Should Valve Build a PC Gaming Console?

by Brad Moon | March 9, 2012 1:51 pm

Talk of new video game consoles in the past six months has been largely centered on Nintendo‘s (PINK:NTDOY[1]) forthcoming Wii U and the possibility of Apple (NASDAQ:AAPL[2]) eventually enabling app capability (and therefore casual gaming) on its AppleTV set top video-streaming box. All has been relatively quiet around Sony (NYSE:SNE[3]) and Microsoft (NASDAQ:MSFT[4]), the other big console makers.

As the annual Game Developers Conference approached its March 5 start date, a rumor showed up on The Verge[5] claiming that Valve (the company that operates the popular Steam PC game-downloading website) was considering a move into gaming hardware with a “Steam Box.”

Specs were floated around, and Dell‘s (NASDAQ:DELL[6]) Alienware division was discussed as having possibly already designed a PC that meets the Steam Box specs. At GDC this week, Valve execs put the rumor to rest (while leaving just a little wiggle room), saying the company is far from shipping any sort of hardware.

Since no one has outright said “never,” it’s worth asking the question: Would it make any sense for Valve to eventually offer a Steam Box? There are a number of problems with the idea, but also some arguments in favor.

Forbes crunched the numbers[7] and came out at a starting price of $699 for the Alienware PC. That sounds like a lot considering that the Xbox and PS3 sell for less than half that. However, both these consoles were much more expensive on introduction than they are now, and manufacturers initially sold them at a loss to keep the price from being even higher.

Valve could follow the console-industry lead and sell the rig at a loss to make it competitive with rivals, at least until component costs and production volume bring the price down.

Sony lost money on every PlayStation3 it sold on release — a whopping $225 to $305 (depending on the model), eventually trimming the loss to $18 by 2010 before finally starting to turn a profit. Microsoft lost $100 per console on Xbox hardware at the time of release but turned that to a $75 profit within a year and a half.

This strategy requires deep pockets, and even though Valve co-founder Gabe Newell’s 50% stake in the company is worth an impressive $1.5 billion, it’s doubtful Valve could survive an extended period of subsidizing its hardware. Sony and Microsoft were also able to partially offset their losses by charging a license fee for games on their platforms.

Is the PC gaming market even worth the trouble? While console makers had a lackluster year of  discounted hardware prices, the global PC gaming market grew by 15% in 2011, generating $18.6 billion in revenue. So the market is there.

For gamers looking for cutting-edge graphics, deeper game play and more nuanced controls than a joystick offers, consoles are out and PC games are the only option. Sony has moved 62 million PS3s, Microsoft’s Xbox 360 has hit the 66 million mark and Nintendo’s Wii — though sales are fading fast — has managed 95 million sales worldwide.

PC games don’t necessarily compete directly against consoles (though there’s some market overlap), with hard-core gamers often owning both. So those millions of console owners could also be potential Steam Box buyers. That’s a lot of potential revenue. And with a massive library of existing PC games available at launch (many of them downloadable through the Steam service), Steam Box buyers would have no shortage of titles available.

However, the likelihood of people buying what is essentially a compact desktop PC to play PC games on their HDTVs seems small. Even if Steam Box hardware ended up being significantly cheaper than other computers, there’s always been an aversion to bringing keyboards and mice into the living room — and those are required to play most PC games.

Even the idea of Valve creating a specification for a living-room-gaming PC (instead of shouldering the manufacturing and distribution costs) runs into the same issue. While TV makers are talking up gesture-based and voice-activated controls, the idea of a full-sized keyboard and mouse crashing the party is pretty much a nonstarter.

Endnotes:
  1. NTDOY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NTDOY
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  4. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  5. a rumor showed up on The Verge: http://www.theverge.com/2012/3/2/2840932/exclusive-valve-steam-box-gaming-console
  6. DELL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DELL
  7. Forbes crunched the numbers: http://www.forbes.com/sites/erikkain/2012/03/04/does-a-steam-box-console-from-valve-make-sense/

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