07 november 2020
01:00
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Seven years after the latest major release, Sony and Microsoft are launching a new generation of game consoles next week. More important than those devices are the games and services they hope to sell with them. Microsoft in particular is strongly committed to a Netflix model with monthly subscriptions.
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We don’t often experience the launch of a new generation of game consoles. The cycles in the gaming market last much longer than those in the smartphone market, where a new leap is made every year. That also means that the new flagships of game consoles – the Playstation 5 from Sony and the Xbox Series X from Microsoft – are making a significant leap forward in power and performance over the previous generation.
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“An important difference is that the new consoles have a solid state hard drive (SSD) that is much faster than previous drives,” says David Verbruggen of BEA Interactive, the sector federation of video game publishers and console platforms in Belgium. Basically, the visuals are adjusted in real time as a player moves around in the game, evoking the feeling of the real world. In the previous generation of consoles, some tricks had to be taken out to avoid too great a ‘lag time’ (delay).
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Previous console launches typically showed footage of game freaks queuing up to their store at midnight to get their hands on a copy. We will see that less or not this year. The Covid pandemic not only closed many stores, it also makes it more difficult for manufacturers to maintain the supply of components and finished products. And nobody wants to be in the news with a new product that is not available.
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Analysts estimate that Sony and Microsoft could sell some 9 million consoles by year-end, but those sales numbers don’t make the difference for either company. They admit that they are not making the big gains on the hardware, and according to some analysts they even rip their pants in the first phase.
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What does count is how many gamers they can move into their ecosystem over time. Because whoever buys a console will be a potential customer for games and other services sold through that platform for years to come.
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Especially for Sony, which has invested a lot in its own game studios in recent years, the sale of the games is very important. The company is driving sales of the PlayStation 5 with the launch of top games that can only be played on that device, such as ‘Spiderman: Miles Morales’ or ‘Sackboy: A Big Adventure’.
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Traditionally you paid 50 to 60 euros for a new game, a price that remained stable for a long time. Today it is more like 70 to 80 euros.
David Verbruggen
General Manager BEA Interactive
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Individual games aren’t the only thing that could keep the game industry’s cash registers ringing for years to come. A model that is increasingly gaining ground is that of game subscriptions, where you get access to a large catalog of games for a fixed amount per month. Just like you pay monthly for the movie and music library with Netflix or Spotify.
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Microsoft is particularly committed to that model with the launch of the Xbox Game Pass, a subscription of 10 euros per month that gives access to more than 100 games and new releases.
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Sony is not going that far on that yet. It does have the Playstation Plus subscription service, which gives access to multiplayer online games and a monthly selection of games for download. But that is more of a membership card that entitles you to some extras than a pass for a complete game library.
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“With the shift in focus on subscriptions, Microsoft is changing its revenue model,” says Sven De Labey, managing partner Brussels at the consulting firm Simon-Kucher & Partners. Whether the console market will switch completely to the Netflix model is still difficult to estimate, according to the consultant. Subscriptions are not new to the gaming market, but their adoption has lagged, especially among the less avid gamers. 70 percent of gamers do indicate that they play more often with a subscription. They also play longer and are willing to pay for a subscription. That Microsoft is betting on subscriptions therefore seems a logical step. ‘ The figures come from a worldwide study of more than 13,000 respondents from Simon-Kucher & Partners.
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An additional argument for choosing such a subscription is that the target price of individual games has been substantially increased for the first time in years. ‘Traditionally you paid 50 to 60 euros for a new game, a price that remained stable for a long time. Today it is more like 70 to 80 euros, ‘says Verbruggen.
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With the shift in focus on subscriptions, Microsoft is changing its revenue model.
Sven De Labey
Managing partner Simon-Kucher & Partners
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To attract as many gamers as possible to its subscription, Microsoft uses a pricing strategy that targets the general public of casual gamers rather than hardcore gamers. That is why it also releases a cheaper version of the Xbox, the Series S, which costs 299 euros. That console will not deliver top performance, but may be sufficient for less intensive gamers. Microsoft uses it to fish in the pond of families with children, a target group that the Japanese Nintendo mainly reached until now.
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“So far, Playstation has won the battle in the number of consoles sold, but by making the hardware more attractive, Microsoft hopes to make a difference with its subscriptions,” says De Labey.
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Another gateway to the general public is smartphone games, which, according to estimates by Dutch market researcher Newzoo, account for nearly half of global game sales (see graph). Microsoft is also trying to tap into that market with a mobile Android app for its Game Pass subscribers. This allows you to stream most games from the cloud library on your smartphone. The goal: to get as many people as possible to play for as many hours a day as possible, because that is a solid basis for building income from extra services or advertisements.
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In any case, the investments of both companies in additional games, services and platforms are well-timed. The corona crisis means that more is being played than ever. Many gamers who used to get their disc in the store have discovered the benefits of downloads and streaming.
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“The pandemic has accelerated existing trends,” Newzoo analyst Tom Wijman writes in a recently published sector report. The need for social contact – which online multiplayer games respond perfectly to – is one of the main reasons why the market is growing by about 20 percent this year, he says.
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Both Microsoft and Sony will release their latest game console next week. Microsoft presents the Xbox Series X (499 euros) and the Xbox Series S (299 euros) on Tuesday, November 10. Sony will follow on Thursday November 12 (and in our country a week later) with the Playstation 5 (499 euros) and its cheaper brother, the Digital Edition (399 euros).
The cheaper models from both manufacturers do not have a disc drive and can only download games via a broadband connection. For the rest, the two Playstation devices are identical. This is not the case at Microsoft, where the cheaper S model has less storage and computing capacity.
Especially consumers who buy a console for the first time are faced with the question of which brand to choose. That choice is very personal. The best tip is: try them both. In terms of hardware and performance, the PS5 and the Xbox Series X are evenly matched. The Xbox Series S is less powerful and can be considered an entry-level model for novice or young gamers.
Playstation has proved to be the most popular platform in recent years, especially in Europe, partly due to the greater attention for exclusive games. In 2016, Sony also released a VR headset that is compatible with the PS console. For those who attach less importance to those exclusive games and especially want to shop in a wide range, the Xbox with its Game Pass subscription may be the best choice.
The question remains whether a disk drive is worth the extra 100 euros. The advantage is that you can sometimes buy discs for a low price – especially for older games – so that you will earn back the extra price in the long term.
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