Sony, Microsoft or Nintendo: Who Will Lead Video Gaming in 2008?

Includes: MSFT, NTDOY, SNE
by: Bruce Everiss

As is traditional at this time of year I will try and give some pointers to what I think may happen over the next twelve months. Firstly, let’s look at the current situation.

According to VG Chartz there are now 8.71 million Sony (NYSE:SNE) PS3s sold to end users, whilst the Microsoft (NASDAQ:MSFT) Xbox 360 has sold nearly twice as many at 16.02 million, but has been overtaken by the Nintendo (OTCPK:NTDOY) Wii with 19.45 million.

All three of these are dwarfed by ownership of the Nintendo DS which has 64.92million happy owners, far more than the three previous machines combined. The PSP continues to sell with 29.79 million but most of these are used as media players, not as gaming machines.

Sony PS3 sales were given a big kick by the price reduction, despite the lack of AAA exclusives on the machine. This year sees massive system sellers such as Metal Gear Solid 4 and LittleBigPlanet which at long last will give the PS3 credibility and make it a worthwhile purchase.

The delayed Playstation Home has the potential to be huge. Unlike Xbox Live this is geared up very much to be an online social networking community and we all know how big they can become. Sony should recover their position a lot during 2008, they need to with the amount of money this is costing them.

Microsoft have already pulled off what may well be the biggest marketing coup of 2008. Grand Theft Auto IV on the 360 is going to have a lot of exclusive downloadable content that the PS3 won’t have. Considering that this will certainly be the biggest game of the year, this exclusive content will swing a lot of buying decisions over to 360. Other than this, Microsoft have more games coming out for the 360 than Sony has for the PS3 and a lot of room to use the price mechanism to maintain their market position.

The Nintendo Wii could very well be a bubble that is already bursting, or it could build on the existing solid base to become an entertainment phenomenon. Wii Fit will keep the impetus going through Q1&2 whilst Animal Crossing will be massive in Q4. These alone will probably be insufficient to keep the impetus going, so Nintendo need some AAA third party titles. Nintendo like to upgrade their hardware, so we could see an enhanced Wii with, for instance, a hard drive. Also a more powerful HD console must be on the way.

The DS for Nintendo threatens to become a ubiquitous device like the Walkman was for Sony. This year should see another upgrade with bigger screens. Nintendo are perfectly placed to make a telephone version (with a partner like, say, NEC (NIPNY)?) which could deal a huge blow to both Nokia (NYSE:NOK) and Apple (NASDAQ:AAPL).

What is certain is that this generation is still in its infancy. There are still over 130 million owners of last generation consoles who have yet to upgrade (mainly PS2 owners waiting to see if the PS3 will be worth buying). If you add in the constant growth of the market and the popularizing effect of the Wii, then there could easily be a market for a further 200 million home consoles in this generation. Four and a half times more than have been sold to date.

A big factor this generation will be multiple machine ownership, to a far higher level than in previous generations. This is because there are so many 'must have' games that are platform exclusives. This means that the real war between Microsoft and Sony will increasingly be fought between Xbox Live and Playstation Home. So expect both companies to put a lot of effort into these online platforms.

A big tactic this generation has been to stratify each console into a product range and to bundle games with consoles to give higher perceived value (something that was overdone in the days of the Commodore Amiga and Atari ST). Expect this to be continued this year with top end versions of the 360 and PS3 featuring large hard drives and enticing bundles of AAA games.

That is a very quick overview. It is impossibly to say who will do best out of the three. This generation of consoles is spectacularly good at making analyst’s predictions look stupid. One major change that has emerged is that Microsoft are now a player at the top table in the console industry. Just watching how they use this new found position will be fascinating.