Experts Weigh in on the Console Wars

Now come the days when gamers unleash their inner Cartman, lining up outside department stores and murmuring “Kehm-ON!” every few seconds through gritted teeth as they wait to buy the Nintendo Wii (in US stores on the 19th) or the Sony PS3 (hitting US shelves tomorrow) or both, camping there if necessary, occasionally enduring drive-by shootings, and even hiring the homeless to wait in line.

Over the last few months, I’ve already made my take on the next-gen console wars fairly plain: Xbox 360 will perform strongly, fueled by its one year headstart, while the Wii will roar; after an all-too-brief crush of purchasing by Sony ideologues, the PS3 will fall far behind in sales, and meet disaster, relative to expectation. If I had to guess the next-gen install base in the US by the same time next year, right now I’d say it plays out this way: 360 and Wii taking some 40% of the market each, and PS3 with a partly 20%.

Rather than editorialize any further, I’ll turn over the microphone to three top game industry analysts, to get their own take on the season. After the break, valuable insights on the hard numbers behind the waiting lines, from a trio of gentlemen who know the economics of gaming from the inside.
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David Riley, Senior Marketing Manager, NPD

The playing field now:

Install base (units sold in retail) through October ’06, according to NPD:

PlayStation 2 – 35 mm
Xbox – 15 mm
GameCube – 11mm
Xbox 360 – 2.9mm
This season’s forecast:
It’s too early to tell until we have definitive shipment numbers but it goes without saying that we can expect both the Wii and the PS3 to fly off the shelves this holiday season. However, don’t let the buzz around the two new consoles detract your attention away from the Xbox 360, which has several factors working in its favor. Beyond the fact that it’s Live service is phenomenal, it’s had a year to mature in retail, working through various hardware issues and building an impressive library of titles. All of this should help boost its install base in the U.S. significantly.

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Alexis Madrigal, DFC Intelligence

This season’s forecast:
The Wii and PS3… will be in fairly limited supply and the key goal will be creating “buzz.” With the Xbox 360 the system has built a solid library of software and there is a real opportunity to continue building on the installed base. In that sense, I don’t think any one system will be the strongest. If you are looking at buzz it is the new products, if you are looking at a new system with a big software library and an established track record it is Xbox 360. Throw in the PS2, DS and PSP [handheld consoles] and consumers have a great deal of options to choose from this holiday season.

Mistakes and missed opportunities:
It would be easy to point to the PS3’s limited launch shipments and delay in Europe, but that will most likely be pretty minor in the scheme of things. The biggest potential missed opportunity would be if this holiday season Microsoft failed to capitalize on building a lead on the PS3 before it gets a chance to really get rolling. However, we won’t know if that occurred until next year.

The long view:
We try not to speculate on the whole market share and winners-versus-losers game. By November 2007 market share among the three major players will probably be a pretty meaningless figure. It probably will not be until 2008 until we can make some meaningful judgments about the long term position of the different systems.

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Billy Pidgeon, Program Manager, Consumer Markets: Gaming, IDC

This season’s forecast:
While the PS3 will be number one on the wish lists of most core gamers, short supply will be snapped up quickly, leaving latent demand unfulfilled until 2007. Microsoft Xbox 360 will benefit from PS3 shortages and strong software support of titles such as Gears of War to provide a solid alternative to PS3 for those who must have a new high end console.

Due to pricing, novelty and a stronger supply than PS3, the Nintendo Wii will practically be an impulse buy this holiday for core gamers looking for a new kick and for family households. The Wii will be the hot gift this year. Sony’s PS2, PSP and Nintendo DS will also provide alternatives for loyalists who can’t get the PS3 or Wii they wanted.

Mistakes and missed opportunities:
Microsoft could have used more strong titles staggered from launch into holiday 2006 to keep momentum into the end of the year. Gears of War is a system seller and there are great titles like Ghost Recon Advance Warfighter and Rainbow Six, but 360 needed a stronger library sooner. Halo 3 would have done the trick, announcing the beta release was a smart move.

Sony’s PS3 launch run-up was a train wreck abetted by the media. The press wanted to give Sony a smackdown, and Sony gave them every opportunity. Sony was overconfident in PS3 production planning, and the worst mistake made was the one Sony had the least control over: poor yields due to component defects led to extremely limited supply. Sony should have been pushing PSP and PS2 harder as backup. PS2 still has great legs with mass market titles like Guitar Hero II.

The long view:
Supply constraints will skew the market share for the current console generations. Sony cannot make enough PS3 to take first place, but can be a front runner in 2008. Xbox 360 and Nintendo will be able to build strong installed bases with impressive libraries by fourth quarter 2007. This time next year we’ll see a real competition for market share.

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