And Then There Were Ten…

(This article first appeared in the May 23, 2005 issue of Jon Peddie’s TechWatch)

This past week in E3, three new game-capable entertainment devices were added to the existing roster of such devices. Seven, you ask? Well, let’s enumerate them:

1) PSOne

2) Playstation 2

3) Xbox

4) GameCube

5) Gameboy (all flavors)

6) Nintendo DS

7) PSP

And that doesn’t even include the dozens of 1980s-era retro games being reintroduced in smaller packages from Jakks Pacific and the reborn Intellivision Corporation – products which are selling in the millions of units.

Why I am lumping hand held, old generation and current generation devices in my count anyway?

Because these devices all compete, more or less, for the same entertainment dollars. Excluding our own well-equipped homes – I have every one of the seven devices above, and in most cases, more than one of them, plus two older generation consoles in my home – that’s extreme, no doubt.

It could be argued that a more average person who owns a Gameboy may well own a GameCube or other console as well, or may just own multiple types of consoles. I would propose that such people are in the minority. However, even for these people, it likely often comes down to spending money on a game for the Gameboy or other portable, or for the console.

The seven aforementioned devices appeal to people for various reasons – price, portability, additional features, and breadth of software support high among those. Why else would Sony still be selling the original Playstation in the same locations that it sells PS2s? Why would there still be hundreds of original Playstation titles being sold in your local Best Buy or Toys R’ Us?

I am hard pressed to believe that someone who owns a PS2 would still use a PSOne and be buying PSOne games – they will be buying PS2 games instead. That implies that there are still a fair number of people out there who own and still use PSOne systems.

Flash forward to mid-2006. The Xbox 360 has been out for a half year and is selling moderately well, even at its initial $349 price point. Dozens of new original Xbox titles have also been released (some of which won’t run on the Xbox 360 due to emulator problems), and new ones are still being released to take advantage of the millions of Xbox consoles in use. On-going Xbox game development is further spurred because the original Xbox’s price has been further slashed to $99, meaning people who had previously held off buying one have plunked down money for an Xbox.

The Sony scenario is pretty similar. The PS3 has just started shipping at a price of $399 (it’s technologically superior to the Xbox 360 in many ways), and many new PS2 titles have come out recently and more are on the way, and the PS2 is now selling for $99 (and Sony’s making money on it even at that price because of that great job they did miniaturizing the PS2 in the Fall of 2004).

The Nintendo Revolution still hasn’t been released, but will soon launch to much anticipation from die-hard-Nintendo-adoring fans. Again, GameCube games continue to be released and sell reasonably well. The GameCube price drops to $69 just to cost differentiate their console against the PS2 and Xbox.

However, the number of dollars available to be spent on game hardware and game software has not significantly increased from the year prior. So now the next generation consoles are competing for the same dollars that the now-old generation products are garnering. Sure, there’s a spike after release when the early adopters like us buy one of everything just to check it out, but the average gamer doesn’t have the gaming budget professionals like us have, so they have to be more selective.

To make matters worse, all these new consoles, and even the handheld devices to some extent, are multi-function, multi-media devices. They don’t just play games – they play movies too! And they require special media for optimal use – like Blu-Ray DVDs for the PS3 or UMDs for the PSP.

And they play music, which you can purchase on-line, spending more of your finite entertainment resources. And don’t forget the subscription fees and other extra fees to buy more levels for games, more gear for your characters, and everything else things like the Xbox Marketplace promise to offer.

And now that the identity of the game console has been morphed into being a general purpose multi-media hub in your living room, does game playing on the box actually lose significance? Will Xbox 360 owners be spending more time recording TV programs, mixing music, chatting on-line with friends instead of playing (and spending money on) the latest video games?

And meanwhile, older consoles will still have a healthy following among those who can’t afford the new consoles, and the HD TVs which really show off their capabilities.

This effort by Microsoft, Sony, and Nintendo to take a specialized box like a video game console and make it a generic home appliance with many diverse multi-media functions is making video game industry members nervous because they are concerned that will dilute sales of video games. Doug Lowenstein of the Entertainment Software Association (ESA), during his opening address at E3 last week, was very clear on the point that the game industry competes with the film industry (and by extension the television programming industry). Money spent on DVDs, HD-DVD, Blu-Ray DVDs, or UMD movies for that matter is money not spent on video games.

And it’s not going to help that next generation games will likely be even more expensive – EBGames.com has already been listing some next generation titles for a price of $60, and that may not even be enough because of the increased resource requirement to develop better and more compelling visuals to justify the use of HD output, and better AI and physics and gameplay to take advantage of the advanced processors in the new consoles. And let’s not forget the improved on-line game dynamics and multiplayer scenarios that will need to be part of most next generation console titles.

Microsoft in particular is in a hard place – they need to do whatever they can to not discourage developers from supporting the original Xbox, at least until such time as the Xbox 360 ships in volume, but they also cannot guarantee that all original Xbox games will play on the Xbox 360 because software emulation is rarely perfect, especially when it comes along as late in the game as it appears to have for Microsoft. Certainly current Xbox game developers will try and ensure their titles run on the Xbox 360, but I suspect it will be messy.

No doubt Sony and Nintendo are doing software emulation of older systems as well because their new architectures are (or will be) drastically different from the current generation, but there have been no indications that there will be significant compatibility issues running PS2 (or PSOne) titles on a PS3, and Nintendo has even taken the bold step of guaranteeing compatibility with all Nintendo content, ranging back to the original Nintendo Entertainment System. Such guarantees (or at least implications) of backward compatibility should give comfort developers of current PS2 and GameCube titles that they will not be abandoned, and in fact will have an even larger market to sell their titles into.

So, where does this leave the industry? With ten devices fighting for the revenue of seven devices, and worse yet, competing with earlier models of themselves.