Filed under: Company News, Microsoft, Sony, Electronics, Investing
Well, it had a good, long life. At the beginning of 2013, Sony (SNE) halted production of its iconic game console, the PlayStation 2, after more than a dozen years on the market.
Its successor, the PlayStation 3, probably won’t even be around as long: The company introduced the PlayStation 4 at the end of 2013. Sony has pledged to support the PS3 (released in 2006) for “as long as there is a good business there for us.” It’s a rather tepid promise.
Most likely, by the time of its demise, PS3 won’t be the blockbuster its older brother proved to be. The latter’s total global sales were in the neighborhood of 160 million units. Now, toward the apparent tail end of its life, the PS3 has sold just something a bit north of 80 million consoles.
Dedicated consoles like the PS2 were nearly synonymous with video gaming earlier this decade, but competing platforms have eaten away at their dominance. And that chomping looks set to continue.
Losing the Game
The big two combatants in the console market are Sony and Microsoft (MSFT), which in line with its rival unveiled its own new-generation machine, the Xbox One, prior to last year’s holiday season. On the surface, both companies have so far enjoyed smashing business with their latest models, moving millions of units.
However, zooming in a bit on those sales reveals some cause for concern. According to popular IT news website Tech Crunch, parsing data from researcher NPD, around 271,000 PS4s were sold this past January.
For January 2007 — the month just after the previous generation of consoles (PS3, Xbox 360, etc.) were introduced — the figure isn’t much higher than the PS3’s tally of 244,000, and it’s beaten by the PS2’s nearly 300,000. Remember, at that point PS2 was yesterday’s model for Sony.
The numbers for Microsoft are more stark. January saw the company sell roughly 141,000 Xbox Ones — less than half of the 294,000 in sales of the then-fresh Xbox 360 the same month seven years ago.
Worse still is the tally for the once-mighty Nintendo (NTDOY). Back in early 2007, the company’s then-new, innovative Wii ruled the January sales charts with around 436,000 units sold. Fast-forward nearly seven years. Nintendo’s current-generation machine, the Wii U, sold only around 49,000 units in January 2014.
Xboxed In
Those declines are symptomatic of a market squeeze. Segments that house cheaper, less involved gaming options such as mobile apps have surged. According to the Entertainment Software Association, these days 44 percent of gamers use smartphones as a platform for at least some playing.
No wonder certain operators in this segment are raking in the bucks. King Digital Entertainment (KING), creator of the addictive Candy Crush Saga, nearly tripled its gross bookings on a year-over-year basis in its first quarter of 2014, from $219 million to $641 million.
Candy Crush Saga follows the modern trajectory for video game success, which often cuts consoles out of the scene entirely.
Candy Crush Saga follows the modern trajectory for video game success, which often cuts consoles out of the scene entirely. In 2012 it debuted as a playable add-on in Facebook (FB). Several months later, King Digital released app versions of the title. These days, Candy Crush Saga is available for all major mobile operating systems on the “freemium” model (it’s free to download, but selected in-app options must be paid for).
Meanwhile, at the higher end of the spectrum, many dedicated gamers eschew consoles for tricked-out PCs. These machines, rigged with state-of-the-art CPUs and video cards, can produce a richer and more immersive experience than an Xbox or PlayStation.
These serious players spend serious money on their gear. A report from Jon Peddie Research reveals that they shelled out around $20.7 billion for this hardware in 2013.
The top and bottom ends of the market aren’t small. According to industry observer Charles Sizemore of Sizemore Capital Management, at the moment high-end PC gaming comprises roughly 20 percent of the market, with mobile gaming apps taking around 17 percent.
Playing a Brand, Not a Box
This squeeze has led to some dark mutterings that this current generation of video game consoles — the eighth, for those counting — could be the final one. Even the top manufacturers hint at such a future, with Sony saying last year that PlayStation will likely evolve into more of a service brand than a piece of hardware.
So the consoles are still hanging in there, but their glory days do seem to be over. They did well while they lasted. Anyone up for getting out the old Xbox for a nostalgic Halo death-match while we still have the gear?
Motley Fool contributor Eric Volkman owns shares of Facebook. The Motley Fool recommends Facebook, and owns shares of Facebook and Microsoft. Try any Motley Fool newsletter service free for 30 days.
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