Console gaming has been a staple of the entertainment industry for over two decades. As a kid, one might remember the old Nintendo consoles including but not limited to, Super Nintendo, Gameboy, and N64. As the market grew, so did the competition. Sony (SNE) released the PlayStation to compete with Nintendo, and later on Microsoft (MSFT - Free Microsoft Stock Report) released the Xbox. This was considered the height of new age gaming, with systems boasting high powered graphics processors and faster loading times, gone were the days of blowing into the cartridge or slamming on the box to get the machine to work. However, as time progressed, consoles evolved, and so did their users’ needs.
Today, gamers are immersed in a new console war, between the new Microsoft Xbox One and Sony PlayStation 4. Nintendo released the Wii U a little while earlier, however, feedback was mixed, and sales were, and still remain, quite disappointing. Many believe the real battle will be between Microsoft and Sony, two power players that target the more hardcore gaming demographic.
Microsoft has long made a living off of its online platform, Xbox Live. It is one of the most successful online gaming devices, with subscribers paying an annual fee based on the type of subscription they want (Gold being the highest and most robust). The online platform and backwards compatibility boosted demand for the Xbox 360 console, a major success for the company’s gaming platform. Signature franchise titles, such as Halo, have become a hit for many gamers, and have catapulted Microsoft’s gaming credentials. However, this past May, Microsoft unveiled the next-generation console Xbox One, to some serious backlash from users. The company was restricting the sale and resale of used games, got rid of backwards compatibility, and required a constant Internet connection for the system to work properly. Enthusiasts were infuriated and protested the new, stricter standards. Shortly after, the company changed the restrictions and became more lenient. Microsoft was making an attempt to change the gaming market again; by ridding game sharing and resale, the company believed it had the potential to lower overall game prices if the used game market was eliminated. In addition, Microsoft could have potentially offered a Netflix-like platform for renting via the Internet without purchasing CDs. While companies like GameStop (GME), which sells used games, would suffer, the overall gaming market could benefit from these changes in the long run. However, while the company made a good effort, thousands of unhappy fans got their wish. Despite this, the Xbox One will still be successful, especially after pre-orders at BestBuy (BBY) have already sold out for the time being. The main competitor, Sony, would use the customer backlash as a selling point for its newest system, the PlayStation 4.
Sony was one of the first systems to introduce new 3D graphics and design to gaming with the original PlayStation in 1994. That also was one of the first consoles to implement CDROM game discs. The system went on to sell 100 million units, another first for the gaming industry, battling competitors such as Nintendo, with its Nintendo 64 console, and the Sega Saturn. The PlayStation 2 was released in 2000 to similar success, as well as the PlayStation 3 in 2009.
Sony recently announced the PlayStation 4 video game console, the eighth-generation system for the company. Management announced continued backwards compatibility with the PlayStation 3, an attractive selling point especially after Microsoft eliminated it with the Xbox One, as well as a new cloud-based game service where users can browse, download and share games and content. Sony is focusing more on social gaming with this new console, emphasizing downloadable content and game-sharing. The company plans to release the system around the same time as the new Xbox One, during the Holiday season this year. The launch price is set at $399 for the new system, $100 less than the new Xbox One launch price. Sony could see its margins grow significantly with the release of this next-generation console, as it boasts a more efficient cost structure. Sales should see a lift by the end of the current year especially since preorders have already sold out at GameStop, and demand continues to grow among other retailers such as BestBuy, Amazon (AMZN), Wal-Mart (WMT - Free Wal-Mart Stock Report), and Target (TGT).
With the next generation of gaming coming closer, Sony, Microsoft, and many game retailers such as BestBuy and GameStop are set to benefit from continued customer loyalty and increasing demand. Advanced gaming technology including HD graphic improvement, online cloud-based services, and a more social gaming experience will be major selling points for old and new gamers. Customers looking for an overall entertainment platform for their living room will have to choose between the two systems. With the Xbox One boasting a more advanced system for the hardcore gamer, and PlayStation emphasizing a more social experience, the battle will depend on consumer interests and demands. Either way, in light of the recent preorder success, both competitors will likely see a boost in sales for their gaming segments, which augurs well for these companies going forward.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.