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Console Exclusives and the Future of Games

January 6, 2007
A recent excellent discussion on the 1up Yours podcast got me thinking about how the market for gaming hardware is likely to shake out in the next few years.
 
I am convinced (and I think this was the consensus in the podcast as well) that exclusives in the next generation will be limited to first party games and low budget games unlikely to have wide appeal. Economics dictate that developers will want the widest possible market for their games and exclusivity is anathema to that. Paid exclusives are unlikely to be a winning proposition for console manufacturers: the size of the market means that no individual franchise will have the power to make a console dominate (i.e. GTA and the PS2). Without that, the first order economic inefficiency of paid exclusives will doom them to extinction (the console make must pay money not as an investment on which it might earn a return, but simply to make its rivals worse off—which smacks of inefficiency).
 
The net result: because exclusives are limited to first party titles (for all practical purposes) they become just another means of differentiating a console, on the order of Blue-Ray for Sony or a really mature online service for Xbox, or an new control scheme for Nintendo.
 
Because great software has always been the most powerful driver of hardware sales, the significant decrease in exclusives all but dictates that there will be no dominate next gen console. Someone will inevitably “win”, but not in any way that is likely to mean anything, i.e. by causing game developers to skip making games for other systems. (Note that Wii’s price and control scheme differentiation could put it in an entirely different market altogether—something I’ll be interested in watching.)
 
In general, having the vast majority of games available on all systems is a good thing: it makes the hardware market much more competitive in price and other features that console manufacturers must use to differentiate their products. No longer are people likely to buy a system just because it has so many more games they want to play that are simply not available on other consoles. SOME people will buy a system because a favorite game is exclusive to that system, but many more will be pushed to a system for one of many other possible reasons: a lower price; or a better online experience; or a Blue-Ray drive; or graphic effects. Software becomes just another reason to buy a specific console rather than the dominant reason. Sure non-lead SKU games may not look as good on the non-lead SKU consoles. But all this really means is that people can no longer buy one console confident that all games will look the best on it. This seems like a small price to pay for the ability to choose a console based on a whole host of other features in a newly competitive console hardware market.
 
The net result: a wider variety of features in consoles and lower prices (all other things being equal).
 
I’m less sure of what this means for PC games, but here is my guess: almost all top-selling console games also become available on the PC. Microsoft is taking pains to unify the development platforms for the PC and Xbox, so if the Xbox 360 gets the vast majority of games (for the reasons given above), then they will be RELATIVELY easy to port to the PC, especially with Vista. We’ll be able to play games where we’re most comfortable doing so, at a desk in the den or a HDTV in the living room. The choice of where we play games will be dictated by (i) physical comfort (I don’t really want to play a RTS game on a TV with a controller and I don’t want to play a basketball game with a friend in the den in front of a monitor), and (ii) financing (would I rather invest more up front in a PC and buy cheaper individual games (without built in licensing fees), or buy a cheaper, subsidized console and pay about $10 more for each game). I’ll also bet that the use of virtual machines on PCs (that assume certain standard hardware) will severely decrease the pain of running games on PCs, at the cost of making due with console-like graphics and sound rather than the cutting edge.
 
One of the ways console manufacturers are already improving their products is in the area of software to allow the consumption of other media using the console. This will become more important as specific game titles become less important. But also as the population using consoles ages. On any given evening, I’m now as likely to use my Xbox 360 for downloading video clips as playing a game—especially when used as a Media Center extender, but I digress! Consoles connected to the internet server as a very user friendly way the view and obtain many types of digital media: (i) they have the power of the PC; (ii) they have good audio and video components; (iii) they have the reliability and WAF of a consumer electronics device; (iv) they can be updated with new features and capabilities as time passes (see the Xbox 360’s dashboard updated); and (v) they already have nice 10-foot interfaces.
 
The net result: significant convergence of PC’s and consoles for games and media. We’ll get to consume each in the places and manner we prefer. I think this would be a great result—and all driven by the loss of exclusives!
 
Incidentally, if my predicted results come to pass, it will certainly vindicate Microsoft’s decision to enter the console space as this will significantly increase the market for their software—development tools and operating systems for all types of computing devices.
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