Wedbush: Xbox 360 Dominates Through 2007, PS3 Winner Overall

In a 188-page report issued by share-oriented analysts Wedbush Morgan Securities (WMS) and obtained by Gamasutra, analysts Michael Pachter and Edward Woo predict that the Xbox 360 will lead over the PlayStation 3 for at least two years, but that by the end of the next-generation console cycle, the PlayStation 3 will retake its position as the market leader. The report details its prediction that a major factor in determining superiority in the next console generation will be the outcome of the coming high-definition DVD format war between Sony and Toshiba involving the dual HD-DVD and Blu-Ray formats. WMS surmises that Sony purposefully delayed the PlayStation 3, and in so doing let Microsoft get onto the market first. According to Pachter and Woo, this was in order for Sony to eventually come to retail and dominate the high definition DVD market with its console and associated Blu-Ray playback functionality, offering the new technology at a cheaper cost than stand alone Blu-Ray players on the market. The move by Sony to market the coming console platform as a multimedia device is not unprecedented. The company positioned the PlayStation 2 in 2000 as a DVD player, a move that not only gave it an edge over the competing Sega Dreamcast, but also allowed the console to be stocked by stores that would not otherwise sell game consoles. This new technology could result in slower sales for the PS3, however, as the report points out that while the console will function on a standard 4:3 television, most consumers who are willing to buy Sony's next-generation offering will want to take advantage of its HD capabilities, and thus will be more inclined to hold off on purchasing the PlayStation 3 until they have purchased an HD television. In this way, Nintendo's newly renamed console, the Wii, is poised to fill the gap, as it will not require, or take advantage of HD technologies. Even so, the report indicates that the firm believes that once again, Sony will emerge as the winner by the conclusion of the next-generation “console war”, stating: "We expect the dominant console at the end of the next cycle to be the Sony PlayStation 3 (PS3), primarily due to our assessment that Sony will win the high definition DVD format war." However, while the report does predict that Sony will come out on top in the end, it concedes that Microsoft will enjoy a two year stint at the top with its Xbox 360, taking in an impressive 42 percent of U.S. and European combined next-generation hardware sales through 2007. The firm suggests that the PS3 and Nintendo’s Wii will garner 39 percent and 19 percent share respectively during this time. However, once consumers have adapted to the next-generation platform shift, the report indicates that Sony will overtake Microsoft, taking 45 percent of the market, leaving 35 percent to Microsoft and just 20 percent for Nintendo through 2010. Things are expected to be even more unbalanced in Japan, where Pachter and Woo suggest that Sony will own a full 65 percent of the market through 2010, and Nintendo around 25 percent. Microsoft is further marginalized in the Japanese equation, with just 10 percent, echoing the Xbox 360's lower presence in the country today. While the report suggests that a key factor in the PlayStation 2's dominance over the current console generation was Sony's ability to tie up exclusive licenses for the platform, WMS is less sure of the company's ability to repeat this over the next console cycle. Much of this has to do with the perceived similarities between the PlayStation 3 and the Xbox 360: “We are less certain that Sony will be able to secure third party exclusivity for PS3 titles, and think that the company’s internal development efforts will be more focused on blockbuster games”, the report comments. As a result, the firm suggests this as playing to the advantage of Nintendo, with its distinctive first-party franchises and unique control scheme afforded by its upcoming platform: “We think that Nintendo’s Wii, backed by the company’s deep library of high quality content, may surprise many by gaining a greater share of the market than did its predecessor, the GameCube", the report concludes.