The “Break it Down” Blog

A study by JPR found the PC gaming market to be 2.6x larger than console gaming market… that includes every Xbox 360, PS3 and Wii together (totally somewhere around 74.7 million units worldwide) with an estimated 196 million “gaming machine” class of PC shipped world wide. Yet, big companies and analysts have been claiming that “PC gaming is dead” for years, why?

We’ll explain, but first some perspective…

PC Gaming Alive and Well

This continues to support our rant against the “PC Gaming is Dead” claim that console vendors and publishers have been making for years as a way of trending people to more closed/controlled platforms that provide larger margins and easier access to streamlined payments.

You continue to see console publishers say that PC gaming is dead or that they will “analyze the market” to see if it makes sense to release a Triple-A title to the PC. You even have some folks spouting useless drivel, like Epic’s Cliff Bleszinski stating that Gears of War 2 will not be released on the PC like Gears 1 was.

Besides Bleszinski being unqualified to make that claim (I think Mark Rein, Michael Capps or their head of business development are more qualified to make these statements), Gears of War 2 opened to record sales that will move a number of Xbox 360 consoles this holiday season; exactly what Microsoft wanted. Once that revenue stream trickles down and Gears 2 is done moving consoles of course Microsoft will go back to Epic for a PC release that will follow up and push Vista/Windows 7 sales come Fall of ‘09 – I’ll eat $1000 if I’m wrong.

Do you remember this was exactly what was said with Gears of War 1? There was “no PC release”, then low and behold as we approached Fall, a surprise announcement with exclusive content and hand waving. There are no technical hurdles to bringing Gears of War 2 to the PC, if Microsoft has a strategic angle for pushing Windows on the PC market, they will use Gears 2 as the tool to do it with. Remember Halo? Was that even a game or just a marketing tool?

If Microsoft’s play is to push Xbox 360 in replacement of desktop gaming completely, then they won’t renew the Epic contract to bring Gears 2 to the PC – this has nothing to do with what Epic wants or what Bleszinski wants. If Microsoft approaches them with $75 million and some residual agreement on sales for a PC version of Gears of War 2, guess what we’ll see in a few months? A PC release of Gears of War 2.

I’ll make the claim now that we will absolutely see Gears of War 2 on the PC come Fall ‘09, again, with bits and pieces of exclusive content and likely some sort of Windows 7 tie-in; either a newer Games for Windows that works or a DX 11 highlight.

The console/media center platform is not a forgone conclusion yet, and Microsoft would be jumping the gun if they tried to push it as such this early. That being said, Windows 7, assuming it’s not a disaster, will likely be the last big OS-centric push we see from Microsoft. Assuming it’s a success, we will see a service-push by Microsoft after Windows 7 is sufficiently rolled out.

It’s All About Control

The battle between Console and PC gaming markets has nothing to do with gaming… games are just the stepping stone for what is coming.

When the Nintendo set out and sold millions of units, companies took notice; but the technology wasn’t there to do more than just games. When the PS2 sold 10s of millions of units world wide, everyone took notice; and we suddenly had a machine that sort of had the power to do more than just games… that’s when “next gen” consoles launched and the picture became much clearer.

Suddenly we had PS3s and Xbox 360s with the capabilities of computers, but out of the box support for a single, vendor locked-in publishing and delivery channel. This is any vendors dream come true: controlling the choke point for digital distribution to millions of customers; a channel that publishers will pay you handsomely to get inside and sell through and on the receiving end consumers will pay you again to receive it.

Enter PSN and Xbox Live

These are the cash cows… games, and gaming machines are the edge of the funnel, the “teaser” to get you buying a console, hooking it up and using it… feeling comfortable with it.

At some point you will begin navigating through the menus and see a movie you want to watch, a TV show you enjoy, a graphics pack you think looks cute or an Arcade Game you loved… and you’ll buy it.

You’ll buy it and you’ll notice how easy the process was. Once your credit card information is typed in, it’s a 1-click endeavor to buy more content through this channel.

It gets easier and easier with each release, adding value to your life, money in Microsoft’s and Sony’s pocket, and providing a completely new audience to publishers to sell directly to; you cannot stock an icon pack or PSN theme on a store shelf. You cannot sell bonus levels of Gears of War 2 in a store using a boxed copy. You cannot sell new clothes for your Playstation Home avatar at EB Games… there are going to be new products to new customers that didn’t exist previously.

The PC Gaming Market slows down the adoption of these distribution and sales channels. It’s the original digital platform and therefor a bit sloppy; there are a lot of different ways to do the same thing.

Do you use Steam? What about Greenhouse? What about Direct2Drive? What about <insert the 10 other services>?

These services all compete, chopping the PC digital delivery and sales channels into tiny pieces. In addition to that, some publishers are hesitant about delivering different kinds of digital media on the PC (e.g. movies and music) where as on the consoles it’s more straight forward along with a smaller threat of piracy. Publishers prefer this because there are less choices to make (PSN or Xbox Live?) and the platform-providers prefer it obviously because they have funneled business away from the fragmented PC market into 1 of 2 pots… of which they get probably somewhere around 30-50% of everything that transpires inside that pot.

The console is a much easier value proposition for content publishers and much more profitable for the channel owners (Sony and Microsoft) – that is why they have been claiming that PC gaming is dying for years, that is why there are lagged releases of games on the PC or some not done at all, that is why all these big companies want to move the consoles forward. It isn’t about games, it’s about what comes after games.

If It’s Not About Games, What is It?

Movies, Music, TV Shows, Voice Chat, Communication, Synchronization, Socialization… these are all the next steps for consoles.

The next replacement for Facebook will be on the consoles, the next replacement for Skype will be on the consoles, the next replacement for TiVo or your cable DVR will be on the consoles, synchronization with your events, tasks, friends, families, favorite shows… will all be on consoles.

The primary way for people to watch movies will be renting them over their console, the primary way to watch TV will be over your console. Your stereo will be your console. Your NAS will be your console. You’ll share pictures easily across family members by all syncing your consoles… services like Flickr and SmugMug will be hosting hubs for the content that is delivered on these consoles. Much like we saw NetFlix just do with Xbox Live Experience update and their new streaming service. NetFlix is the backing storage for this stream services, just as SmugMug will be in the future for pictures… I doubt those websites will directly do much business, but they will become critical members of the console content provider family.

This is the future that will become more defined in 5-8 years and a reality in 10. The goal is to funnel everything, all your activity down to what used to be a game device, but is now a “media center” for all forms of entertainment and socialization.

Sony jumped the gun with Home, but their 10-year vision is actually a good one… it just doesn’t make any sense now because the lifestyle and infrastructure isn’t there for Home to seem interesting. It is sort of like Valve releasing their Steam service (clearly a success now) back in 1990 when everyone was on dialup… it just wouldn’t have made sense and no one would use it because the infrastructure/life style of digital downloads wasn’t there to support it.

You can also see Microsoft’s version of this move towards “everything on the entertainment console” with Xbox Live Experience… it’s still more of a classic Xbox Live experience than it is a Sony Home/Second Life/Facebook experience, but you see the colors starting to bleed through.

At the point that these companies finally get all our entertainment activities from one box, controlled by one vendor, getting paid by the publishers to push their content through those channels, and us consuming that content with micropayments, then it finally becomes comes clear why these companies want the PC entertainment (right now referred to as “PC Gaming”) market to die… it’s to wild, it’s not predictable enough and not controllable enough; that translates directly into less revenue, which is what they want to avoid.

A good case study of this is again, with NetFlix. Before the Xbox Live Experience update with integrated NetFlix Streaming, Microsoft didn’t see a dime from NetFlix for their “Watch it Now” instant streaming service, but now they do because NetFlix has seen the value in cross-promoting their service (and their original business plan) on the gaming entertainment consoles. At some point Queue management will find their way onto Xbox Live (and likely PSN) and the reason to visit the NetFlix site disappears… effectively making NetFlix nothing more than a content provider; almost like a higher-level version of Amazon’s S3 service.

Conclusion

So PC Gaming is not dead, but big publishers and platform developers want it to die and will slowly widdle it down to nothing. Triple-A titles will continue to be pushed to consoles, and big money will continue to move consoles towards a ubiquitous “entertainment and communication center” experience.

What will spring up on the PC are brand new opportunities for indie developers to step up to the plate and redefine how PC gaming looks. Unfortunately TV and Movies are on such a heavy lock-down by big name publishers that I doubt reinvention of the PC as a powerful entertainment platform that rivals the consoles is not likely to happen in the longer term. There is content to be had however, with the advent of YouTube and other media services like it, those may play a part in what of PC entertainment looks like in the future.

So next time someone says “PC Gaming is dying”, you can say “Nope, it’s just changing”. Just follow the money-potential to see where it’s likely headed.

Thanks Edge-Online!