The home console business needs a new strategy

The current zeitgeist is excited about a slew of new development venues because these young platforms offer a significantly lower bar of entry in terms of budgets, and as a result plenty of remarks such as, "the console model is set to collapse" is being thrown around, these being mostly founded on shallow logic.

A common thread going through most of these is the assumption that the powers that be wish to have the console hardware cycle continue eternally. It is easy to see how such practices cannot be continued with impunity, as we have, as of the 7^th generation reached a threshold, the threshold marking the breaking point of the old business model.

The old business model would dictate the year 2012 to be the starting point of a new cycle, namely the emergence of 8^th generation hardware. The logic behind the move, other than, “because it is tradition” also tallies the fact that traditionally software sales begin to fall as console hardware enters its 6^th year and the only solution to that is restart the cycle with new hardware.

A call for change:

The 7^th generation, however, turned out to be a bit of a special case because already there are many industry persons who have voiced the rationality of making an effort to keep the generation going for at least a few more years. The reasons for this are easily discernable, as there is little potential for a quantum shift in visual fidelity in new hardware which would justify its existence in the eyes of the consumer.

The days of a new console iterations and new graphic cards leading to quantum leaps in graphical fidelity are at an end. That arms race has just about reached saturation point, not in terms of what technology allows for, but in terms of the underlying economic sanity supporting the endeavour.

Even if a newer generation of consoles and graphics cards make their debut it wont change the fact that developing titles that demonstrate the full potential of newer hardware is a prohibitively costly endeavour, and the per unit sales are not likely to increase enough to support such spendthrift development practices.

The home console industry is therefore at a threshold, one of diminishing returns and now more than ever there is cause for taking the old hardware refresh cycle strategy up for revision. So far the majour console manufacturers have been very quiet about their future plans, and their actions imply that they wish for a longer cycle this time around. But it is unlikely that they are not planning to release new hardware at some point in the future.

Yet, One cannot help but feel that perhaps there is call for abandoning such plans altogether and instead shift focus on addressing the issue of lagging sales in other ways that might be more beneficial to the future survivability of the industry as a whole.

One of the underlying causes of said decline in sales at the tail end of a console cycle is the fact that most premium developers begin work on next generation projects well before the new hardware is set to release. This is done so as to either be there at the start with a launch title, or for the sake of future survivability as any developer who does not brace themselves for the jump well in advance might risk being left behind. Such practices obviously lead to a decrease in number of premium releases for the aging hardware as excitement shifts focus on the upcoming generation. So in a sense part of the decrease in sales is caused by the imminence of newer hardware leading to a drought of titles for the older hardware. Thus if that factor is removed then sales might possibly remain stable.

There is certainly no logical reason why sales would dwindle on older hardware if there is no decrease in premium content and there are no competitors offering a quantum leap in visual fidelity on other platforms. The role of hardware innovator and fidelity competitor has always been two parts, one the competition among the home console manufacturers themselves, and the ever evolving PC platform.

The need for a change of strategy is pretty apparent when looking at how the PC platform has fared over the last decade. Hardware continues to improve but sales potential for newer graphic cards has fallen in face of a general lack of content to justify such purchases. The economic force has reached a plateau and most future potential growth in the field of graphics hardware lies with mobile platforms going forward.

A new approach:

The writing is on the wall, home console hardware manufacturers need to approach their market with a new strategy, one that attempts to grow software sales without aid of a new hardware generation. To illustrate what this might look like and weigh in on its most obvious advantages we must pretend that all majour home console hardware manufacturers come the agreement of making the 7^th generation be the last generation, and thus aim to entrench their strategies around the existing hardware.

This was an inconceivable thought a mere decade ago, but today it might very well be a reality, if not in this generation then certainly in the next. That is unless the manufacturers discover some as of yet undiscovered majour benefit to offer consumers, and developers, with newer hardware which seems unlikely.

If such an entrenchment was to take place then that would result in the console hardware of choice becoming an increasingly ubiquitous platform which evolves not in terms of hardware, but in terms of software. This is not to say only software being offered to the end consumers, but certainly also software in the sense of the suit of development tools being used by developers. Over the last few years these tools have matured to a very advanced level, allowing for more complicated projects to be realized in shorter time and for lesser cost.

If the burden of new hardware cycles negating much of this benefit by way of obsolescence is lifted then this trend can be allowed to continue, gradually lowering the bar of entry for smaller developers while at the same time making game development more profitable for the bigger studios by virtue of their more streamlined production methods gained through practice. Lower production costs will in turn allow for developers to easier justify risky endeavours the type of which the market needs, but is prevented from indulging in due to prohibitive 7^th generation development costs involved.

No doubt part of the sales decline in the tail end of a console cycle can be blamed on the sheer wow factor stemming from visual fidelity begins to lose its shine as a cycle nears the end. This may affect the buying habits of the average gamer as visual fidelity is the surest way to catch their attention and awaken buying interest. When a system nears the end most top tier game reach graphical parity and the player accepts that level of fidelity as the norm, thus only a quantum leap can work to break that norm and capture attention easily.

This manner of showmanship focusing only on glitz is however becoming increasingly unfeasable to maintain going forward, and better methods of garnering attention is needed going forward. Ideally in an hardware entrenched home console market the game makers will beging to compete in areas not pertaining to visual fidelity, such as novel and unique game design, or eye catching unusual visual aestetics as a means to garner attention.

Meanwhile as vintage of console hardware becomes more ancient the manufacturing costs will continue to decline to a point where the hardware itself can be sold for impulse purchase prices, which will increase sales potential and widen gamer demographics. Other added benefits of iterating on the same hardware is miniaturization which could allow for the hardware to find its way into other devices, such as TV’s that are sold with the gaming hardware built in. This way console manufacturers can get their gaming hardware into people’s houses without them even actively seeking out the option and that remains is to educate them about the possibilities and work on making the end user experience more accessable and streamlined.

Such a scenario is as of yet unlikely as it takes just one hardware manufacturer to continue the cycle to twist the hand of the others for competitive reasons. Despite this Nintendo has already chosen to embrace a strategy somewhat resembling this when they purposefully designed their Wii console to not aim for graphical parity. The Wii however, does not serve as a very good example of what a universal shift of strategy towards entrenchment might play out like if it is embraced by all.

For one, Nintendo’s timing was a generation too soon which put their console at a severe graphical disadvantage in comparison to the other two offerings and thus it is not likely to be able to support an indefinite entrenchment surrounding it. Secondly, there is the matter of price which should be much lower for hardware of this age. The last factors differentiating the Wii from the above scenario is the fact that while the Wii was Nintendo’s answer to digging in their heels in, intent on not partaking in the horse power arms race any longer, yet the Wii was still new hardware, which begun a new cycle. In addition While Nintendo certainly chose to exit the arms race arena their competitors yet remain there and for the race to end all participants must exit at the same time, or there will always be potential pressure on those who quit to return for the sake of remaining competitive.

A simultaneous departure of all participants in the hardware arms race at a point where all participants are roughly on equal footing could allow for a true universal shift of focus from hardware towards software and services to take place. This is a possibility already as two of the three 7^th generation systems already have built in support for the most important features necessary for a permanent entrenchment. These count the ability to output HD resolution graphics which brings their level of visual fidelity up to par with the HDTV displays likely to be used to display their contents. In addition they have built in online connectivity features and the ability to upgrade their OS software so as so allow for expanding their functionality without aid of hardware changes. They have mass storage options which will work in their favour in the long term as digital distribution methods become more prevalent.

In short there are no glaring omissions or shortcomings present in the 7^th generation hardware already in existence that can in and of themselves justify a new cycle of hardware. Thus a shift of focus to a new strategy focusing away from hardware by making the price of entry negligible, and instead focusing on software and service offerings is feasible, albeit unlikely to be part of any console manufacturers plans.

Considerable investment have no doubt already been made into the design and planning for the next generation of hardware coming from all three majour players in the field, but it is becoming increasingly difficult to imagine how any of the three would deign to keep repeating this cycle after that. Therefore it is likely that the next generation of systems, when they should arrive, are likely to be the last before a shift in strategy towards software becomes imperative to the future survival of the home console business.