In this exclusive report, we talk to Screen Digest's Ed Barton, whose latest research has found that publishers will see an "increasingly difficult environment" for making returns on next-gen investments, and claimed that PlayStation 3 will hold the largest market share by 2010, with the Wii a distant third.
The Screen Digest report at which Gamasutra has been given a sneak peek, 'Next Generation Consoles: Games publishing, hardware analysis and forecasts to 2010'
, is additionally estimating $13.9 billion in global sales of next generation software by 2009, with the overview comment: "PS2-style dominance will not be repeated in the next generation hardware market: we anticipate that competition will be far more intense with market shares split on a territorial basis."
Next-Gen Development Cost Woes?
"To give you a bit of background on how we did that model," Barton told Gamasutra, "given the increase of development costs for next generation games, what we found in doing a survey of publishers making the games, we gauged their opinion on how much development costs were to make a next generation title, since obviously one of the big stresses about publishing a next generation game has been, even throughout the previous generation, the rising cost of making a decent game."
"We took that cost and then modeled what we felt be the average price of a next generation title. Against that, we then set how many copies we thought would be needed to actually make a return on the title, as a percentage of what our forecasts were for next generation user-bases in what we feel is the key US market," Barton continued.
"Having seen what percentage of the user-base you would have to convince to buy a game and then having had a look at the incidents of console game 'hits' in the previous cycle - how many games are selling more than 500,000 or 750,000 or a million - we came to the conclusion that at this stage of the hardware cycle, unless you have a pretty serious hit which is selling serious numbers, there aren't going to be many titles that are going to be making that money back for the end of 2007, possibly going into 2008."
The Future Is Multi-Platform Releases
Asked if this meant that publishers were going to have to specifically focus on multi-platform releases, Barton agreed, "Third party publishers aren't so concerned about showing off the particular technical features of a particular console, these guys are interested in selling as many games as possible. With the size of the user-bases at this stage of the hardware cycle, then, yes, we believe this is an absolutely key strategy."
"This is why we think that you're now seeing a lot of games going multi-platform which were previously exclusive to a single platform, say PS3 or Xbox 360," Barton said, "however, you're also seeing a lot of them going, especially with the Nintendo Wii I would argue, going multiplatform across Wii, PS2 and even handheld platforms, simply because this gives you obviously a much bigger userbase. In terms of mitigating one's risk, in terms of the costs that one actually has to make on a game, this is a very important thing, definitely."
Sony's strategy for tackling the rising costs of development in this new console cycle, the report finds, has been to double the size of its internal studios since the launch of its PlayStation 2. The report notes that Sony's Worldwide Studios employ around 2,200 staff in 14 studios, all but one, it notes, are strictly devoted to PlayStation 3 development, a number only rivaled by third party publishers like Ubisoft and Electronic Arts.
By comparison, though with a number of large teams under its own wing, Microsoft has instead focused on "aggressively forged relationships" with third parties to create Xbox 360 exclusive titles, which, the report says, is already beginning to find success with games such as Gears of War
And finally, Nintendo's own strategy, the report says, has been to focus on "game play innovation" and has "shunned high-definition graphics, ensuring the cost of making Wii games has not increased as dramatically as its counterparts," a strategy Screen Digest says is similar to its own for the DS, "accessible hardware and software designed to appeal to a wider range of consumers, such as young women who would not usually consider gaming to be part of their lifestyles."
In looking at the group's predictions for regional market share by the year 2010, Screen Digest has shown the battle lines clearly drawn evenly between the PlayStation 3 and the Xbox 360, apart from Japan, where the PS3 shows a clear lead, while in all three markets, the Wii comes in a distant third.
With Wii continuing to lead in hardware sales throughout the holiday season, we asked Barton if the projections weren't a bit conservative.
Nintendo's Strategy - The 'Great Unknown'
"The one thing I would admit is that Nintendo's strategy with the Wii is, at the moment, the great unknown," said Barton. "Can they repeat the kind of success that they've had with the DS by applying that strategy with the Wii? Absolutely, if Nintendo can make this work on a home console and appeal to those demographics outside the core gamer constituency, the potential is absolutely huge."
"However, we also have a lot of faith in the ability of, in particular, Sony, which we see has really got a huge amount of development resources, and they are backing the PlayStation 3 to enormous unprecedented levels for a first party publisher," he responded.
"One of our core beliefs," Barton continued, "is that no one buys one of these plastic boxes on technical specs alone, people tend to buy them for content. Our forecasts at the moment are based on the belief that PlayStation 3 has this level of support. The numbers that we're seeing now for the Nintendo Wii, they've come out of the blocks fantastically strongly – no one would deny that – however it's incredibly early in the hardware cycle. There's still another five or six years to play out on this one, and the first big battleground will be Christmas of 2007."
"There's also a third pillar," he added, "in that the PlayStation 3, and this is also true for the Xbox 360, is, if you like, a domestic broadband hub, the magic box which enables a consumer to buy premium content delivered over broadband. And so, if Microsoft and Sony can execute and convince consumers to buy content delivered over broadband stored and played in the magic box, then this could grow the market for the particular games consoles, and also has an influence, in my opinion, on how the market will shape up over the next five or six years."
Why Wii Is (Relatively) Untrackable
Asked if the reservations with the Wii were based on its current inability to compete in that broadband content delivery method, then, or if it was based on previous Nintendo home console performance as well, Barton said, "I think that the non-gaming story is potentially an exciting one, and that the comparison to the GameCube is an instructive one, in that the GameCube also started incredibly well, but you have to take a view of what's happening more than a few months out of the starting gates."
"As market forecasters," Barton admitted, "it's very hard to take a view on a new strategy which is effectively what Nintendo are executing with the Wii. They've stepped aside in the graphical arms race, and improvements in graphical technology in a gaming sense has historically been what's driven market growth, and having seen what they've done with the Nintendo DS - which obviously they've executed fantastically, and which has basically created a new gaming phenomenon - we don't deny the possibility that this is a possibility with the Wii."
"But we need to see publisher support going forward," he added, "and over 2007, going into 2008, maybe there'll be various tipping points with publisher support on various big exclusives. We've already seen things like Dragon Quest
going exclusive on the DS, but if we see those kind of tipping points on the Wii, we'll have to amend our view, clearly. But at the moment, this is the view we're taking."
Tying together the challenges of rising development costs with the relatively modest costs for Wii development as compared the prior cycle, Barton added, "This is the massive positive point for the Wii, that it's basically cheaper to develop games for. As to whether more cheaply developed games can continue to drive Wii sales momentum, when you put it against the kind of games pipelines we're seeing for the Xbox 360 and PS3, I would argue that the jury's still out."
"With the Xbox 360, we've seen it for Gears of War
, and there's no doubt that I think Halo 3
will make our eyes bulge out in many and various directions, and that the gameplay will be fantastic," Barton confessed, "and we fully expect that Sony and their support for the PS3 will introduce another layer of hopefully exciting, new and innovative gameplay, which will hopefully drive sales and accelerate the install base."