The Next Console Generation

If I saw this in my family room I'd figure the invasion had started.

Some analysts have started to say that we really need a new generation of consoles to turn around the sagging sales of the traditional game business. We're in the third straight year of a slump, and it's true that the current consoles are getting towards the end of the usual console lifespan, as the Xbox 360 hits its 6th year and the PS3 and the Wii in their 5th years. Previous generations of consoles have seen new generations introduced in around year 5 or 6, so by that reasoning we should be due for a new round of consoles.

Nintendo has already announced their next-generation console, the Wii U. Sony and Microsoft have said they are working on new technology, but have no plans to introduce new consoles right now. I'm sure they'll determine the proper time to ship a new console based on how well the Wii U does, and if sales of their current consoles start to slip significantly.

I don't think a new console generation in the traditional sense is the solution to the industry's problems. The usual "next-generation" console would have a significant increase in graphics power, and probably storage capacity and connectivity; a 5x to 10x jump in performance is something we've come to expect. Of course, that would mean substantially higher hardware prices, too. An "Xbox 720" or a "PS 4" would likely have to be priced in the neighborhood of $499 to $599 to offer a substantial jump in graphics. The Wii U is anticipated to be around the level of the Xbox 360 and the PS3, probably somewhat better, and the price tag will probably be in the range of $299 to $399, or maybe even more.

I think this is the wrong direction for console hardware. The sales figures should be telling us that customers thing games are priced too high already, which is why they're buying fewer of them (and buying a lot of used games). Higher resolution means higher development costs, too, and publishers are already seeing budgets that make it very difficult to turn a profit on most games.

The big threat to the current console generation is coming from tablets, smartphones, and connected TVs. They all share the same basic ARM technology at their core, which is very low-power and inexpensive. The smartphone/tablet/connected TV market is an order of magnitude or two larger than the console business, which by the inexorable laws of high-tech manufacturing means the console business won't be able to compete on price-performance. Look, an Apple TV is $99, and with the next generation of chips in it the Apple TV can outperform a Wii, graphically.

Microsoft and Sony, at least, have been working hard to build a compelling online experience and a big audience for Xbox Live and PSN. They should leverage that by expanding the variety of software available to their customers. Open up the development for your platforms, make it easier and cheaper to create titles or all types. Encourage more hardware add-ons. Make a new generation of your consoles, but focus on making them more flexible, extendable, and cheaper. Heck, switch over to ARM chips to get the same cost advantages as the smartphone folks. (Microsoft, you're in bed with Nokia... use their manufacturing expertise. Sony, you've got a deal with Ericsson...)

Microsoft and Sony have the advantage of an existing large audience and the market share and the branding. Don't wait around for Apple and Google to steal those things from you. Push your consoles down in price faster. You can make a more expensive, spiffier one if you really want to, but before you do make the $99 Xbox 360 or the $99 PS3. Make it easier to use network storage, cloud storage, or to plug in a USB hard drive or flash memory. Use your motion control to create a smooth interface to all different media. Microsoft, exploit that Windows Phone 7 connection. Sony, bring Android in to the PS3 and embrace that wholeheartedly. Imagine Sony being the first to bring the Android Market to the family room with games designed for the HDTV screen... they would dominate before Google even has a chance to get started.

Yes, I understand this requires throwing some cherished business models into the compost pile. Recycling those business models should provide a rich fertilizer for the growth of your new business models. If you wait to see whether the traditional new expensive console will fly, it will be too late.

Nintendo, you guys are so far behind Microsoft and Sony in embracing the new digital reality I don't know if you can catch up. You seem to have become aware that something is seriously wrong, which is good. You'll need to make a drastic move to catch up, let alone pull ahead. Start thinking big; call Apple and see if they want access to your brands. Cut a deal with Apple and gain all the manufacturing scale advantages Apple can offer. You can give their technology the very best gaming brands in existence. The combination would be very hard to beat, but it's going to require some daring, unconventional thinking and dealmaking.

I really don't know what's going to happen over the next few years, but if the traditional console makers stick to the traditional game plan, I think they're going to be in deep trouble. If they get creative, they could see a new era of growth. Grab some popcorn; it's gonna be a really good show.