JULY 13, 2015 • The Electronic Entertainment Expo last month was a chance for the largest game companies to show off their big new guns. Even as the game industry grows into new markets and platforms, E3 is a reminder that the biggest products in the space are now the biggest entertainment product launches ever. When products can generate hundreds of millions of dollars within a matter of days after launch there is clearly a great deal at stake.
That being said it is important to realize that E3 is really focused on the high-end console segment of the game market. Mobile games and PC games have become just as large as console games yet they are not well represented at this industry event. Yes, the E3 show is about products that have big launches, but increasingly, there is a large and growing secondary business of products that are building slowly over time even if they tend to get limited focus at E3.
In terms of the short term for hardware not a great deal has changed. The PlayStation 4 has emerged as the clear market leader, the Wii U is on life support and Microsoft Corp. is fighting hard to build market share for the Xbox One. Among the major hardware manufacturers it was Microsoft that came out swinging at E3.
DFC Intelligence has consistently covered the strategic and tactical missteps that Microsoft has made in regards to the Xbox One. It is now clear that the company is trying hard to build market share for its system but the question becomes is it too little, too late? This year it was all about core games with a limited focus on the Kinect and the Xbox One as a media machine.
The lineup of Xbox One exclusives is looking strong for the second half of 2015, led of course by Halo 5. Other titles like Forza 6, Rise of the Tomb Raider, a Gears of War remake and an inexpensive collection of Rare titles gave the Xbox One a decent lineup of exclusives. Microsoft also teased the idea of backward compatibility with Xbox 360 games being rolled out on a title by title basis. In short, Microsoft is focusing on regaining the Xbox 360 consumers. However, there is a big question of whether this will be enough for the Xbox One to gain market share after falling so far behind.
A bigger concern with Microsoft and the Xbox One is the firm may be going too far back into its core PC roots. The Xbox One has become the most complicated system to run and in many cases it is more difficult to play games on an Xbox One than it is in on a PC. In an age where consumers are used to iPads that run at the touch of a button the Xbox One is looking like a system targeted mainly towards the core gaming elite.
During the E3 show, Microsoft announced a major restructuring where the Xbox division would fall into the newly created Windows and Devices Group (WDG). The goal of this division is to make sure devices run under the Windows ecosystem. DFC has always believed that console systems have done well because of their ease of use and broad appeal. The Xbox One is looking more like a PC device with constant updates and patches required. The ability to stream Windows games and the Preview program that will basically let users beta test unfinished titles threaten to limit the overall appeal of the Xbox One.
The good news for Microsoft is that the PlayStation 4 is not all that much easier to use and Sony Computer Entertainment seems more focused on providing subscription services versus new games. Big PS4 exclusives like The Last Guardian, Uncharted 4 and Street Fighter V do not hit until 2016. The main focus is on giving PS4 owners early access to games like Hitman, the Destiny expansion and the Final Fantasy VII remake. In other words, there must be some concern that Sony is letting third-party publishers do the heavy lifting for its system.
Nevertheless the momentum seems to remain with the PlayStation 4, which has cemented a strong market share lead. Overall, coming off of E3 DFC Intelligence is more concerned about the ability of Microsoft and Sony to push their game systems to the second tier audience that is more reluctant to buy a new game system. The recent DFC Worldwide Market Forecasts report lowered estimates for the console market and nothing at E3 has changed that analysis.
When it comes to the major console game publishers there were two companies that stood out, Bethesda and Electronic Arts. Bethesda’s Fallout 4 is looking like a major hit product and games like Dishonored 2 and the Doom reboot got quite a bit of buzz even though they will not launch until 2016. Meanwhile, Electronic Arts has a very diverse lineup and has a nice mix between delivering its big physical products along with digital content. Star Wars Battlefront is a major title that should benefit from the new movie release. In the latest DFC report on the movement of game consoles to digital delivery of content, Electronic Arts was cited as the clear market leader especially when it comes to extra content.
The most disappointing publisher performance was Activision Blizzard, Inc. This is really the tale of two companies: Activision a traditional physical products company and Blizzard a pioneer in delivering major online experiences. The Blizzard side looks strong while Activision’s console products are nothing to get excited about. Yes, Call of Duty Black Ops III is likely to be the year’s best selling title but this is a franchise that has seen its best days and is no longer at the forefront of the shooter market. Meanwhile Destiny has been a disappointment and attempts to bring back old franchises like Guitar Hero and Tony Hawks are unlikely to gain much traction.
One Activision franchise that did provide some new excitement was Skylanders with Skylanders Superchargers. This new installment in the franchise will introduce vehicles to the mix. The problem is the toys-to-life category is looking extremely crowded with Disney Infinity incorporating Star Wars and the new Lego Dimensions products being introduced. The good news for Activision is that Lego Dimensions is simply not living up to the hype and last year’s Disney Infinity 2 was a disappointment despite having Marvel characters.
Of course, E3 always generates the most excitement around new hardware launches. With no major new game systems the hardware focus in 2015 has shifted to virtual reality and augmented reality devices. DFC Intelligence is publishing its market assessment for VR/AR next month but for now it is safe to say that there will be some major shakeouts and this will be a market that will take some time to build.
That being said, Oculus Rift, Sony’s Project Morpheus and Microsoft’s HoloLens are looking like major players in what will be a crowded space. However, this is a long-term play and issues like affordable pricing and go to market strategies will have a major impact. Furthermore the true impact on the game industry is likely to be minimal as VR/AR is about much more than games alone.
Overall there were no major shakeups at the 2015 E3 show. The Xbox One and PlayStation 4 are slowly replacing their predecessors, even as Microsoft and Sony’s long-term position in the game space remains unclear. Meanwhile, Nintendo Co. Ltd. remains a company without a solid long-term strategy and is a reminder of what happens when a company ignores the markets growing up around its space. This is ample proof that the game industry has grown into much more than its still robust big hits business. That new diversity is compelling despite not being in evidence at an event like E3, which is geared to attracting worldwide mainstream media to very recognizable blockbuster brands.
