February 22, 2013 7:19 pm

Game consoles: boxed in

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Sony faces struggle to compete as gamers go digital
Types of gamers in the US

The future of the games console depends on how many electronic gadgets one can tolerate lying around the house. More and more consumers are choosing their tablets and smartphones to launch daring commando raids or win the World Cup from the comfort of their home. That does not bode well for the likes of Sony, which launched its PlayStation4 in the US this week.

The market for those boxes, which plug into a television in order to play the most advanced video games, is shrinking. According to Goldman Sachs, revenues from the sale of consoles in the US fell by 28 per cent last year. The problem is flagging demand. Just consider the numbers: Sony leads the global console market with sales last year of almost 16m of its PlayStation console. Microsoft’s Xbox sold 11m units, while Nintendo sold 8m Wii and Wii U units. By contrast, Apple managed to sell an extraordinary 66m iPads in 2012.

What is more, a changing market for the types of video games that accompany consoles is also hurting. Software is a large part of the revenue stream for hardware makers – 36 per cent of sales for Nintendo over the past nine months, for example. Demand is not necessarily the problem, rather an increasing number of developers are choosing to distribute their games digitally. There were a third fewer console game releases last year than in 2011.

Another issue is the long life cycle of consoles. Sony launched its PlayStation 3 seven years ago. Although the complexity of boxes allows for more advanced games and a better experience, it makes it slow to adapt to changes in the market such as the free-to-play games launched by the likes of Zynga. That also makes it more difficult for Sony to attract some game developers who want to roll out games quickly. Fear of being left behind also explains why makers are trying to pitch consoles as more than just a games device. Sony’s PS4, for example, will act as a home server allowing the sharing of music and video data among a wide range of other devices.

In its latest quarter, Sony had to deal with a 15 per cent fall in revenue in its games segment from a year earlier, while operating margins shrivelled nine percentage points to 2 per cent. It has still to reveal what its PS4 will look like. The box had better be a thing of wonder if it is to muscle its way into the living room.

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