The DeanBeat: The next-generation console war has taken shape

In next-generation consoles, Sony has outsold its rivals with its PlayStation 4 game console. Microsoft is a fairly distant No. 2 with the Xbox One. And Nintendo is all but out of the running with its Wii U. But in handhelds, Nintendo is No. 1, and Sony is a distant No. 2. That, in a nutshell, is how the console war has played out.

After two holiday seasons (and a third for Nintendo), the scoreboard is set. Don’t expect the market shares to change very dramatically from here on, barring any big surprises.

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The NPD Group provides retail sales number for the U.S. for new games and consoles, and it disclosed its numbers yesterday. On a worldwide basis, nobody really keeps an accurate tally. VGChartz tries to keep its own count of worldwide sales data, but it comes out to a guess, based on a lot of extrapolation. It estimates Sony’s PlayStation 4 at 18.5 million (we can say that number is accurate because Sony has published it), or 48.1 percent of the market. The Xbox One is second with an estimated 11 million units sold, or 28.6 percent, and the Wii U brings up the rear with an estimated 8.9 million, or 23.3 percent.

The problem for Nintendo’s Wii U is that its sales momentum is behind it, and its rivals are outselling it by two or three to one at the moment. Despite all of its chest beating about how good sales are for some of its games — Mario Kart 8 and Super Smash Bros. for Wii U — Nintendo’s Wii U itself is not selling good enough to be considered a sustainable contender. The Wii U hasn’t failed outright in its third holiday season as some folks (like me) predicted, but I’m going to bet that Nintendo will be the first company to decide that it has to launch a new replacement console. The smart money is on 2016, if the Wii U can scrape through another year.

But Nintendo has a lifeline. In handhelds, it is still dominant with 50.4 million units sold for its 3DS handheld, or 84 percent of the market. Sony’s PlayStation Vita has sold perhaps 9.5 million units, or 16 percent of the market. Nintendo has done an excellent job flattening Sony in handhelds, and it has benefited from strong support from third-party game publishers. But Nintendo faces fierce competition from iOS and Android smartphones and tablets, which have become excellent portable gaming devices and are selling in billions. Still, Nintendo’s share of portables should be enough to keep the company in the black if its spending is kept in order.

Sony managed to seize a very large lead with its brilliant launch strategy in 2013. Sony made its motion-sensing camera optional, while Microsoft included a second-generation Kinect sensor as part of its Xbox One. Sony launched the PS4 at $400 in November 2013, while Microsoft came in at $500. Gamers like Sony’s emphasis on gaming, and they didn’t like Microsoft’s emphasis on entertainment. The first people to buy the new consoles were gamers, and so they chose Sony. Sony emerged from 2013 with a lot of momentum, and Microsoft has been trying to catch up ever since.

But, as in the last console war, Microsoft is starting to make a strong comeback. In the U.S., Microsoft cut its console price down to $350, and it had the largest market share in the last two months of the year. It also managed to launch its Xbox One in the emerging Chinese game market back in September, while Sony has twice postponed its launch date there.

Sony has come out on top for another reason. It has promoted its machine as the top console for gamers, and it has put less emphasis on the larger entertainment possibilities. Microsoft tried to sell its machine as an all-in-one entertainment box for the home, and it fell a bit short on that promise. Sony sold better with the core gamers, and it also sold better because of its price advantage. Now, Sony is churning out a lot of interesting exclusives, and Microsoft’s offerings have fallen short.

Sony has the benefit now of getting exclusives from third parties, such as Capcom’s decision to make Street Fighter V an exclusive on the consoles for the PS4 (it’s also on the PC). Microsoft can still throw a lot of money into the mix, as it did when it bought Minecraft creator Mojang for $2 billion. But Sony has a larger market share, and that makes it naturally more attractive to get more exclusives in the future.

Each console maker is making money, at least intermittently. I don’t expect any company to drive the other out of business because of exclusives. Unless anything changes dramatically, and if we’re just extrapolating here, you could bank that Sony will hit 50 million consoles sold at the end of five years. Microsoft might make it to 28 million. The Wii U will probably decelerate, so it might make it to 15 million units sold. Sony will probably have to match price cuts with Microsoft, but that won’t be easy, given Sony’s shaky finances. The numbers will be much larger if price cuts happen more swiftly than in the past.

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That market share isn’t foreordained. Each company will have to earn its sales. And there are mid-course changes, like Microsoft’s 2010 launch of initial Kinect motion sensor, that could change the ballgame in favor of another platform, or slow down the progress of a rival. Yes, I’ll acknowledge that surprises are possible.

Overall, this generation of consoles is on track to beat the sales of the previous generation, though only if you exclude the Wii and Wii U comparison. Given this outlook, Nintendo would be wise to shift most of its development to the 3DS while it awaits progress on its super-secret health-related entertainment products. And, when the time is right, it should introduce a new high-end game console, with great games at the launch.

We can tell that the console industry is healthy because third-party companies are thriving. Among the big independent game publishers, Activision is doing well with Call of Duty, Destiny, and Skylanders. Electronic Arts is also strong with its sports titles, while Ubisoft and Take-Two Interactive have had their successes. Ubisoft’s Assassin’s Creed Unity was a dud, but it did sell 9 million units of its new Watch Dogs franchise. Grand Theft Auto V and NBA 2K15 also sold really well in the past year for Take-Two. Nobody looks like they’re in real danger of collapsing.

As I looked into the new year, I see some big titles coming from all parties. Nintendo has Splatoon, the Legend of Zelda: Majora’s Mask 3D, and the new Nintendo 3DS XL hardware. Microsoft has Rise of the Tomb Raider, Forza Motorsport 6, Halo 5: Guardians, and Ori and the Blind Forest. And Sony has Street Fighter V, The Order: 1886, Uncharted 4: A Thief’s End, and Until Dawn. Of that bunch, I believe Sony has the strongest line-up. But it’s not a decisive advantage. Gamers are going to be happy with the 2015 line-up, including the expected smash hit Evolve, coming from Take-Two.

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In short, in the console market, the “golden age of gaming” idea is holding up. That is, gaming is still expanding.

Of course, we know that focusing solely on the console war is capturing only a slice of gaming. And in the larger world, gaming, and gamers, are winning. Gamers are multiplying around the world thanks to the explosion of digital games in the form of mobile games, online games, free-to-play, cloud games, and social games. The addressable market is now in the billions of users.

But the core console business is holding its own. Many of the sales don’t show up in the physical retail sales numbers because of downloadable content and pure digital downloads. PC gaming has seen its own resurgence. Valve’s Steam digital distribution service is going strong, and PC gaming has benefited from vibrant e-sports games such as League of Legends and Dota 2.

While NPD physical retail sales data is down from the peak year of 2008, total game sales are definitely up. Market researcher Digi-Capital estimates that the worldwide game business was about $70 billion in 2014, and that will grow to $100 billion by 2017. By that time, mobile will be half the market.

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We still enjoy the monthly sales reports from NPD, and all of the swaggering press quotes from each of the vendors. It was once the case that the leader in the U.S. retail console market was the winner of the gaming war. That’s not true any longer, by a long stretch. But I have to say that console games are more fun than they’ve ever been, and they’ll be around for a while. And 2015 is going to be a great year for gaming.