Some pundits say sales of games consoles peaked with the dotcom boom. However, others believe rumours of their deaths have been greatly exaggerated as new concepts have helped to reinvigorate the format.
Sony’s PlayStation 2, released in 2000 at the height of the market, holds the title of best-selling games console, with more than 150m units sold in just over a decade. Vying for the top spot is Nintendo’s handheld DS, which debuted in 2004. Despite two later versions of the PlayStation, and the release of competitors from Nintendo and Microsoft, no other console of the past 20 years has yet come close to either the PS2 or DS. In the meantime, the iPhone has sold 1bn units since its 2007 launch, with consumers now spending tens of billions of dollars a year on games.
Piers Harding-Rolls, games analyst at IHS Markit, the research group, forecasts PlayStation 4 sales — at more than 53m since its 2013 release, according to Sony — could top those of the PS2 over its lifetime. He estimates sales will total 119m by 2021.
Franchises from Pokémon to Final Fantasy are hopping from console to smartphone and back, with the games industry now able to address a larger audience of paying players thanks as much to puzzle-adventure game Candy Crush Saga as shoot-’em-up Call of Duty. Spending on console, mobile and PC games reached $100bn globally last year, up about $8bn on 2015 according to games intelligence provider Newzoo.
No device epitomises that joined-up vision more than Nintendo’s new Switch, a “hybrid” console that combines a portable screen with big-display gaming when plugged into a TV. “The Switch is a complete redefinition of what it means to be a console,” says Mike Gallagher, chief executive of the Entertainment Software Association, the US games industry’s trade group. “The concept is very novel, very exciting and very different . . . It’s a great credit to [Nintendo] that they make this investment and take this risk.”
Nintendo has tried to bridge the gap between consoles and tablets before, with the Wii U, launched in 2012, which was a disaster for the Japanese company. This featured a huge controller with an iPad-like touchscreen that has to be within range of a TV-tethered base station to work. It sold 13m units over its lifetime until January, far below the 100m units of its predecessor, the Wii.
Jen-Hsun Huang, chief executive of Nvidia, the chipmaker that produces the Switch’s graphics processor, has said consumers will be “blown away” by the new device. “Nintendo . . . [is] singularly focused on making sure the gaming experience is amazing, surprising and safe for young people,” Mr Huang said at the Consumer Electronics Show in January.
His implicit contrast was with smartphones and tablets, whose primary function is communication; games are just one of a phone’s many uses, which limits the opportunities for players. Mr Harding-Rolls says: “Consoles are still unique in providing a curated selection of games, [sophisticated] experiences, plug-and-play technology and are relatively cheap compared to a PC.”
The Switch became Nintendo’s fastest-selling console in the US, Europe and Australia during its launch weekend in March. IHS Markit says it will help contribute to a predicted 4.1 per cent growth in the overall console market this year, which will take it to $36.2bn.
Last year, however, the console market declined. With price cuts by Sony and Microsoft — and slowing demand for their PS4 and Xbox One consoles — the market fell by 2.5 per cent to $34.7bn in 2016 from the year before, IHS says. That came despite the launch of three much-anticipated virtual-reality headsets: the Oculus Rift, HTC Vive and PlayStation VR.
VR has promised to reinvigorate the games industry by offering immersive experiences that place the player inside the game. So far, however, the market is taking off slowly. While the PS VR has shown early signs of success, thanks to its association with the PS4, the high costs of VR hardware and the powerful PCs required to run the Rift and Vive have deterred consumers.
Jason Rubin, head of content at Facebook-owned Oculus, said in an interview at the Game Developers Conference in March that VR needed more content and lower prices to “shift into second gear”. So in March, less than a year after the headset first went on sale, Oculus cut the Rift’s price — and that of its accompanying Touch Controllers, which let players use their hands in virtual worlds — by 25 per cent to $598.
To ensure more games are created to attract consumers, Mr Rubin said hardware companies such as Oculus will have to fund software developers upfront. Facebook has said it will invest $500m in VR content. But, for now, smaller independent developers dominate the Oculus game store rather than traditional console publishers such as Activision Blizzard or Electronic Arts, which are waiting to see if the medium takes off.
Many in the industry remain optimistic about VR. IDC, the analyst group, predicts total headsets for VR and AR will reach 99.4m units by 2021, with a compound annual growth rate of 58 per cent between now and then.
“Will VR get to tens or hundreds of millions of users? I think it will,” says Lisa Su, chief executive of chipmaker AMD, who hopes VR will spur demand for its new range of cheaper, yet powerful, processors. “As the price point becomes more affordable, that’s when the technology takes off.”
Mobile app stores remain the biggest draw for games developers looking for a large market and low upfront costs. While the likes of Apple’s App Store has become overcrowded, with a few hits such as Clash of Clans or Pokémon Go scooping up a disproportionate amount of downloads and revenues, new mobile gaming businesses continue to emerge.
The revenues of Scopely, a six-year-old mobile games publisher based in Los Angeles, grow eightfold between 2014 and 2016. Walter Driver, its chief executive, says the app market is a “totally different business model to traditional gaming, which was about one-time payments and relies on brand recognition. Now there are 2.5bn apps to try.”
He adds: “Many companies started with a hit game but only a handful have done it again and again.” The company’s popular games include WWE Champions, based on the wrestling franchise, and The Walking Dead: Road to Survival, featuring characters from the zombie TV show and comics.
“We are living in this arena of a massive ‘mainstreamification’ of gaming,” Mr Driver says. “It used to be a binary category — either you bought a console or you didn’t. Now mobile games appeal to a far broader audience.”
That is proving profitable even though smartphone sales have also begun to slow. “A higher percentage of people are spending money on games, and the people who are spending money are spending more,” Mr Driver adds.
Mr Harding-Rolls says that Sony, Nintendo and Microsoft will have to move beyond selling discs and into Netflix-style streaming services if console makers are to win over mobile gamers. Sony, for example, is offering the PlayStation Now games subscription service while using its console as a platform to leap into the video streaming market with PlayStation Vue — a package of live TV and movies that competes with US cable offerings. Set-top boxes for watching TV and films, such as Apple TV and Amazon’s Fire TV, are also becoming a means to play games.
“The existential question is, what is a console?” asks ESA chief Mr Gallagher. “There are more platforms than ever with high amounts of computing power. We could see even more kinds of consoles than we have now.”