, I would say that Microsoft has been the most forward-looking of all three manufacturers; through a combination of skill and luck, Microsoft has very effectively positioned itself to lead the way forward through a combination of services, content and new hardware accessories - Kinect being the notable example.
IG: The stuff they've been adding to Xbox Live has been very impressive.
SS: They've been making some massive strides. It's my very long-winded way of saying Nintendo has a lot of catching up to do. I would never count them out of the race, as we've seen countless times before in history, but certainly at this point they're going to have to give themselves a shot of adrenaline and really show why they're going to rocket to the front of the pack.
