sonycowboy
Member
http://biz.gamedaily.com/industry/feature/?id=13257
For the past ten years Sony Computer Entertainment (SCE) has been the king of the video game market. The first PlayStation (PSOne) and PlayStation 2 (PS2) platforms were THE platforms on which the leading third party publishers made the majority of their revenues. For third party publishers other game platforms had become of secondary consideration to the Sony driven gravy train. Even in 2006, the PS2 continues to sell the most units at retail.
DFC Intelligence has always said that as the dominant market leader, SCE was largely in control of its own fate. Microsoft and Nintendo had to hope Sony fumbled or significantly changed its strategy so that they could get an opportunity to capture some of that PS2 audience. Now it is clear Sony is handing its competitors a golden opportunity.
DFC Intelligence has just released a 600 page report with our latest forecast for the interactive entertainment industry. In this report we predict several different scenarios for the individual game systems. We emphasize that there is a great deal of uncertainty because much will depend on how individual players execute their strategies over the next several years. However, two things are clear: 1) the high price of the PlayStation 3 is going to slow overall industry growth, especially for software and 2) if Sony does not change its current strategy for the PS3 the system will probably end up in third place in installed base.
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Consumers in much of Europe (and North America as well) simply aren't ready for that type of expenditure and success for Sony will require that 1) they can keep the PlayStation 2 business alive and slow consumer adoption of new systems and 2) they can make the price more affordable. However, as the chart below shows, even under the best case scenario the PlayStation 3 has a much lower installed base than the PlayStation 2. Under the worst case scenario the bottom falls out for Sony's market share.
So while Sony struggles with positioning issues Microsoft and Nintendo are free to try and build a solid base of actual video game players. The good news is that for both companies, under any scenario, DFC forecasts that the Microsoft Xbox 360 and Nintendo Wii will have a larger installed base than their respective predecessors. However, we think the company with the biggest opportunity is Nintendo. With a market leading price and a compelling mass market message the Wii has the opportunity to be the market share leader in all major regions.
The Xbox 360 also has an opportunity to be the overall market share leader, but we think the system will generally be stronger in North America than in Europe or Japan. In fact, even under the best case scenario for the Xbox 360 we predict the system will finish third in Japan while being the number one system worldwide.
Other potential issues that concern us with the Xbox 360 have been Microsoft's struggles to break out beyond the hard-core gamer and the significant losses that the company has been forced to take to build market share. Microsoft could become bogged down in efforts to reach out to the mass market via casual games, portable games and other areas that could distract from the overall Xbox 360 business.
On the other hand Nintendo has almost nowhere to go but up with the Wii. Since the 8-bit NES from the 1980s, Nintendo console hardware systems have sold less and less. Now is the time for Nintendo to turn that around. In the last generation, the casual mass market game audience by and large went with the PlayStation 2. The GameCube was stuck with the loyal Nintendo diehard base. Now with the Wii, Nintendo has the chance to keep its loyal base and expand into a much more mass market audience. By letting Sony and Microsoft split the hard-core teenage/twenty something video game marketplace, the Wii could end up number one in market share for the next generation.
Not surprisingly, under all our scenarios, market fragmentation is a big theme. For the past five years, the PlayStation 2 has been a steady platform that provided a solid worldwide base for software publishers. Sony's strategy is utterly dependent on keeping the PlayStation 2 around for as long as possible and hoping mass market consumers hold-off on upgrading. However slowing the future can be difficult. For a consumer there are all types of choices for playing games: portable games, online games, old console systems, new console systems and so on. The console system remains the largest segment of the overall market, but its importance is clearly declining. Over the next two years we will see which companies can weather the eventual decline by diversifying beyond the PlayStation business.
