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?

[mjwx]

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...

That assumes that MSFT have not costs.

It took MSFT 3 years for the Xbox360 to stop being a loss leader (each console sold for less than what it cost MSFT to make it), it took Sony 5 years for the PS3 to stop being a loss leader. Neither have paid back the initial R&D costs.

Sure Sony and Microsoft have lots of nice shiny revenue, but anyone in business will say "Revenue is vanity, profit is sanity". The PS3 and Xbox360 have been huge money sinks for MS and Sony.

But I feel we're forgetting someone.... Someone who made a lot of money...

Oh hai NINTENDO.

Nintendo made a metric buttload of cash, paid off their R&D very quickly and never sold the Wii as a loss leader. More than that, the Wii was hugely successful. Released last and outsold Microsoft and Sony's combined console sales for 3 years. Why, because they didn't pretend the console was a PC. They made a console that for the first time since the Super Nintendo was actually fun to play. That's how you make money in the console world. Sony and Microsoft need to learn it's not about how powerful your console is, it's about how fun and accessible it is. It seems the PS4 and Xbox One have given this generation to Nintendo by default (as the Wii-U is a mediocre console).

To say that "consoles" are unprofitable is really to say "Microsoft and Sony consoles" are unprofitable. Nintendo consoles were very profitable.

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

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.

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.