Natasha Lomas on how the numbers are shaping up so far in the gaming console space:

The thing is neither of these new generation console flagships is selling very well when compared with previous generations of flagship consoles. The console market appears to be shrinking significantly — and that’s evidently having a knock-on impact on games studios and game development.

At this relatively early stage the new generation stacks up as follows: Wii U at 6 million, XB1 at ~4 million and PS4 at 6 million: a total of ~16 million. So only around 244 million to go — just to perform as well as the last generation. But with game budgets increasing a flat console market isn’t a good thing. This new generation needs to be outselling the last, not looking like it’s going to have a really tough time shipping the same.

I hate to say “I told you so” …but, well, I did.

Erik Kain:

Nintendo doesn’t need to get out of the home console market, it could simply revolutionize it by combining the concept of the home console with its portable success. One of the great features of the Wii U is that, if I want to, I can simply unplug it from my TV and plug it in next to my bed and play games on the gamepad itself. It makes me wonder—why is the Wii U a home console, in the traditional sense, at all?

Imagine the graphics of the Wii U on an updated version of the 3DS (or some new DS machine) and then pair that with some sort of small receiver that allows you to play all your handheld games on any TV. There are Android devices that do this already, of course, but they only play Android games—nothing even close to par with Nintendo’s first-party offerings.

This strikes me as a good, simple idea. Rather than continue to focus on a stand-alone living room console, why not focus on handheld gaming (a segment that they’re still doing pretty well in) with some new AirPlay-like functionality to get these games to work on TVs? The Wii U is almost the opposite of that approach. They got it backwards.

Dean Takahashi:

It’s worth noting that game consoles always lag behind the PC in performance. That’s because console makers have to lock in on a design a couple of years ahead of the launch and then give that specification to game developers so they make launch titles. The custom chip takes a while to design, and it can be engineered better than a general-purpose PC to run games.

But PC makers have the advantage of just taking the fastest off-the-shelf graphics chip and marrying it with other state-of-the-art components. They can build a more modern machine that isn’t based on last year’s technology. So it’s no surprise that a new Nvidia graphics chip with expensive PC trappings will be able to run circles around game consoles that haven’t launched yet.

This highlights what I view as a fundamental problem with the console business going forward. While smartphones and tablets are eating into gaming from the low-end, Microsoft and the other console makers are aiming for the high end. But that high end already won’t really be the high end by the time the console launches because you’ll be able to get PCs that are more powerful.

Sure, such PCs may not be specifically tailored for gaming, but that gives the consoles maybe a few months — a year at best — as the pinnacle of high end gaming. Meanwhile, the smartphones and tablets will continue to evolve at a much more rapid pace. 

Said another way: the last console upgrade cycle was 7 years. In 7 years, we’ll have seen 7 new iterations of the iPad. Does anyone think the 2020 iPad won’t stack up well against the Xbox One when it comes to specs? If so, you’re crazy. The 2015 iPad will probably stack up pretty well. 

That means Microsoft will have to release another new Xbox much sooner than they did in the last cycle. But as Takahashi notes, the reason the hardware is already dated by the time it comes out is that it takes a lot of time to make these systems. And a lot of money. So…

brad-t asked:

Do you think consoles in general are doomed, then? Serious question. I don't play games much so I don't really have a horse in this race. I think asking Nintendo to make games for iOS – a platform that doesn't have any traditional game controls to speak of – is too farfetched right now. If Apple suddenly started selling an Apple TV with a game controller in the box, well then ...

Not necessarily. But I think the market for gaming-only consoles has peaked. That’s why it’s smart for Xbox and Playstation to focus more on all forms of entertainment in the living room. 

Console gaming will long have its die-hards. But casual gamers already far outnumber them. I think focusing on a dedicated gaming controller is the wrong way to think about it. Apple already has controllers in the shape of iPhones and iPads. Maybe a slightly re-worked iPod touch does come with a television device one day. But all they really need to do is open up an SDK for the Apple TV and the flood of games will follow.

Benchmark’s Mitch Lasky:

Further, I think you could easily take the position that there will never be a return to the installed base level that Sony, Nintendo and Microsoft saw with their c. 2005 consoles. They’ve essentially lost the living room. I watch my own children, sitting on the couch, ignoring the massive HDTV hooked up to every game console in existence and broadband internet, playing Temple Run on the tiny screens of their mobile phones. To use the old parlance of by-gone console industry analysis, there is likely to be a massive fall off in peak-to-peak margins.