We have always hated the idea that Microsoft can storm into a market like the Game Console market and simply take it away from a company like Sony. However before that happened we’re sure that Nintendo felt the same way about Sony’s arrival and before that Atari felt the same way about Nintendo. Games are like that, you find some you like and that brand will always be responsible for the fun you had in your youth, however they fumble the ball after that point.
So having declared an irrational anti-Xbox dislike and having tried to shrug it off and accept that it did the one thing that it could do to make gains in the gaming world, it got to market first with its second generation device, it still appears to us that the Xbox’s days are numbered.
The first time we said this out loud every American in earshot was shocked, but the decision this week that Microsoft doesn’t feel that it needs to be in negotiations with Sony or another supplier for a Blu-ray drive, suddenly makes it clear that like consumers, the companies in this market make decisions based on emotion, not logic.
At Faultline we have been saying since the Xbox launched with a HD DVD optional drive, that one day Microsoft will have to eat humble pie and produce a version with a Blu-ray drive and that’s what should be happening now. But instead Microsoft says it will continue to put off the decision until it has lost its early market momentum and fallen behind the Sony PS3. Both consoles are behind the Nintendo Wii, which is one of the most remarkable comebacks in the history of gaming. But while applauding the Wii and Nintendo’s DS efforts as great execution, we think neither device really affects the Sony devices. No-one (very few) that WAS going to buy a PS3 has bought a Nintendo Wii instead, and no-one that ought to have bought a Sony PSP has bought a DS instead.
To us this is a straight fight between Sony and Microsoft for the high end, media station/games station while Nintendo has found two lower end niches that neither of the other companies thought existed.
The one thing that Nintendo can do to both of these guys is create a price floor that will squeeze the cheaper of the two, and that’s the Microsoft Xbox.
This week we have seen the NPD figures (US consumer research company) for the month, and for the second month running in the US, the Xbox lost out, narrowly to the PS3 in console sales.
Game hardware sales were up 19% in the month with the Nintendo DS best of the bunch with 587,600 units, the Wii weighed in as top console with 432,000 units and the Xbox 360 sold 254,600 units while the PS2 sold 351,800 units compared with 280,800 for the PS3.
Microsoft claimed supply constraints which reeks of an excuse, and it is more likely that the company is selling off its stock prior to some kind of announcement ‘ like a device which will allow a Blu-ray drive to attach to it even though it says it won’t do this.
Added to this for the remainder of the year EA Games is projecting that the Playstation will be neck and neck with the Xbox in the US, but will trounce it in Europe selling 5 to 6 million, against the Xbox’s 1.5 to 2.5 million.
Both of these statements begin to drive home the truth, that Microsoft’s device was out first, but will be shortlived. The previous generation PS2 is expected to sell a further 4 million to 5 million devices throughout that time, while previous Xboxes are not in the picture.
But if the Sony PS3 is now outshipping the Xbox in its home market, looking at Sony’s home market of Japan, the situation is worse. In February Japanese sales had the Wii way ahead at 331,627 units (according to Enterbrain figures), Sony at just 89,131 units and the Xbox 360 at a mere 14,079.
That kind of performance will be repeated across much of the Asia Pacific rim with the likely result that gaming companies that deserted Sony for this generation of device from this region, something that was highlighted in detail in the run up to the two console’s announcement, will shift gradually to the PS3, as the Xbox runs out of steam. Across Europe the PS3 is now shipping the same types of volumes as in the US, while the Xbox is roughly shipping one device for each 4 PS3s.
Now the situation is not quite so simple and for ongoing revenues we have to continue to look at the total installed base, because it’s that which drives the games sales, and here Xbox is ahead and Sony is last and it will take all of this year a least until that looks like changing.
The next big move from Sony across Europe is to offer the PS3 as a set top for DVB-T terrestrial TV services, now rampant in Europe with multiple tens of millions of units shipped, also as a DVR for DVB-T services and of course as a placeshifting device ‘ sending content to remote broadband attached devices like the PSP. That all kicks off in April, and since the PS3 has been flying here since the Blu-ray win, there will be a number of bumper months ahead for the Sony devices.
One of the Microsoft reasons for not adopting a new High Definition DVD device from the Blu-ray camp was that it can deliver content online, and it says it is the only games console that can. We all know this is not true, but the Microsoft message and its marketing is clearer here, and that may hold some sway while the others catch up.
But a year from now Microsoft will be looking at a failed European strategy, a disastrous Asian strategy and its dominance will be trashed in its home country, especially by the Wii. Public perception will turn against it as Sony unravels more and more of the layers of service that its device is capable of, and that ever present DVD player will come down in price and act as a lever for more sales. Meanwhile the Wii will take all the low end money off the market that the Xbox could have gone after, not just in devices, but also in gaming software.
That leaves Microsoft looking at a failed MP3 player strategy, a weaker Xbox strategy that it might initially have expected, and instead of being able to take on the iPhone head on, it will have music services split between the Zune range, its own handset software and its software partners handsets, including Nokia ‘ far from a clear picture and little chance of merging Zunes or a portable Xbox onto a handset.
While Microsoft may currently be breathing a sigh of relief that its entertainment division was a $6 billion business last year, which actually made a contribution, we cannot quite see how it will do so again in a year’s time and the company’s best strategy would be to spin it out to its shareholders to be rid of the future potential financial drag.