Gaming Consoles’ Battle Royale

on November 19, 2020

I lost count of how many times, over the weeks leading into the release of Microsoft Xbox Series X and Series S and Sony PlayStation 5 and PlayStation 5 Digital Edition, I was asked which model will sell more. Sales figures often make the headline, but I think this year, there is much more interesting conversation to be had on gaming as a form of entertainment and its role during the pandemic.

It is clear to me that gaming has been changing in more ways than one. First of all, gaming has been democratized by smartphones when we think of the number of people who would consider themselves “serious gamers” and how non-console gaming is no longer seen as inferior. Technology on smartphones and PCs has been keeping pace, if not outperforming in some respects, to deliver a rich and immersive experience that is different because content developers have embraced these devices and created content tailored to them. Titles like Fortnite and Pug G proved the opportunity for success in both brand share and revenue.

With broader appeal came the added value of game streaming as a form of entertainment in its own right. This, in turn, helped expand gaming even further and not just from a number of gamers’ perspective but as a revenue source for merchandize and a content category that drives a level of attention never quite seen before.

A Different Approach to Gaming

This is the backdrop for the market in which the new consoles landed following a clearly different strategy Microsoft and Sony are taking to the reinvigorated gaming market. As much as we can compare and contrast the four options consumers have across Microsoft and Sony, there is more than the hardware that comes into play when these two companies think about their addressable market.

It is clear to me that Microsoft is focused on reaching gamers wherever they might be. Whether you play on Xbox, a PC, or an Android phone, as long as you subscribe to Xbox Game Pass Ultimate, you are guaranteed an ample selection of titles and an experience that can connect you and your gamer friends across devices. Considering that the cloud is at the center of Microsoft’s business, it is easy to understand the shift to game streaming. The recent acquisition of Bethesda Softworks speaks precisely to developing a strong pipeline for Xbox Game Pass Ultimate’s subscribers. As Microsoft’s CEO Satya Nadella said:

“Gaming is the most expansive category in the entertainment industry, as people everywhere turn to gaming to connect, socialize, and play with their friends. Quality differentiated content is the engine behind Xbox Game Pass’s growth and value—from Minecraft to Flight Simulator. As a proven game developer and publisher, Bethesda has seen success across every category of games, and together, we will further our ambition to empower the more than three billion gamers worldwide.”

On the other spectrum of the console world, we have Sony, which sees the future of gaming centered on a much more immersive experience where all senses come together to elevate your gaming experience on a console.  In an interview with the Washington Post, PlayStation’s President and CEO Jim Ryan said:

“We want to give gamers clarity, we want to give them certainty. We want to future proof them so that they know the console they buy will be relevant in several years time. It’s a considerable capital outlay, and we want to make sure people know they are buying a true next-generation console.”

The approach here is about delivering the best hardware and purposefully designed content that can elevate each other. Sony’s first-party content like Astro’s Playroom guide PlayStation 5’s users through the new DualSense controllers while offering content creators an opportunity to see what is possible. Staying focused on console gaming will limit overall reach, but it also means engaging with the most profitable audience.

Covid’s Impact on Demand

 Strategy aside, both Microsoft and Sony face the difficulty of predicting demand in a market that has never quite seen so many different variables playing both in favor and against sales.

Covid’s impact on the economy has dampened consumers’ confidence, negatively impacting spending on non-essential items. Yet, spending more time at home has created a stronger craving for content and entertainment, which might benefit from some redirected discretionary budget that would have otherwise gone to eating out or other entertainment such as movies, theater, and other social activities.

The launch of the new consoles was quickly followed by a worsening of the pandemic and the start of what political and health experts started to call a “dark winter.” The prospect of having to spend the next two to four months at home might drive more consumers to make the investment after initially having dismissed it as unnecessary as life was reopening to the old routines.

We also have to remember that TV and movie productions have also been impacted, limiting new content reaching consumers during the next six to twelve months. This leaves a void that gaming can certainly help to fill. Some big titles like Halo have also been delayed, but the catalog of existing games is so wide on both Xbox and PlayStation that consumers would not be worried that their investment might not payback.  Considering the growth in games sales seen thus far, as reported by NPD at a record $11.6 billion in the April to June timeframe, there is clearly a lot available to purchase. This was an increase of 30% when compared to the same time period in 2019, and a 7% increase over the first quarter of 2020 (January – March) record $10.9 billion.

Time will tell, but I am confident the renewed and expanded love affair with gaming will remain strong even when life will return to be lived out and about.