This have been predicted before, but now more than ever, Sony, Nintendo and Microsoft need to start thinking of how to move forward when the inevitable occurs.
The PS3 and Xbox 360 will remain on the market much longer than the previous consoles, and by the time Xbox 720 and and PS4 arrive, online gaming and distribution will be so advanced that it would be a bad investment for the big three to invest in yet another batch of consoles after the 8th generation.
Investment bank IBIS Capital recently released a global review of video games fundraising, investment, M&A and JV opportunities, and Corporate Finance Director Tim Merel spoke on the changing games landscape and the difficulties console makers will inevitably face.
“The video games industry is big, getting bigger and changing, with console game costs, revenue and risks accelerating and online/mobile games growing and fragmenting the market. Investment dynamics are entering a new phase, and deal activity is being driven by subsector consolidation,” Merel said.
For now, Merel sees the traditional console market as a safe haven, in the long haul however, he thinks it’s a much more complicated situation, one the big three need to start worrying about not tomorrow, but now.
“The pure console sector will remain the largest, low growth sector, where major video games companies have converged on ‘fewer, bigger, faster’ video game franchise refreshes. This makes perfect sense in the short to medium term, as it maximizes earnings and minimizes risks. However, it is a high risk strategy in the long term, as churning out the 25th incarnation of most franchises won’t cut it. If the games business is all about innovation and new unimagined games experiences driving growth, the majors risk becoming like old media companies. Cash generative, but declining and cost driven,” he said.
Merel added: “Downloadable content (as with Valve’s Steam) and actual delivery of PS3/Xbox360 quality games via broadband without a console (as with the anticipated OnLive launch) are challenging traditional game distribution and console hardware platforms. There are concerns about bandwidth requirements and usage restrictions, but increasing broadband speeds in developed markets should address these in the medium term. So while it appears that there should be an 8th console cycle starting in 2013-14, there are now question marks over whether there will be a 9th console cycle at all. If the next console cycle is the last, it would create potentially significant long term issues for Sony, Microsoft, Nintendo and GameStop amongst others.”
Find the full quencher on Merel’s commentary on investment in the gaming industry through here.
