2014/03/21 In The Video Game Console Market, It’s a Marathon, Not a Sprint

Figure 1.     Xbox One and PS4 Sales by Month

Since the release of the two new next-generation video game consoles, much of the focus has turned to monthly shipment or sales estimates released from research firms or Microsoft and Sony themselves. With February’s sales numbers released, SNL Kagan MRG estimates that roughly 3.6 million Xbox One consoles have been sold worldwide, compared with over 6 million PS4 consoles sold. The Microsoft Xbox One console sells for $499 compared with the rival PS4’s pricing at $399. With sales numbers trailing Sony’s PS4 in Europe and North America, and with no release in Japan a of yet, Microsoft recently made the decision to include the expected hit game and Xbox One exclusive, Titanfall, with the purchase of a console, effectively lowering the price by $60 for those interested in both.

This maneuver should help quell concerns about price for that specific cross segment of consumers, and combined with the exclusivity of the game to the Xbox One, should help convince many of those on the fence about upgrading to the newer console.

MRG Analysis:

Microsoft originally justified the $100 price difference between the Xbox One and the PS4 by mentioning the inclusion of the Kinect voice and motion controls and set-top box integration with some pay-TV providers. It’s becoming clear that hasn’t been enough to sway most consumers. The Kinect was originally introduced well after the introduction of the Xbox 360 console to which it connects. It proved to be a hit initially with casual and family gamers, but lost traction amongst hardcore gamers. However, with the casual market now being dominated by mobile gaming devices like the iPad and other tablets and smartphones, the Kinect’s value to those consumers has diminished. The voice and gesture controls for the device feel a bit gimmicky to many and will not by themselves justify a price increase over a comparable competitor. To be succinct, the additional features provided by the Xbox One just don’t justify its higher price.

In fact, the overall dedicated video game console market is showing signs of ill health. With streaming gaming services like Sony’s Playstation Now, other devices like televisions and streaming media players will soon be enabled with the ability to play console-quality games. If services like Sony’s are able to offer console-like service through these much cheaper devices, it could eat into overall console sales. It also means that there will be more Playstation Now-capable devices to which developers can sell their software, which could give Sony a significant advantage in its software ecosystem if everything pans out well.

The console battle is a marathon. It’s good to remember the fact that the PS3 was a year behind the Xbox 360 and suffered from high pricing problems as well, resulting in years of lagging sales. It was, however, able to close and overtake that gap, and now leads with total consoles sold slightly eclipsing that of the Xbox 360. The Xbox One should see a bump in sales as a result of the new Titanfall bundle, but as long as Microsoft continues to keep the Kinect as part of its console, the price to build each system will always remain higher than that of its rival, Sony’s PS4. That will give Sony a significant advantage until Microsoft figures something out. New technologies like virtual reality and augmented reality could help ignite additional sales for game consoles and help out either company, but barring anything significant, the overall category outlook is dour. 


Source: MRG Analysis