I've discussed consoles from time to time - back in April I wrote a post explaining that consoles were well and truly dead as the vanguard of gaming. Today, anticipating the launch of the WiiU, I thought I'd explain again exactly how consoles died, what it means to be "dead" if there are still lots of console games available, and where we're going in the game industry.
Let's start with a historical recap - game consoles in the 80s and 90s made some money, but not a ton. There were a few consoles out at any given time, but they didn't compete with one another very much for market share - games tended to succeed or fail based on their own merit. The investment to make a game was modest, and the possible returns were significant - but not ridiculous.
As console games became more mainstream, the money increased - to the point where Sony and Microsoft decided to get into the console business. This signaled a major influx of money - and led to a MASSIVE increase in the number of consoles sold worldwide. Consoles became a really big business, and started butting up against one another for market share.
Then the insanity which was the PS2 happened (Hey, I wrote about that before, too!) and we had a "big winner" scenario, where 70% of the market was dominated by a single console, and a single company. Big money + big market share = INCREDIBLE amounts of money on the table. This was really the highlight of the entire console history.
To follow up the PS2, Sony and Microsoft both went huge. They created machines which were much more powerful, much more expensive, and which required much, much more investment to develop for. They increased the "standard" price of games from $50 to $60, backed a huge network infrastructure, and created strategic partnerships with other media. (Blu-Ray vs HD DVD). Everyone was expecting another big winner, and an ever-increasing revenue model.
But that didn't happen. Not by a long shot. Games became so expensive to produce, and required so much investment up front, that many fewer games were released to market. The average quality didn't really go up, so overall there was LESS money to be made of the games that survived. Both Microsoft and Sony over-valued their consoles, so sales were sluggish. Only the Wii, with their disruptive attitude towards technology, made any money. (And they made a ton!) Eventually Sony and Microsoft were able to turn things around - through cost reductions, better game support agreements, more open submissions, more digital distribution, and so forth. But it was hardly the money bonanza investors were anticipating back in the PS2 days.
Into this sluggish console space a new player appeared - smartphones and facebook. With the iPhone especially, a huge amount of leisure and gaming money started going to iPhone Apps. 99% of game development investments started going towards these new models. Only 1% has been invested in future console development. Consumers have not seen the effects of this yet, because games often take a few years to make. But game development for next-gen consoles is 10% of what it was during a comparable period in the last cycle. Investors are simply not interested in placing ever-increasing bets on styles of play which are already barely profitable.
We'll still see new consoles, but they can't remain profitable under their old revenue model. We will see an inexorable move to free-to-play, freemium, streaming, and other alternative models. It's not clear what advantage consoles have over PCs, tablets, and smartphones when selling to those models - that's very much a wait-and-see scenario. But I think it's safe to assume that at least 1 or 2 of the new consoles will embrace those models.
More than ever before, I'm glad that my new projects are all outside the console space. I'll still buy and play console games - but I'm not going to be looking to console development as a way to pay my mortgage for at least a year or two.