JANUARY 23, 2006
Eight Tech Trends for 2006
By Burt Helm
A Monster Year for Game Consoles
The Xbox 360 has grabbed an early lead, increasing the pressure on Redmond's rivals to roll out their own redesigns. And what about the new Cell chip?
Until last November, it had been more than four years since American game players had seen a new console. The new Xbox 360 continues to fly off store shelves (see BW Online, 11/28/05, "Robbie Bach is Ready to Rumble") even after the holidays. And now the PlayStation 3 and Nintendo Revolution are on the way. So it looks like 2006 could be the transition to the next generation.
Here's a primer on what to expect from the game industry in 2006:
So when can I get my hands on this new PlayStation 3?
While Sony (SNE) gives the spring of 2006 as its official launch date, most analysts expect the updated console will hit store shelves in late spring or early summer in Japan, but not until November in the U.S. Sony historically likes staggered launches for game consoles, and its manufacturers are still ramping up their ability to design the advanced new chipset.
When it does come out next fall, the PS3 will be just as hard to buy as the Xbox 360 was last Christmas. Citigroup's Elizabeth Osur has predicted that Sony will be able to sell roughly 900,000 PlayStation 3 units in the U.S. in 2006. Pacific Crest Securities analyst Evan Wilson says he expects about a million consoles to be available for the U.S. launch. That means a supply situation almost as tight as the one shoppers faced with the 360.
What about the Nintendo Revolution?
Nintendo hasn't announced a launch date yet, but last week, President Satoru Iwata told the Japanese press that Nintendo aimed to release its new system in the U.S. before Thanksgiving.
How are these consoles expected to sell once they're introduced?
A report released by Citigroup (C) on Jan. 16 predicts that Xbox 360 will hold its lead and edge out the PlayStation 3 in the U.S. at the peak of the next cycle, selling an estimated 8 million units in 2008 compared with 7.1 million PlayStation 3s in that year (for a grand total of 19.8 million since launch vs. 11 million, respectively). Citigroup expects Nintendo to have sold 3.9 million Revolution systems by 2008.
Microsoft (MSFT) says it expects to have around 5 million units to ship worldwide in the next 6 months. Because of the shortage, the Xbox 360 is actually selling slower than the first Xbox four years ago. In press reports from the time (dated Jan. 8, 2002) Microsoft had sold 1.5 million Xbox units in the U.S. following its November launch. This time it sold 607,000 in the U.S. in November and December, according to NPD.
Microsoft is rapidly ramping up production of 360 units, adding a third manufacturer to the two it already has. Still, "It's going to be early summer before someone can walk into a store and get one off the shelf," says Pacific Crest Securities' Wilson.
What's the deal with "Cell," the chip that powers the PlayStation 3? Will it really be able to handle more powerful games than the Xbox 360?
The Cell chip is radically different from any chip before it. But developers who are working on PlayStation 3 games tell BusinessWeek Online that PlayStation 3 games won't be all that different from Xbox 360 titles, at least at the outset.
Because the Cell chip has one central processing unit surrounded by seven smaller processing "cores" to assist the central one, in theory programmers can delegate whole aspects of a game to the supplementary processors and push through a lot more data at once than they could with the standard chips used in the Xbox 360.
Andrew Goldman, CEO of Pandemic Studios, which is developing games for both next-gen consoles, says he imagines that as games get more sophisticated, consumers will see games on the PS 3 with more immersive graphics and "richer single-player experiences," while Xbox 360 games will have more sophisticated online components.
Taking advantage of Cell's special powers isn't easy right now, though. "Instead of one potential problem, now you have seven," says Andy Sites, a producer for Sony Online Entertainment in San Diego who is working on a yet-to-be-announced PlayStation 3 project
While he states his game will take advantage of the chip's multiple processors, he admits it isn't easy. "It's very much a lot of fumbling around at this point," and a lot of "trial and error," to get something to work on the PS 3, says James Kosta, chief architect for BattleBorne Entertainment, a studio developing a game for both the PlayStation 3 and the Xbox 360. "It could take three or four generations of games (i.e., years) before we see anything taking advantage of the Cell's real potential."
With only one next-gen console on the market, but in short supply, and the other two not due for months, how are game-makers faring?
Despite all the hype around the next generation of consoles, game sales are expected to be stagnant in 2006. With no blockbuster titles, and pent-up demand due to a shortage of Xbox 360s, gamemakers had a disappointing holiday season (see BW Online, 12/21/05, "Game Makers' Blue Christmas"), and that's expected to continue.
For 2006, Pacific Crest's Wilson pegs games sales growth at about 3% for the year, and another analyst, Wedbush Morgan's Michael Pachter, says he expects a 10% year-over-year decline in the first 6 months of 2006. "These are pretty predictable five- and six-year cycles" that the industry expects, says Bobby Kotick, chief executive of Activision (ATVI), the second-largest game publisher in the U.S. "Historically [the industry has seen] this period of two years where there's market stagnation or slight decline, followed by three years of rapid growth."
The Xbox360 was unveiled with 18 titles, some of them exclusive to the console (see BW Online, 1/23/06, "Which Games Make the Cut"). What big games can we be looking forward to in 2006?
Halo 3, for one. Microsoft hasn't announced many details, but it's widely rumored that the next installment in the blockbuster franchise will be timed to compete with the PlayStation 3 launch.
What about the other killer app, Grand Theft Auto?
Publisher Take-Two Interactive (TTWO) hasn't announced its plans for the next installment in this series. But according to one source who spoke on the condition of anonymity, Take-Two still has the option to release the next Grand Theft Auto on both new platforms simultaneously, rather than exclusively for PlayStation. That could effectively kill Sony's ability to drive console sales with that title, something it did with the Grand Theft Auto games for the PlayStation 2.
In general, both Microsoft and Sony will have to develop exclusive titles internally this time around. The majors, including Electronic Arts (ERTS) and Activision, say they are loath to sign exclusive deals, instead opting to release games simultaneously across platforms to maximize sales.
And it's not like the early days, when top hits like Super Mario Brothers or Sonic the Hedgehog sold exclusively for the Nintendo or Sega system, and provided compelling reasons to buy one console over the other. Third-party-published games make up the majority of sales on consoles today (last December, they accounted for 90% of sales on the current generation of consoles, according to NPD). That means it's going to be harder to for Microsoft and Sony to differentiate their game portfolios this time around.
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