Home entertainment has always been a ruthless business, but games consoles’ 50-year territorial war for the living room has been endlessly brutal.
On screen, it is fought with chainsaws, battleaxes, plasma rifles or the Poltergust 3000 spectral vacuum cleaner. Behind the scenes, though, is an even bloodier conflict fought with long-term bets on technology, balance sheets, exclusivity agreements and games so intricate that they require 1,000-strong armies of staff to produce.
The casualties are frequent. Who remembers the Casio PV-1000, the Timlex Mega Duck and the Bandai Playdia? Each may have briefly imagined themselves as rivals to the Nintendo Entertainment System or Sony PlayStation, but some barely made it out of the stores. Fizzled offerings from Apple, Panasonic and Sharp prove that even titans of consumer electronics have stumbled when it comes to games.
But whereas the fight used to be between competing machines, analysts say the looming battle is about whether the pace of technological change and the nature of the games themselves could make consoles redundant.
The gaming world is “poised to undergo a transformation not seen since the advent of mobile phone games” 20 years ago, wrote Candice Mudrick, an analyst at industry research group Newzoo, in a report on what has been dubbed “cloud gaming”. The threat to traditional console hardware sales, she told the FT, “is very real”.
Using cloud technology, gamers — anywhere in the world with a strong enough internet connection — could theoretically stream, rather than download, high-end games and play them in real time over the web on any device, as they might a Netflix drama series.
In October, Microsoft unveiled a “vision for the evolution of gaming” similar to the way that music and films are now available on demand and accessible from any screen. Keen to reverse the disappointment of its Xbox One console, a machine whose sales figures Microsoft stopped releasing a year after its launch in 2013, its Project xCloud will trial next year, but the ambition sets the scene for a world either without traditional consoles, or where their dominance is mortally wounded.
The disruptive implications of cloud gaming are huge. The console model, at its heart, is about control of the medium through which the principal revenue stream — the games — are channelled. If the medium is rendered irrelevant by cloud gaming, games studios such as Electronic Arts and Activision may decide to offer their wares without the middleman. Sony and Nintendo are both games makers in their own right and may yet find a profitable cloud model; Microsoft has been buying up games studios to give itself a stronger in-house portfolio.
The advent of 5G broadband could accelerate the process. The ability to stream, and the diminished need for an independently high-powered, high-memory box sitting under the TV, poses a major threat to a global consoles market worth $34bn a year in hardware and software sales. After eight cycles of consoles the industry may currently be building the last generation of devices that can credibly use that name.
To some, that prediction seems wildly premature. Broadband may take more than a decade to be both fast enough and sufficiently available to make cloud gaming a viable offering for the narrative-heavy games that draw fans to consoles. And despite what might be around the corner, this remains something of a heyday for console makers.
Newzoo predicts revenues for the console game market will grow 15.2 per cent this year compared with 2017. And while mobile gaming, both in terms of its global user base of about 2.1bn and annual revenues of about $60bn, may have expanded spectacularly in recent years, that has not come at the expense of consoles. On the contrary, says Serkan Toto, a Tokyo-based consultant to several games companies, it has probably helped to broaden the audience.
The three main console makers are the ultimate survivors, say analysts, and are determined to maintain their market position. Kenichiro Yoshida, Sony’s president, in an interview with the FT in October scotched speculation that the day of the console was numbered by confirming that the company was working on a successor to the PS4 that analysts believe could be ready by 2020.
Nintendo’s console business also looks robust. The Switch, which works as both a home console and a portable device and is the exclusive home of Mario, Zelda and other hardware-shifting franchises, has sold nearly 23m units since its launch in 2017. Its own sales forecasts suggests it could sell a further 10m over Christmas and analysts say it could have an active life of about seven more years.
Both companies are also getting better at monetising the content, developing new revenue streams beyond the mere sale of the game itself. The current pipeline has supplied a thick flow of apocalyptic wastelands, top-level football, Pokémon and mythological Norse slaughter — the precise formula on which the industry thrives. When Sony released its exclusive Spider-Man title in September, it broke records by selling 3.3m copies in three days.
“Cloud gaming will come. There is no way around it. There is a broad consensus that this is the future of gaming,” says Mr Toto. “Everything will be streamed and devices will be agnostic. It is just further away than a lot of the commentary makes out.”
But is it? One way to frame the debate, say games industry veterans, is to consider a showdown between Arthur and Kassandra — a Wild West gunfighter in the Red Dead series of games whose stubble grows in real time and an ancient Spartan warrior who combines naval manoeuvres, one-night stands and a sword fight with Pythagoras.
Kassandra is the hero of Ubisoft’s Assassin’s Creed Odyssey — a richly cinematic fantasy set in the Peloponnesian war. It is a perfect example of a premium title that has been developed in the era where Sony’s PS4 is dominant, with 81m consoles sold around the world. It is visually stunning, narrative-heavy and optimised to work best with the kind of large TV you find in a living room. So called “triple-A” games like these, runs one argument, are too complex and demanding to work acceptably through a streaming system.
But in a piece of stunning disruption, says Pelham Smithers, a games and technology analyst, Assassin’s Creed Odyssey is already available on Nintendo’s Switch console via a streaming service — although only in Japan for now.
The processing and memory power required to run the game are devolved to cloud servers and it plays acceptably well on Nintendo’s relatively underpowered machine, according to reviews. This is, for now, a rarity and far from perfect. Japan has the fastest and most stable broadband among G7 economies. Speeds elsewhere are judged to be too slow to make streaming of triple-A titles viable and some estimates suggest that “peak 5G” is unlikely to be standard in the US and EU much before 2029.
But the streamed version of Assassin’s Creed Odyssey suggests the future has already arrived. “As well as ending the idea that Switch cannot play PS4-level games as it is not powerful enough, it shows the threat streaming can be to the console gaming industry,” says Mr Smithers. “The company that has to be most worried by this is Sony.”
If true, he argues that the promised next-generation PlayStation takes on an importance that Sony had hoped to avoid. Having beaten Microsoft, it had hoped to enter the next cycle as the console of choice for serious gamers. As it now stands, he says Sony must prove itself in an era when, among other challenges, “gaming power may well lie with cloud servers, not console processors”.
Hirokazu Hamamura, a games analyst at Famitsu Group, agrees that both Nintendo’s and Ubisoft’s Assassin’s Creed experiment and Microsoft’s stated ambitions on cloud gaming are signals that streaming services are poised to expand. But the longer-term threat to consoles, he says, is that a company such as Netflix or Hulu might expand their offering to games. Others see Apple TV or Amazon as likely entrants in a non-console era.
“When that becomes possible, the position of being a platform for home video game consoles will be a different one. The size of platform will be based on how much of a community it has as a content service provider,” says Mr Hamamura, noting that both Nintendo and Sony have spent years developing extensive in-house games studios.
That may be where releases such as Red Dead Redemption 2 help in prolonging the life of consoles, even as streaming chews into the market. The game, for which fans of the original Red Dead game, Red Dead Redemption, have been waiting for almost a decade, is so lavish that at one point during its production it was the largest single employer of actors in New York. When it launched last month, it sold 17m copies in 12 days.
Such epics are a big part of the reason consoles have survived: global sales of individual packaged games have, according to industry data, fallen from about 600m in 2008 to a forecast 290m this year. But the triple-A titles have their money-generating lives extended by downloadable add-ons and other “service”-style income.
For now, the console represents the most cost-effective way to deliver that content at the level of quality its users want at home. Sony’s machine is, underneath all the trappings, a specialist gaming PC whose cost has been distilled to fall within the budgetary reach of an ordinary household. The console makers, meanwhile, have spent decades ensuring that the biggest and best games are designed for their machines.
While streaming poses a threat, Mr Smithers says consoles have absorbed years of threats from rival technologies and changes in consumer behaviour. The extreme global popularity of Fortnite — a lower-quality but intensely addictive game playable on consoles, smartphones and PCs that pits all comers together in a mass battle — is seen by many as a huge threat to consoles. In a big concession in September, Sony began offering a version of Fortnite that allowed PS4 players to compete with users of other devices — a ceding of control over which the company is outwardly sanguine.
During Black Friday sales last month, Sony had its second-best year on record for PS4 console sales in the US. The heavily discounted $199 price tag was a factor, but the presence of must-have games such as Red Dead Redemption 2 also mattered, says Jim Ryan, Sony Interactive Entertainment deputy president.
“Given the history of console cycles, [for the PS4] to have such momentum in the sixth year means there is something going on,” says Mr Ryan, arguing that Fortnite has been good for his business because it has acted as a gateway to the sort of triple-A games that hook a new generation of gamers on consoles.
“Consoles will still be around. They are an institution for people who grew up with them,” says Evan Amos, the author of The Game Console — a history of home games devices. “They have an ecosystem around them that will not just suddenly go somewhere else. Sitting on a couch, playing Red Dead Redemption 2 on a console and a big TV — that is a pretty unbeatable experience.”
Battle mode The fight for the Christmas market
Super smash bros unlimited (Nintendo Switch)
A mere two seconds of trailer for this game earlier this year sent Nintendo fans into whooping, dancing paroxysms of joy and will be, for many who do not yet own one, the reason to buy the Nintendo Switch. The earlier versions of the game, which thrusts all of Nintendo’s favourite characters into a mad, cartoon brawl, has created a global cult following and is at the heart of a thriving worldwide esports community.
Call of Duty: Black Ops 4 (PS4, Xbox One)
Now in its 15th year, the first-person shooter Call of Duty franchise badly needed some sprucing up and seems to have been given exactly that. This outing, which was released in October and made $500m in its first three days, has been deliberately tailored to appeal to a generation of gamers for whom Fortnite sets a new standard for the online first-person shooter format. It does that spectacularly well, reminding console owners of how well a highly-developed battlefield scene can look on a big home television.
Just Cause 4 (PS4, Xbox One)
The latest outing in the ludicrous series of action adventures, where hanging upside down off helicopters with a grappling hook and firing a rocket launcher at a passing fighter jet is the norm. Released this week, the game promises to be even bigger, more beautiful and more mayhem-filled than its predecessors.
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