Analyze This: Which Console Will Win 2007? (...And Other Humble Guesses for the Year)

They are the professional analysts whose job it is to research, keep track of, advise their clients, and opine to the media about the gaming business. Analyze This cuts right to the chase: Rather than reporting on a subject, and throwing in quotes by analysts to support or refute a point, Gamasutra offers up a timely question pertaining to the business side of the video game industry and simply lets the analysts offer their thoughts directly to you. Each person's opinion is his own and will (probably) not necessarily agree with their fellow colleagues'.

As we enter 2007, we at Gamasutra wondered what overall predictions the analysts have for the industry. Obviously, this is a very significant year for each of the three console manufacturers. So we asked Mike Wolf of ABI Research, David Cole of DFC Intelligence and Michael Pachter of Wedbush Morgan Securities the following:

Is the Wii destined to soon be the #1 next generation console? What do you think could prevent this from being the year when Nintendo reigns supreme?

Microsoft has surpassed 10 million Xbox 360s sold, but do you think the console will be on track to sell more than the original Xbox (which was a money loser for Microsoft)? What do you expect Microsoft to do this year for the 360 (a price cut?)? What do you think the company should do?

Finally, the big question: the PlayStation 3. Has Sony given too much priority to winning the high-def DVD war over console gaming to affect its bottom line? Is the company stealthily lying in wait? What do you theorize is Sony's strategy, and what's your opinion of it?

Mike Wolf, ABI Research

On Nintendo and the Wii...

"If Nintendo doesn't hit any production hiccups, they could win this year's shipments crown. As far as winning this generation, I think they will need to move beyond the Wiimote as the main focus and round out the other aspects of their offering. Their system will age faster due to the lack of high-end graphics and HD resolution, so building out their online network, creating DS and Wii interactivity, all of these extras will be important to the Wii."

On Microsoft and the Xbox 360...

"I expect lots of software enhancements in first half [of 2007] around Xbox Live, and then a hardware upgrade -- most likely a larger hard drive -- corresponding with a die-shrink for the Xenon [the Xbox 360 processor].

I think they will drop the price only if they are seeing slowing momentum for hardware sales or if Sony drops their price. A price drop combined with upgraded hardware and Halo 3 at the end of 2007 would definitely give them momentum for the holiday season."

On Sony and the PlayStation 3...

"They definitely care about video games, since the PS2 was such as large profit contributor. If you take that away, Sony is in trouble as a company. Blu-ray is a double-edged sword for Sony, since including it in the PS3 may be what ultimately makes the format a winner in the HD disc wars, but it also hurts profitability and demand for the console due to higher average selling price. Unfortunately for Sony, they are locked in and need to just adjust, and their biggest focus should be winning back some exclusives and getting out a console seller [game title]. They also need to get their online service to at least close to par with Xbox Live, which will be hard because Microsoft is not standing still."

David Cole, DFC Intelligence

On Nintendo and the Wii...

"The Wii got off to a great launch creating a great deal of positive buzz. However, to say any system is destined to be number one at this point is very premature. We are barely started in this generation and most consumers have only begun to make assessments about the new systems. One thing, if you look at the Wii, is that the Zelda title [Twilight Princess] had a very high sell-in rate in the first two months. This is an indication that many of the initial Wii purchasers were part of the already converted.

Nintendo systems have a solid fan base, but the real challenge for Nintendo is reaching out to the consumers that bought competing systems for the past two generations. The biggest danger is that the positive buzz around the Wii starts to wear off before consumers start buying new game systems en masse."

Metroid Prime 3: Corruption

On Microsoft and the Xbox 360...

"The Xbox 360 is definitely on track to out-sell the original Xbox.

As for price cuts we don't like to make those type of speculations. What Microsoft should do is closely monitor ongoing sales and moves by the competition and be prepared to be aggressive on price. There are also many bundling opportunities that can make a system attractive without the big profit hit a raw price cut would entail."

On Sony and the PlayStation 3...

"This generation is barely started, and there is no way you can say Sony has already lost it. Sony definitely still cares about video games and unlike with Microsoft it is a very important sector for the overall company's bottom line.

Sony's strategy is to keep the PS2 base alive and happy as long as possible and migrate them to the PS3. The PS2 base is huge and the system is still selling a lot of hardware at retail. That is a big ace up Sony's sleeve.

In terms of sales, if the PS3 is seen as the premium system, that is a nice-long term position. I think the risk is that the PlayStation base may not be as loyal or patient as Sony is counting on."

Michael Pachter, Wedbush Morgan Securities

On Nintendo and the Wii...

"The Wii will appear to be the winner of the next generation battle in 2007. By "appear," I mean that I fully expect the Wii to outsell the PS3 and the Xbox 360 during 2007. However, appearances can be misleading.

In my view, the Wii will sell better primarily because of price. At $249, there are more people who can afford a Wii than there are potential purchasers of the Xbox 360 and the PS3. Other factors that will drive higher sales in 2007 are novelty and availability -- there are no PS3s in Europe yet. Most households who will ultimately buy two consoles will end up choosing a Wii and one of the other two. I also believe that most of those two-console households will buy the Wii first, since it's cheaper and more readily available. Therefore, at least through 2007, I expect the Wii to end up "winning" the next generation console battle.

Over time, I think that Wii sales will moderate back to the same level as the 360, maybe 10 million per year. It's tough to say that this will happen in 2008, as it truly depends upon content for the Wii and upon pricing for the other two consoles. More likely, the Wii will "reign supreme" -- your words -- through 2008, with the three consoles selling in parity in 2009."

On Microsoft and the Xbox 360...

"Microsoft will probably sell another 10 million consoles this year, and it will likely take a price cut to get there. I think that Microsoft will not be the first to cut price. A price cut will only come once Sony decides to cut the price of the PS3. Microsoft has been losing money in its game business since 2001, and now has a chance to be profitable, so I think that the company will think long and hard before cutting price. They will do so if forced to by Sony, but I expect a cut to no lower than $349, and do not expect the cut until late in the year.

I think that they are doing everything right, that they should keep obtaining exclusive content (like Fable) where appropriate, and should continue to build out the Xbox Live service to differentiate from Sony. They have a huge lead online, and should exploit that lead. It's clear that Sony intends to compete online. So Microsoft should expect its first mover advantage to erode over time, but I don't think that Sony will make meaningful progress in 2007."

On Sony and the PlayStation 3...

"Sony cares very much about video games, but it also cares about its other businesses, and it has chosen a strategy that involves these other businesses. The high-definition DVD war is quite important, and Sony is determined to be the only man standing when the dust settles. That business is at least as profitable as its video game business, so I think Sony is looking to grow its overall profits dramatically with this strategy. If I'm right, Sony will end up winning the high-definition format war, and once there are millions of Blu-ray enabled PS3s floating around, I think we will see sharper graphics on PS3 games compared to Xbox 360 games.

Final Fantasy XIII

It's difficult to assess how long this will take, but it's probably not going to happen in 2007. My best guess is that Sony emerges as the winner of the movie format war in late 2008, and games start looking noticeably better in 2009. That's when Sony starts looking like the winner of the next generation battle. All of this is pretty far out, and a lot can happen with pricing to change things. For example, if Sony gets down the cost curve for Blu-ray and Cell processors, [the PS3] may be below $300 shortly thereafter. It's hard to say that this will happen before 2009, but it could. That would change everything.

In summary, I think that this cycle will be misleading from start to finish: Nintendo will look like the winner for a while, then they will lose a bit of steam. Microsoft will chug along doing a great job, and Sony will lag badly. My guess is that during early 2009, people will be calling Microsoft the winner. Later that year, sentiment will probably shift again, and people will start calling Sony the winner."

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