Analyst: Despite Motion Control, 3D Hardware, E3 2010's All About Software

Online, motion control and 3D are the "three pillars of growth" that will stand out at this year's E3, says Lazard Capital Markets Colin Sebastian -- who says that software showings might actually turn out to steal the show. With the industry buckled in for an uncommonly long hardware cycle, it's iteration, not overhaul that's the theme. In that respect, Nintendo hardware looks to have the least life ahead of it, and according to the analyst that's drawn some doubters. Expect a "Wii refresh" by 2011, he says, but for now, Nintendo's big "wow factor" at the show will be the 3DS. But with a launch months away, "we believe the company’s fortunes this year will depend more on new first party software in the pipeline, such as Zelda and Metroid," says the analyst. Xbox 360's Project Natal and PlayStation's Move will both be getting their most in-depth showing to date, and are likely to serve as a primary pillar of the event -- again, however, with software announcements to be the primary determiner of the showcase's success. "We note that a slimmed down form factor for the Xbox 360 is still a possibility, along with increases in storage capacity and enhanced motion-sensing user-interface, as Microsoft expands the digital media capabilities of the platform," adds Sebastian -- expect further Xbox Live enhancements and a ramp-up in the fight to be the top complete multimedia device in the living room. Similarly, Sony should be expected to buttress its Move showcase and software announcements with enhancements to PlayStation Network, including "complete game downloads, more robust social networking features, networked game-play and broader content offerings beyond games (e.g online video)," according to Sebastian. The gap in Sony's E3 strategy is the PSP -- despite unconfirmed blogosphere rumors, there's little indication that new PSP hardware details will be revealed this year, according to Sebastian, and "we do not expect the PSP to gain much momentum without a redesign." "As sales of packaged software continue to lag overall industry growth, we believe the video game sector is nearing a turning point, with the potential for new hardware innovations and a strong development pipeline to reinvigorate growth, or conversely falling victim to the same consumer apathy that is driving a second year of lower console software sales," says Sebastian.