Console Manufacturers Want the Impossible?

Phopojijo writes "Consoles have not really been able to profitably scale over the last decade or so. Capital is sacrificed to gain control over their marketshare and, even with the excessive lifespan of this recent generation, cannot generate enough revenue with that control to be worth it. Have we surpassed the point where closed platforms can be profitable and will we need to settle on an industry body, such as W3C or Khronos, to fix a standard for companies to manage slices of and compete within?"

Comments

Really?

[Anonymous Coward]

Quite a bold statement that the console market isn't profitable, where is your source for this? MSFT posted Q1 2013 earning for the Entertainment and Devices Division:

"generated revenues of $2.53 billion for the quarter, up 53 percent from the same period a year ago. The division includes the Xbox business and Microsoft said there is now 46 million people signed up to use its Xbox Live online service, up 18 percent from the same period a year ago."

Seems pretty damn lucrative to me...

Re:Really?

[gsslay]

Article summary should be re-written;

Console market isn't profitable in the way that some gamers would like.

Re:Really?

[Parker Lewis]

And how about the loses from the beginning of this generation? The article talks about the entire generation, not only a specific quarter.

Re:Really?

[vux984]

I myself have a Wii sitting in my closet (the only time I bring it out is for parties, and even rarely for those). I bought 3-4 games for it, and that was it.

I myself have a Wii sitting under my TV. It still gets played multiple times per week, even though there's a WiiU next to it. I bought a binder full of games for it over the years.

I don't own an xbox / xbox 360 at all. I do have an HTPC hooked up to my TV though, and another 100 games there via steam / gog.com / humble bundle.

The kids play the Wii & WiiU far more than the HTPC.

Nintendo, by contrast, hasn't made jack-shit off me since my initial purchase

And the only thing I've purchased from Microsofts Xbox division is an xbox controller for the HTPC.

I doubt I'll buy a WiiU

I don't regret mine; and the kids love it. They're getting a ton of mileage out of Nintendo Land. Netflix works particularly well with the tablet controller.

We only have a few WiiU titles though, there is still a real dearth of good games for it, and I wouldn't necessarily recommend the WiiU to everyone at this point.

But as the titles come out, its value proposition will continue to improve. I'm looking forward to Pikman 3.

I have absolutely zero interest in putting up with the Xbox One; although there have been some games I'd have considered over the years that were exclusives, I have plenty enough to occupy my time and don't really miss them.

I guess we represent different demographics. I won't pretend you don't exist if you'll return the favor.

Consoles aren't profitable?

[dicobalt]

*blink* *blink* No... I'm pretty sure Sony and Microsoft are making lots of money off licensing, game sales, and content distribution. The point is that the hardware itself doesn't need to be profitable.

Re:Consoles aren't profitable?

[RogueyWon]

That's the theory. Indeed, since Nintendo abandoned the "hardware at significant profit" philosophy as a form of emergency resuscitation for the 3DS (and hasn't gone back to it for the Wii-U) it's been the only theory in town as far as console developers go. Of course, most consoles achieve per-unit profitability after the first year or two (I got sick to death of being told that every PS2 was sold at a loss years after this ceased to be the case), but the general gist of it is that the hardware is a loss-leader and licensing is where the cash comes from. As manufacturer, other people invest to make games for your system and you cream off part of the revenue from every copy they sell.

Unfortunately, even that model (which did very nicely for Sony through many of the PS2 years - look at the chart in TFA) is coming unstuck a bit these days. Sony are flat, Nintendo's nominal profit or loss seems entirely dependent upon what the yen has done recently (but strip that out and they seem to be losing money right now in a way that's unprecedented in the company's history) and MS's gaming income is mostly from stuff that's very marginal to... well... gaming.

The whole console gaming industry in general is going through an odd round of self-cannibalism at the moment. There's just not enough money in the system. Console manufacturers are sinking (or have recently sunk) huge sums into R&D. At the same time, console game sales are actually falling quite sharply this year. They're caught between ultra-cheap (but mostly crap) mobile offerings and slightly-cheaper, more technically impressive PC releases of the same games (with even a basic home PC now easily able to outperform the consoles and the level of tech-savvy required lower than ever). Almost all of the big franchises which have released an installment this year - God of War, Gears of War, Dead Space etc - have seen a fall in sales on the consoles since the previous installments.

At the same time, development costs for games have risen and are rising still further. Early in this console cycle, the rule of thumb was that an "AAA" console game needed to sell 1 million copies to break even. That figure is closer to 3 million now.

Forget all the talk about corporate greed; barring the occasional mobile developer who gets (very) lucky, nobody in the gaming industry is raking in profits hand over fist at the moment. Stuff like online passes, day-one DLC and used-game controls aren't being implemented so that executives can have a bigger pile of gold to roll around on top of; they're fairly desperate survival strategies.

A significant portion of the Japanese games industry has already given up (or is in the process of giving up) the ghost and pulling out of any meaningful participation in the international market, in favour of their more forgiving (and heavily kids-and-otaku-driven) domestic market. There are a couple of developers that still try to be international players (Capcom, Sega, Sony and the publishing, but not the development arm of Square-Enix), but many others have now retreated into the handheld/mobile/moe-game comfort zone that's still profitable in Japan on the basis of low development costs. Even Nintendo seems to be hiving off from the rest of the world a bit; the 3DS's much-hyped reinvigoration is overwhelmingly driven by Japanese sales; it's still underwhelming in the rest of the world.

Western developers - and any console manufacturer who wants to be an international player - don't have that option. So manufacturers, game developers and retailers are all pretty much locked in a fight to the death with each other for the few shreds of profit left; with the irony being that they all need each other to survive.

I think game pricing is at the heart of the problem. Games are cheaper than they used to be - a lot cheaper. In the mid-1990s, a new PC game would be 45-50GBP, with console games being more expensive still in some cases. Today, a new PC game will be 30-35GBP and most console games launch at 40GBP but are discount

Re: Consoles aren't profitable?

[Rockoon]

When there was NEVER $6 billion in profit to make back without knocking Sony or Nontendo out and gaining back control.

As far as gamers are concerned, Nintendo *DID* get knocked out of the console market. While they had considerable success with the Wii, it wasn't at their competitors expense. Nintendo had to create a new far more casual market in order to continue doing business.

What They Want

[Anonymous Coward]

They want:
- top dollar for their hardware (even if it is lacking in horsepower or hard drive space)
- high game prices (of which they want a higher percentage)
- high monthly fees for the privilege of playing those games
- lots of DLC that they get a piece of
- draconian DRM & no used game sales
- customers who won't complain about the shitty service and performance of their oversold networks

Not to mention that they want none of this for their competition.

Re:About to change

[slim]

It's probably not a coincidence that the PS4 and Xbox One are both running x86 chips inside them. Aside from a few choice bits, developing on each machine should be incredibly similar to the point where it's just a different API for either.

The faster CPUs get, and the better optimising compilers get, the less likely anyone is to code directly in assembly. I think APIs are probably much more significant to games developers than the underlying chips.

Re:Simple answer.

[slim]

Because the free market decided that selling console hardware as a loss-leader and trying to make up for it in game licenses and market share was a good business model. The problem is, it was a horrible business model and was doomed from the start.

...

The problem is, "people" want a cheap console and don't appear to be fazed by rip-off game prices. This has been proven over the years.

Don't those two statements contradict each other? As long as people want a cheap console, and don't mind paying big money for games, then selling hardware as a loss-leader is a very sound business model. It worked for at least three generations of hardware.

It may cease to work in the current climate, but I think that's because people's desires have changed, and gaming has become cheap and practical on ubiquitous general-purpose hardware. That is, people buy an iPad or an Android tablet for other reasons, and find they can buy adequate games for less than $2 a pop.

Let me get this straight...

[MachineShedFred]

So an American corporation takes a long view on a business proposition rather than playing the short con quarterly filing scams, and this is a bad thing?

Remember when that's the way business worked? Microsoft (at least, this division) is actually doing it right, and not bending to the whims of shareholders and 10Q filings with the SEC.

When it is MS doing something

[Sycraft-fu]

It is bad on Slashdot. People here love to hate MS, so if MS takes the long view on something, that's bad. If they take the short view on something else, that's also bad. It is a matter of zealotry, not fact.

In fact MS has been good at the long view idea for quite some time. When they get in to a market, often their first showing isn't that impressive. Many companies who do that say "Oh well, guess we can't compete," and fold. MS sticks with it, keeps improving, keeps trying. They don't always do that, and when they do they don't always succeed, but they've done it a lot.

Re:When it is MS doing something

[serviscope_minor]

Many companies who do that say "Oh well, guess we can't compete," and fold.

Or just plain don't have the money.

There are very few companies the size of Microsoft which can spend the billions required to get established with the Xbox, in order to prepare them for actualy profitability with the later versions.

But yeah, taking the long view is good if you can afford to.