It’s game over for John Riccitiello.
The Electronic Arts (NASDAQ:EA) CEO is set to resign at the end of the month, prompting a wave of arguments about the future of the gaming industry. (To be fair: That’s been going on for a while.) EA might have had two of the top three games for the month, but February sales slid 25% year-over-year. As gamers look toward a new generation of consoles, what’s next for video games?
This company could use a 1-up right about now. Despite dominating the latest generation of console sales (the Wii outsold the Xbox 360 and PS3 by almost 30 million units each), Nintendo has been falling down the warp pipes. The stock is down 26% in the past year, and has lost 81% since late 2007, when the stock was rocketing on sales numbers for the Wii and DS.
The Wii succeeded because of its intuitive, easy-to-use design; the Wii U’s selling point — a giant touch-screen in the center of the controller — sacrifices the Wii’s greatest strength in the name of innovation. A long-term recovery might be possible as game developers get more familiar (and thus more creative) with the console’s asynchronous design, but it might be a case of too little, too late.
Nintendo is the only video game pure play of the three, and thus the most affected by the state of the market. If the Wii U doesn’t make a comeback, Nintendo could go the way of Sega, dropping hardware (or at least consoles) altogether.
Sony and its gaming rival Microsoft are more insulated from the whims of the gaming industry, thanks to diverse businesses. However, both face their own challenges.
After a rough end to 2012, Sony’s stock has started clawing its way higher. SNE is up 56% YTD, thanks largely to the surprising success of the Xperia Z, which has been selling out in a number of countries.
Optimists (or maybe just God of War fans) might also attribute Sony’s recent success to the long-awaited announcement of the PlayStation 4. But I’m not sure the PS4 had that much of an influence on SNE stock, compared to the Xperia. The gaming community was unimpressed by the console’s specs compared to high-end gaming PCs, and frustrated that we didn’t actually see the console.
As for Sony’s gaming future? PS3 gamers have a reputation for being the most “hardcore” (read: particular) of the console gamers, and I think that will translate into many of them switching over to high-end PCs that can handle cutting-edge gameplay. There might be enough original PlayStation gamers out there to make the PS4 do decent business, but I don’t expect any record breaking.
The current console generation is in its endgame, and Microsoft’s Xbox 360 holds the advantage. Interestingly, much of its success came from peripheral features, not games. Early adoption of apps like Netflix, Hulu Plus, HBO Go and YouTube made the 360 an all-around entertainment system.
Microsoft has had a bit of a volatile year, but is up 6.5% since setting a 52-week low in early December. After modest results from Windows 8 OS and Windows surface, the company could use a boost from the next generation of gaming. So far, Microsoft hasn’t released any information about the 360’s successor, but right now, the console race is theirs to lose.
If Microsoft wants to stay ahead of Sony and Nintendo, it needs to keep giving consumers a variety of easy-to-use entertainment options, supplemented by the success of multiplayer-heavy series like Halo and Gears of War. And unlike Sony, Microsoft straddles a broad range of gamers between hardcore and casual, who are less likely to head toward more expensive gaming PCs.
Mobile games have taken a hatchet to the gaming industry, especially portable gaming systems. Economics has been the hidden factor in that race — who would pay $250 for a 3DS or PS Vita, when you can download Angry Birds for 99 cents? (Answer: Me, and a very small number of friends.)
Console gaming also faces disruption from two works-in-progress: the Ouya and Valve’s Steam Box. The Ouya works with a simple premise: Bring the ease of mobile gaming to a bigger screen. It offers the simplicity (and low cost) of mobile gaming on your enormous HD television by allowing users to download games directly from the Internet. The production was funded on Kickstarter, and the first consoles are due out this month.
The other player lurking in the shadows is Valve’s Steam Box. The company — which has found enormous success with its digital download service, Steam — considers the shift from consoles to PCs as inevitable, and plans to offer gamers a bridge between the two. The Steam Box is a high-end PC that you can plug directly into your television, just like a console. Like the Ouya, Valve’s Steam Box will play digital downloads, eliminating the need for physical discs. So far, no official details have been released.
When Nintendo announced the Wii, with its poor specs and odd controller, people laughed … until the system went flying off the shelves. Gamers are a fickle and capricious lot, so any of these companies could find themselves with the next big hit.
My money’s on Valve. I think they’ve proven their business acumen with Steam, and having gamer Gabe Newell as CEO will help translate their success with software into a great gaming system.
As of this writing, Adam Benjamin did not hold a position in any of the aforementioned securities. However, he does hold more than a dozen years of fond Nintendo memories.