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Xbox vs. PlayStation: Beginning of the End for Consoles?

Sony and Microsoft release their first video-game consoles in seven years, but they’re battling for a world of play that is rapidly changing.
November 22, 2013

This month marks a milestone in the turf war for the space beneath our television sets: it’s the first time that Sony and Microsoft have released new video-game consoles within a week of one another. The PlayStation 4 launched in the U.S. a week ago (and launches in Europe next week), while Microsoft’s Xbox One is available around the world as of today. Both systems are Blu-ray-playing supercomputers squeezed into similar-looking black plastic casing; both are designed to usher in a new era of high-definition, online-enabled video games.

game console graph

The consoles are a technological leap over their forebears, with broadly similar internal specifications (eight-core CPUs, eight gigabytes of RAM, 500-gigabyte hard drives). Each has a powerful external camera that facilitates facial recognition and allows some games to be played with the human body rather than a controller. Sony’s focus is on the core “gamer”: the PlayStation 4’s multimedia capabilities are still present but are pushed to one side in favor of games (both the hulking Hollywood-style blockbuster games and the smaller independent variety). By comparison, Microsoft’s more expensive Xbox One ($500 compared to $381) has a broader aim, acting as an HDMI-enabled set-top box as well as offering a vast array of non-game apps, from streaming TV and movie services to a camera-enabled fitness program.

Sony and Microsoft must court two separate groups with these machines: the consumers who buy them and the game developers who support them. Some developers believe that the increased power offered by these new consoles will lead to more compelling games. “It was such a pain to get high-detail games onto the last generation of games in practical terms,” explains Steve Gaynor, who worked on Bioshock 2 and the recent award-winning independent title Gone Home. “It meant that teams had to do a lot of hard work to get their games to look as good as they did. Now teams can spend their time just making stuff, rather than figuring out how to make it run on the hardware.”

Despite a recent tweet from Microsoft congratulating Sony on the successful launch of the PlayStation 4, this is a high-stakes battle. Video games have been the most profitable medium in  entertainment for decades now. In the early 1990s, Nintendo generated more annual profits than all of the American film studios combined. In 2012 the traditional video-game market boasted revenues of $58 billion, even excluding smartphone, tablet, and Facebook games. Since the first PlayStation launched in 1994, Sony has sold approximately 350 million video-game consoles, roughly equivalent to the total number of iPods sold by Apple up to and including 2012.

The battle is over the ownership of digital play in the living room—a battle that Bloomberg recently argued could lead to the decline and fall of Hollywood.

The sharp and ongoing rise in smartphone and tablet ownership has also vastly broadened the audience of gamers, as did Nintendo’s accessible Wii console (which lowered the barrier to entry by featuring a controller that would translate a player’s intent through mere swings of an imaginary tennis racket and thrusts of a virtual sword, rather than complicated button combinations). It sold 100 million units around the world.

But this rise in both profits and engagement is not the sole preserve of traditional video-games consoles. Downloadable games such as Angry Birds and Minecraft, which play on mobile phones and basic PCs, now constitute a major part of the industry (in April this year, Angry Birds developer Rovio estimated that its games have been downloaded 1.7 billion times, while in 2012, Minecraft earned its independent creator, Markus Persson, more than $100 million). Consoles now compete not only against one another for the prime real estate beneath the television set, but also against the convenience of phones and other ubiquitous video-game platforms.

Smart TVs—which connect to the Internet and come with their own clutch of accompanying apps and games—present another potential threat. PlayStation 4 and Xbox One have responded to this by including various apps that let users access Netflix, Hulu, HBO, ESPN, and more. Many industry watchers predict that Apple will enter the smart TV market soon. And as Internet connection speeds improve, a mainstream Netflix-esque streaming service for games seems increasingly likely.

Indeed, Sony acquired one such service, Gaikai, for $380 million last year. It’s a cloud-based game-streaming service that’s integrated into the PlayStation 4 and could, theoretically, make physical consoles obsolete. The announcement of the Steam Box console from the PC game distributor Steam presents yet another contestant in the ongoing war to own the living room.

Each new iteration of hardware brings a historical downward trend in console sales. Sony’s wildly successful PlayStation 2 sold 150 million consoles. Its successor sold 80 million. It appears that Sony and Microsoft both lose a lot of money on these devices. For these reasons, some people think this new generation of console hardware (including Nintendo’s beleaguered Wii-U, which has failed to capture consumers’ imaginations) may be the last.

For consumers, the decline in consoles is not only a symptom of broader choice (in the 1990s, consoles and PCs were the only way to play complex screen games) but also one of diminishing returns. Martin Hollis, designer of the seminal Nintendo 64 movie tie-in Goldeneye 007, told me: “With each iteration, the multiple of increased power matters less. Looking back, PlayStation 2 was a huge leap from PlayStation. But PlayStation 3 was a much smaller leap. Each time we climb a curve of diminishing returns.” Hollis, like many others, believes that most people who only casually play video games will remain unconvinced by the difference between the new versions of the consoles and the previous ones.

Not everyone is so gloomy about the future. Sony Computer Entertainment America president Jack Tretton believes the traditional console market will continue, despite the cultural switch to cloud-based streaming services across all entertainment, from books to music to films to television. “I’ve managed to ride the ‘last console’ wave for the last, what is that … 27 years or so?” he says. “There’s a reason the console came about: [People like] sitting in front of a big-screen TV on a couch with [their] friends.”

Tretton’s position is unsurprising considering his vested interest, but the U.S. sales figures from the week after the launch of the PlayStation 4 justify his confidence. Sony announced yesterday that more than one million PlayStation 4 consoles were sold to consumers in the first 24 hours of availability. Nintendo’s hugely popular original Wii, which launched in North America on Black Friday 2006, sold a comparatively measly 600,000 units in its first eight days. Some might argue that the figures bear testament to Sony’s improved logistics around the launch: it shipped more PlayStation 4s to retailers, therefore more were sold. But there’s no dispute that there’s a healthy consumer appetite for the technology. The question now is whether that appetite will grow in the face of a smorgasbord of technological choice.

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