The AppleTV As Dominant Game Platform?

Part of the Apple announcement included a demonstration of gameplay. People expected this to be part of the package, and there has been a lot of talk about the AppleTV vs. the consoles like PS4 and XBox. An article such as this is typical, as as some of the comments that follow in them, but in some ways most of those defending consoles are missing the point, or making assumptions about the future.

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Portable Gaming: Are Nintendo and Sony Paying Attention?

A recent Engadget article discusses the mobile gaming strategies for the “Big 3” of console gaming: Nintendo, Sony and Microsoft. Microsoft, like Apple, views their Windows Phone platform as a venue for gaming on the go. Nintendo and Sony, though, seem to be living in a serious reality distortion field.

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Portable Gaming is Another Big Mobile Battleground

Apparently Satoru Iwata, President of Nintendo, was giving the keynote at the Game Developer’s Conference at the Moscone Center, basically across the street from the Yerba Buena Center where Apple was announcing iPad 2. While I haven’t heard in detail how much the Apple event impacted attendance at Iwata-san’s talk, I’m sure it had some impact. It was, in some ways, a small vignette in the continuing and growing battleground in portable gaming. I haven’t really dug deeply into the numbers in the portable gaming market, but what data I have seen is telling. The main upshot is that the iPhone has taken a piece out of the market, and away from the Nintendo DS series of portable game consoles and the Sony Playstation Portable line. If you believe some numbers, there are increasing numbers of people playing games on the iPhone and iPod Touch than on the traditional portable game machines, and apparently more game developers are showing interest in iOS devices than Nintendo or Sony.

This battle has been underway the moment the first games were released for iPhone and iPod Touch, but it has only been in the last year or so that iOS has started to take some significant share in the space. This is an important battle, particularly for Nintendo. The DS is a huge platform for gaming, and not just portable gaming, but gaming in general. According to data at VGChartz.com, as of February 19th, the Nintendo DS represents nearly 69% of portable gaming consoles, with 145.5 million units sold since its release. Compare that with the iPhone, which has now sold about 100 million units. Numbers from last September put all iOS device sales at 120 million units (that was combined iPhone, iPod Touch and iPad sales). That data is already 5 months old, so I would expect that iOS device sales have exceeded Nintendo DS sales. Granted, not all of those are used for gaming, but I would expect a significant percentage are, even if only for the occasional casual game like some form of Solitaire.

Okay, that’s interesting, but what does it mean? Gaming in general is a big business, worth billions of dollars in revenue. Sony has other revenue sources, given their broader consumer electronics base, and Microsoft relies on much more than the Xbox 360 for its revenue numbers. But Nintendo relies almost exclusively on game hardware and software sales. What revenue they get that isn’t for gaming gear is from licensed merchandise (like the Pokemon cards, clothes, etc) directly related to gaming. Where Nintendo may be the most vulnerable in the long term is in the casual game market: they pretty much own that in the living room and on the go. Having to compete with devices that, at least at the low end, are comparable or within a reasonable percentage price-wise, and have a large selection of games will be difficult for Nintendo.

However, all is not lost for the gaming companies, because their value really isn’t in the hardware. The real value, and the key to their long-term survival, is in their software and the game franchises. Some of the biggest franchises in gaming belong to Nintendo, Sony and Microsoft. The Pokemon series of games is exclusive to Nintendo, as is the Mario franchise. LittleBigPlanet is a Sony property. Halo is under Microsoft’s umbrella. These franchises, and the others that these companies own could keep them alive by adding support for iOS, Android and other mobile platforms.

I think that it would be foolish, in the medium and long-term, for Sony, Microsoft and Nintendo to try to compete on hardware. As with dedicated devices like eBook readers, they will find that trying to attract people to their platforms will be increasingly difficult over time. Their gameplay may be superior, but to also try to compete on general-purpose functions like web browsing, productivity, social media and other communications, becomes a very, very steep hill to climb. I know that I’m not sure if I will buy the next generation of PSP. I bought the first generation, and then got the PSP Go, and while they have games that I like to play on them that aren’t available on iOS, I’m not sure I want to kick out a few hundred bucks for a machine that I won’t use much, if at all. My PSP Go has stayed on my desk, battery drained, for the better part of a year now. It didn’t go with me on any of the trips I took over the past 12 months. Why bother? It’s another device and another charger I have to drag around. I already bring my iPhone, iPad and a laptop on some trips (and for casual/vacation-type trips, I only bring the iPhone and the iPad). I’ve been trying to bring fewer electronic devices with me, and I am disinclined to add a new PSP back into the mix.

This battle isn’t over by a long-shot, but I’m not confident that dedicated portable game consoles are going to continue to dominate portable gaming. They will probably still exist in some form for a long while. But I suspect general purpose mobile devices like smartphones and tablets will continue to erode their position. Watch for Nintendo to release versions of Mario and Pokemon games for other platforms in the coming years, and for Sony and Microsoft to eventually do something similar. It is their best chance at long-term survival.

Smartphones and Tablets vs. Dedicated Portable Gaming

An article on TechVibes does a pretty good job outlining some of the challenges that dedicated gaming platforms like the Nintendo DS family and the Sony PlayStation Portable are now facing. The main point is that the cost of the devices, along with the cost of a smartphone or tablet, will act as a barrier to adoption at the same rates as previous generations of the platforms.

What the author didn’t comment on, though, was the incremental cost of the content. This makes the case for the DS and PSP even worse: games for the DS and PSP are anywhere from two to nearly 10 times the cost of a similar game on the iPhone or iPad. Take, as an example, the Madden Football franchise. The upcoming Madden Football for the Nintendo 3DS is listed at CA$39.99 on the BestBuy.ca web site. On the Canadian iTunes App Store, Madden 11 (admittedly, a slightly different game) is listed at CA$4.99 for the iPhone version and CA$12.99 for the iPad version. Even buying the two apps (one for my iPhone and one for my iPad) is cheaper than buying the single copy for the 3DS.

This sort of price disadvantage can be found across a lot of games. A typical game for the PSP or DS can range in price anywhere from CA$25 up to CA$45, unless they happen to be on sale. Similar games on the iPhone range anywhere from CA$3 up to CA$15. The iPad versions are typically more expensive, coming in anywhere from CA$10 – CA$20, although most are closer to low end of that price range from what I’ve seen.

What does this mean for someone who wants portable gaming? That even the most expensive iPad (CA$879.99 for a 64GB with 3G) would be cheaper over the long run for gaming over an (estimated) CA$350 3DS, specifically because of the games. Consider someone who would end up buying around 50 games over a period of two years (basically a game or so each month). On the 3DS, assuming an average $30/game cost, that would mean a total cost of about $1,850 over two years. That same person with an iPad, assuming about $12/game, would have spent around $1,480, or just under $400 less. Now, for the 3G iPad owner with a data plan, that pushes the total cost to about $200 more over the two years.

If you work with the cheapest iPad at $549.99, then the cost difference is even bigger: the 3DS owner would have spent about $700 more. The most expensive WiFi-only iPad reduces that to a $500 differential, but in the end the iPad owner ends up spending less over the two years.

And in those two years, the iPad owner has had access to one of the largest media libraries available with iTunes, the ability to view movies and TV shows through services like NetFlix, and had all of the other benefits of a more general-purpose computing device that the 3DS owner either wouldn’t have, or would have in a more limited form. It is unclear if Skype will be available on the 3DS, but I can get it on the iPhone and iPad, and use it communicate with people on a variety of platforms.

Overall, like the dedicated eBook reader, I think that the dedicated portable game machine’s days are numbered. They won’t go away immediately, and there is still some life in them. But as the game libraries on platforms like iPad, iPhone and the Androids continue to grow, the case for having a dedicated machine (with another charger, and another system to maintain, and more space in the carry-on) becomes less viable.