So for a couple of decades now, the hardware is sold at a loss and the costs and profits are recovered from software sales.
This model has returned billions for console makers as well as a handful of games publishers/developers.
No doubt this model will continue in the next generation, which means physical distribution of games media, which means high prices for software, especially relative to mobile games and other forms of entertainment
The players in the industry have honed the science of securing retail channels -- shelf space -- for their products. But it also means they're dependent on physical distribution at a time when the much more lucrative mobile device market utilizes digital distribution exclusively for content.
They can continue with the present model in the next generation and the 3 consoles will still sell over 100 million combined. But is it possible that the console business has seen the peak for market penetration, either in the PS2-led generation or the Wii-led generation?
Will consoles lose customers to the "good enough" gaming on mobile devices, because those devices provide a lot of useful features as well as cheap gaming content? Could a lot of casual and even some hardcore gamers either turn to smart phones/tablets or grow out of hardcore gaming?
Understand that each next-gen console will sell tens of millions of units. But also understand that tablets alone are already approaching annual sales volume which meet or exceed the number of units a console will sell in a 5-6 year cycle.
The "good enough" phenomenon changed the way music is consumed, where people will trade quality for convenience and the lower prices made possible by the willingness of consumers to accept lossy audio. "Good enough" gaming from mobile devices has arguably already affected the dedicated handheld gaming business.
In the face of this onslaught, are $60 games sustainable? Well it probably is for a dozen or two big franchises but for the industry as a whole? Digital distribution reduces the cost of delivery and presumably cuts out some middlemen currently involved in games distribution.
Can a digitally-distributed game priced at $20-30 yield the same revenues to the publisher/developer as shrink-wrapped games sold for $60 at retail on a per-unit basis? If not on a per-unit basis, would the lower price result in higher-enough volumes to offset the lower per-unit revenues?
So if retail was removed from the games distribution equation, they would still be needed for hardware distribution, in which case the hardware would have to produce a return per-unit at launch, sufficient enough to give the retailers a margin at $400 or whatever the optimal launch price would be.
That would mean a lower BOM under this new model versus the old model, meaning the unsubsidized $400 console wouldn't be as powerful as the subsidized $400 console. But the flip side is the gaming software is cheaper and has the potential to grow the base, as they accumulate more software per person, they're less likely to be peeled away by the mobile devices.
It would be a risky undertaking, even without the various obstacles -- possibly insufficient infrastructure for distributing tens or hundreds of gigs of games content digitally, the devaluation of the product by dropping games prices by 50% or more.
But the current model may also be a dead end, if it turns out the appetite for $60 games diminishes every year.
This model has returned billions for console makers as well as a handful of games publishers/developers.
No doubt this model will continue in the next generation, which means physical distribution of games media, which means high prices for software, especially relative to mobile games and other forms of entertainment
The players in the industry have honed the science of securing retail channels -- shelf space -- for their products. But it also means they're dependent on physical distribution at a time when the much more lucrative mobile device market utilizes digital distribution exclusively for content.
They can continue with the present model in the next generation and the 3 consoles will still sell over 100 million combined. But is it possible that the console business has seen the peak for market penetration, either in the PS2-led generation or the Wii-led generation?
Will consoles lose customers to the "good enough" gaming on mobile devices, because those devices provide a lot of useful features as well as cheap gaming content? Could a lot of casual and even some hardcore gamers either turn to smart phones/tablets or grow out of hardcore gaming?
Understand that each next-gen console will sell tens of millions of units. But also understand that tablets alone are already approaching annual sales volume which meet or exceed the number of units a console will sell in a 5-6 year cycle.
The "good enough" phenomenon changed the way music is consumed, where people will trade quality for convenience and the lower prices made possible by the willingness of consumers to accept lossy audio. "Good enough" gaming from mobile devices has arguably already affected the dedicated handheld gaming business.
In the face of this onslaught, are $60 games sustainable? Well it probably is for a dozen or two big franchises but for the industry as a whole? Digital distribution reduces the cost of delivery and presumably cuts out some middlemen currently involved in games distribution.
Can a digitally-distributed game priced at $20-30 yield the same revenues to the publisher/developer as shrink-wrapped games sold for $60 at retail on a per-unit basis? If not on a per-unit basis, would the lower price result in higher-enough volumes to offset the lower per-unit revenues?
So if retail was removed from the games distribution equation, they would still be needed for hardware distribution, in which case the hardware would have to produce a return per-unit at launch, sufficient enough to give the retailers a margin at $400 or whatever the optimal launch price would be.
That would mean a lower BOM under this new model versus the old model, meaning the unsubsidized $400 console wouldn't be as powerful as the subsidized $400 console. But the flip side is the gaming software is cheaper and has the potential to grow the base, as they accumulate more software per person, they're less likely to be peeled away by the mobile devices.
It would be a risky undertaking, even without the various obstacles -- possibly insufficient infrastructure for distributing tens or hundreds of gigs of games content digitally, the devaluation of the product by dropping games prices by 50% or more.
But the current model may also be a dead end, if it turns out the appetite for $60 games diminishes every year.
