The Forgotten Core
I'm withholding my final judgment on the Xbox One (and also the PlayStation 4) until closer to release. A lot can change in four to five months. Still, I have to admit that what Microsoft demoed two weeks ago is not really making me rush to part with my money. Predictably, most gamers around the internet have gone into full rage mode over a couple of features which I really don't need to revisit. What's more notable to me is that Microsoft has joined a growing list of gaming titans (Electronic Arts, Capcom, Nintendo, Activision, Ubisoft, etc.) who don't seem to care about giving the gaming audience what they want: a quality gaming experience without tons of excessive (or expensive) strings attached.

However, a popular and controversial article that's been making the rounds suggests that what gamers want may not be financially feasible. The sales numbers paint the picture that the money isn't in gaming machines, it's in entertainment devices that just happen to play a few games too. More people are playing mobile games on their smartphones than on devices like the Nintendo 3DS and the PlayStation Vita (which has all but flopped). The leading console of this generation, the Xbox 360, is now used more for watching movies than playing games. The PlayStation 3 is currently the most popular way to watch movies on Netflix.

The message we're getting is pretty clear: entertainment pays, games don't. Is this really the case? Is all hope lost?

One aspect of game development most gamers pay little to no attention to is how much triple-A titles and the hardware to play them on cost to make these days. Yes, I know much you all enjoy your cheap indie games with retro art styles, but let's be real. You're not buying a $400 console or video card just to play Minecraft. You want your games to look awesome on that 50-inch HDTV you just bought. This is the need that the triple-A dev teams struggle to fill. As technology gets more powerful and more complex, the budgets for these games get bigger and bigger. Back in the PlayStation 1 era, the average game cost just under $1 million to develop. Today, that number is more like $25 million, and most high-profile titles will significantly exceed that figure. Call of Duty Modern Warfare 2 cost over $50 million to develop, and three times that much to promote and distribute. The Old Republic MMO had a budget that exceeded those of most Hollywood films. BioShock Infinite was rumored to have a budget of nearly $200 million dollars. Even if the game really only cost half that much, 2K Games is going to need to sell a LOT of $60 discs just to break even, let alone make a profit.

The $60 disc is actually another big problem. While the cost of making a game has gone up exponentially, the amount gamers are willing to pay for those games has gone down. A recent IGN survey says that 71 percent of gamers would not be willing to pay more for next-gen games, and well-known events like Steam sales have conditioned them that even sixty bucks is too much. Similarly, your average gaming console contains much more powerful hardware than, say, an iPad. However, the same people who would gladly drop $700 on Apple's toy would scoff at paying the same for a console, as Sony learned when they launched the PlayStation 3. The end result is that those who make both hardware and software have to put up much higher sales numbers to stay in business. Go big or go home is the way of business in high-end gaming now, and unfortunately some bigger names have been forced to go home.

As an aside, I want to address what some readers are probably already screaming about, namely The Valve Experiment. Basically, they discovered that by heavily discounting certain titles, sales volume went up so high that revenues were increased by a thousand percent or more. Other digital distribution retailers have adopted this practice as well, so it's not a fluke, but you'll notice that none of those retailers have done the same for console games. The console and PC markets work a bit differently. If you want a PC game, you have to buy it. You can't rent it, borrow it, or buy it used. Console gamers have all of those options. Yeah, there's piracy, but that affects every platform more or less equally. The point is that what works for Steam can't necessarily be applied copy-pasta to all areas of the gaming industry.

Nintendo may have been the first to realize that the core gaming audience was not going to keep them afloat, hence the waggle-mote debut of the Wii. Since then, Sony, Microsoft, EA, Ubisoft, and others have all scrambled to find a way to tap into this mass-market of profits. It's hard to say how successful they've been, since by gaming standards they're all wastes of time, but the Wii-mote and Kinect at the very least are household names. Now, here's where you can smile a little: gamers are the people who made them household names. The Wii and Xbox may have become the trojan horses that dominated the family entertainment space, but they would have never made it into homes in the first place had gamers not adopted them first. The PlayStation 2 may have gotten off to a hot start because of its media capabilities (seriously, that thing's launch was abysmal, but it had a DVD player), but that was a time well before the streaming era. Microsoft is unlikely to repeat that success with the Xbox One.

So, what is the lesson that hopefully Microsoft should have learned? Even though the company can't rely on core gamers to keep them in business--we've spoken with our wallets, we're not willing to pay enough to keep the industry afloat--they need us to get them into everyone's living rooms where the true profits lie. Forget about core gamers if you want, Microsoft, but to do is to risk your demise. You've finally started to turn a profit on the Xbox division after a decade and several billion dollars worth of losses. Don't blow it.
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