Pachter: Content To Decide Next-Gen Winner

In his latest Entertainment Software Publishing and Retail industry report, Wedbush's Michael Pachter says that the "quality and quantity of the underlying available content" will be the key decider over the next-gen, giving the slight edge to the PS3. "We believe that the Xbox 360 and the PS3 are far more similar than their predecessors were," says Pachter, "and believe that the economics of game development will serve as a disincentive to third party publishers to offer exclusive content for either console." "In a perverse way," he continues, "the similarity between the two platforms will likely serve to lower the costs of porting software from one platform to the other, and we anticipate that virtually every third-party title produced for one will be produced for the other." That lack of differentiation, Pachter concludes, will give the Wii an initial competitive advantage, as by nature of its control mechanisms, publishers are far more inclined to create separate SKUs. Scoring that content exclusivity is the "wildcard" in next generation console sales, and Nintendo's particular advantage, he says, is its "deep library of internally developed games/brands," concluding, "we think that Nintendo’s Wii will gain the greatest share of the hardware market in 2007." However, while the analyst says Sony may struggle to secure third party exclusivity, he does expect that a combination of blockbuster internally-produced games, the growing installed base for the PSP and continued robust PS2 software sales will make up for the third party shortfall. On top of that, Pachter also says that aside from game content, "we expect the ultimate outcome of the console wars to be decided by the motion picture studios. Should the studios embrace Sony’s Blu-ray standard for high definition DVDs, we think Sony will gain an insurmountable advantage over Microsoft; should the studios embrace Sony rival Toshiba’s HD-DVD format, we think that Microsoft can maintain its first mover advantage and will dominate software sales for years to come." By the end of the cycle, though, Pachter predicts, "we see Sony 'winning' the console war in American and European regions with 36% of the market, with Nintendo 'capturing' second place at 34% and Microsoft finishing third at 30%" -- a virtual "dead heat," with all three generating "significant profits." Japan, however, is expected to be "dominated by Nintendo (51% through 2011) and Sony (44%)."