New consoles enter the arena, which means more business for retailers and game publishers.

By John Gaudiosi
December 23, 2016

The times are certainly changing for the traditional console video game business. The key players—Sony, Microsoft, and Nintendo—remain the same, but the ecosystem has vastly expanded.

According to research firm Newzoo, this year marks the first time mobile game sales will account for more revenue ($36.9 billion, or 37% of the $99.6 billion market) than console gaming ($29 billion, or 29% of the market). The console games business is up 4.5% over 2015—not bad. But the mobile games business is up more than 30% from last year. And thanks to casual and free-to-play games, PC gaming is also on the rise, accounting for $31.9 billion in 2016.

Console gaming will get a boost this year (and for its short-term future) thanks to PlayStation VR and Microsoft’s 2017 virtual reality initiatives. But so too will mobile gaming, thanks to Google Daydream View, and PC gaming, thanks to the Oculus Rift, HTC Vive, and various Microsoft headsets made by Asus, Dell, HP, Acer, and Lenovo.

What’s to come for the gaming industry in 2017? Here’s a look at what the Big Three have planned and how they’re adapting to an evolving global business.

Sony Interactive Entertainment

Sony has dominated the console market since launching PlayStation 4 in 2014. The company has sold more than 49 million PS4s to date globally, according to estimates by Wedbush Securities analyst Michael Pachter—and will likely reach 58 million by the end of 2016. That figure includes about 2.5 million PlayStation 4 Pros, the new $400 mid-generation console that upgrades gaming and entertainment to ultra high resolution (4K) and features more processing power under the hood. Sony also redesigned the original $300 PS4 to make it slimmer.

Sony marches into 2017 placing more bets on virtual reality. Its $400 PlayStation VR headset works with all existing PS4 consoles, and the company plans to have 50 virtual reality games on store shelves by Christmas Day, including 20 launch titles that shipped with the platform.

Shawn Layden, chairman of Sony Interactive Entertainment Worldwide Studios, says the company has developed several launch games specifically for the VR experience. Other games will have levels and modes enhanced by virtual reality, such as Warner Bros. Interactive Entertainment’s Batman: Arkham VR and Electronic Arts’ Star Wars Battlefront Rogue One: X-Wing VR Mission.

In general, Sony is marketing virtual reality as a new platform that is complimentary to big-screen console gaming. Pachter forecasts Sony will sell two million PlayStation VR units this year.

Microsoft

In the console market, Microsoft is currently No. 2. Pachter forecasts that the company will have 24 million Xbox One units in homes worldwide by the end of this year. Like Sony, Microsoft is offering a growing number of gamers who prefer 4K resolution the ability to upgrade their console. The company recently launched its Xbox One S (starting at $300), which comes with an Ultra HD Blu-ray player and 4K gaming upgrade. It still sells the original Xbox One (starting at $250).

Microsoft is waiting until next year—holiday season 2017—to offer gamers a major upgrade. Announced at the E3 video game trade show in June, so-called Project Scorpio is a mid-generation Xbox One upgrade that offers developers a more powerful console to create 4K games and virtual reality experiences for. At Microsoft’s E3 press conference, Phil Spencer, head of Xbox business at the company, says Microsoft wasn’t currently developing a first-party virtual reality headset. That’s technically true, but don’t count the company out: Microsoft later announced that Acer, HP, Lenovo, Asus and Dell will be manufacturing $300 virtual reality headsets designed for Windows 10. They’re scheduled to arrive in the first three months of 2017, which seems like a good fit for Project Scorpio and PCs alike.

Microsoft has also confirmed that Project Scorpio will be backwards-compatible with games on both Xbox 360 and Xbox One, allowing gamers to keep their current libraries intact. Dave McCarthy, head of operations for Xbox, says Microsoft is committed to its “playing without boundaries” philosophy, meant to ensure that it doesn’t leave consumers behind during upgrade cycles. The console strategy replicates one found in the mobile games industry, where upgrade cycles are faster and gamers are used to upgrading their smartphones every two years or sooner. The old-fashioned console model—one system that lasts for 10 or more years with no upgrades—is obsolete.

Nintendo

Nintendo has been in third place before. Many gaming industry watchers counted out the company after its GameCube console failed to find an audience with global sales of fewer than 22 million. But then it unveiled the Wii in 2006, ushering in an age of motion control gameplay that resulted in more than 101 million consoles sold. Pachter forecasts Nintendo will have a “global install base” of just 14 million systems by the end of this year (though that figure may underestimate the impact of the surprisingly popular NES Classic Edition). The company recently stopped production of its aging console as it transitions to its next home gaming platform, dubbed Switch.

Switch is a hybrid device that allows gamers to play Nintendo franchises at home and on the go. (It can charge while connected to a big-screen TV and is designed for multiplayer gaming in both environments.) It’s expected to launch in March 2017 at a price of $250. Pachter believes Nintendo could sell five million Switch units in 2017, though Nintendo won’t reveal the console’s launch date, launch games, and price until next month. Will it support 4K-resolution gaming as its rivals do? It’s unclear.

“Nintendo has a quite appropriate reputation of doing its own thing, so whatever Microsoft and Sony decide to do, that’s for them to manage,” Nintendo president Reggie Fils-Aimé says. “We always do our breakdown of what worked, what didn’t, and certainly we’ve done that with Wii U, and we continue to believe that the innovation of the second screen was a worthwhile concept.”

Nintendo has also expanded into mobile gaming. Through a partnership with Japanese mobile game publisher DeNA, Nintendo had a hit out of the gate with its first of five apps, Miitomo. The second title (and first mobile game), Super Mario Run, launches Dec. 15 for $9.99 on Apple devices. The game was developed by Shigeru Miyamoto—the legendary co-creator of Donkey Kong, Super Mario Bros., and the Legend of Zelda, among others—specifically for mobile screens.

Nintendo has also seen success in the mobile category through its partnership with Niantic and The Pokemon Company, which launched the smash hit Pokemon Go in July. The augmented reality game has been downloaded more than 500 million times and generated over $600 million across Android and iOS. It wouldn’t be a surprise if Nintendo—which holds an investment in the company—continues to bet on the former Google division.

SPONSORED FINANCIAL CONTENT

You May Like