By Scott Tibbs, April 29, 2011
It is no secret that Microsoft and Sony - both of which lost a significant amount of money when they launched the XBox 360 and the Playstation 3 - want to extend the life of the current console generation as long as possible. Video game consoles have always operated on the "razor and blade" model, where the money is made on the software rather than the hardware. Microsoft and Sony want to milk the "blades" as long as possible.
It should be no surprise, then, that both companies are waiting until 2014 to launch the next generation of consoles. This is good news for people who are already in the current console generation, because their system of choice will be supported for a few more years. This also means the current generation of video game consoles will have a much longer life cycle than we have seen in the past. Twenty years ago, a nine-year life cycle for a console was unheard of.
I will predict now that the next generation of game consoles will be based on digital distribution rather than physical media. Instead of going to the store and buying a disc, you will download a digital copy to store on your system's hard drive. While this could potentially kill the retail market, it is not impossible for retailers to stay in the game.
There are two big advantages to digital distribution over physical media.
First, there is the issue of convenience. Instead of pre-ordering physical media to be shipped to your home, or going to a store to buy a game, you can download it from your living room. Smaller publishers would be on a more even playing field with companies like Capcom and Rockstar, and the cost of manufacturing and shipping discs, cases and instruction manuals would vanish. There would be no such thing as a "sold out" game.
Second, this could open up a much larger market for classic games. All three console makers have introduced this to some extent. The PlayStation store, for example, offers Final Fantasy VII and IX via digital download for both PSP and PS3. If games for new consoles are all sold digitally, this could expand greatly. You will no longer have to hunt for an old copy of a game that is no longer being manufactured.
The biggest problem with digital distribution is the potential for piracy. Physical media can be copied, but it is much easier to copy digital media. The PC gaming industry has worked to combat this through digital rights management. In order to play some games, the software must be validated with the server, and only then is allowed to run. There is no reason this could not be implemented for video game consoles.
One of the things holding back the next generation could be the price point of a system that is significantly more powerful than the one preceding it. The PS3 struggled early because it launched at $600. That makes it a difficult purchase for anyone other than a hardcore gamer. As Kotaku points out, it may not be until 2014 before it is possible to release a new system at $400 without taking a huge financial loss.
It is certainly going to be interesting to see where the industry goes next.