CES Panel: Consoles Continue, But 'Nintendo Is A Loser'One of the panels at CES in the Game Track covered the use of consoles as entertainment devices beyond games. The panel was moderated by Ted Cohen, the Managing Partner of TAG Strategic, and included Joe Ambeault, Director of Entertainment Services, Verizon; Sean Knapp, CTO , Ooyala; Jack Buser, Director of PlayStation Home, Sony PlayStation Network; and Michael Pachter, Managing Director of Equity Research, Wedbush Securities. The conversation ranged over a wide area, but came into sharp focus on several areas of importance to the gaming industry.
Ted Cohen began the discussion by noting “There's a battle for the living room right now, by people as diverse as Google TV and Apple TV, your cable company, the consoles...” Consoles in particular are being challenged, as they gain more entertainment capabilities and other boxes aiming at the living room (like Google TV, connected TVs, Roku, and others) gain the ability to play games. Cohen threw down the gauntlet to Jack Buser from Sony. “Do you believe that consoles will ultimately win that war?”
Buser responded, “When we first launched the PS3 in 2006, it was amazing because it not only played full HD games, it actually was a full-on HD Blu-Ray player. We were first to introduce services like Cinema Now, Vudu, Hulu Plus, we have Netflix on our console, it really is a media hub for the living room. To your point, a lot of consumers actually use it as their primary device Not only for games, but for all different kinds of media.”
Buser went on to explain how Sony views the market. “Everything we talk about at PlayStation is how we can make the PlayStation experience gamer-centric. We want our experience to be where the gamer is. We want to be part of their life. Every decision we make is all about who is the gamer, what does the gamer want, and how do they behave, and how can PlayStation be part of their lives.” To which Cohen retorted, “And they don't always play games.”
Buser agreed with him. “No they don't. But you're going to see us take a very gamer-centric approach to the types of media services that we deploy. So when we deploy services on our console your going to see us bring things like NFL Sunday Ticket, our NHL app or MLB app we can actually interact with the live broadcast and actually skip to where the home runs are happening, etc. We are providing media experiences beyond games that are still gamer first.”
After other panel members discussed services delivered through cable, Cohen circled back around to focus on the Sony audience. “What's the profile of people using their game consoles as their entertainment hub, do they spend more?” Buser agreed. “Sure, the PlayStation consumer is already a very self-selected consumer, they tend to be male, they tend to be in their 20's, they tend to be very hard to communicate with through traditional forms of media.”
Buser expanded on this thought, noting that “PlayStation has actually become an extremely powerful platform, not just for games companies but also for all kinds of media companies and consumer brands, to reach out and actually communicate with the gamer demographic. They're discovering that traditional forms of marketing like print and web advertising can't cut through the noise of today, so you're seeing a lot of people doing ad activations on the PlayStation Network. One thing to note is they are very, very loyal to the PlayStation brand. The PlayStation brand is definitely a trusted brand, it is part of these people's lives, it's one of the most powerful – I'm biased – the most powerful game brand in the world, we've deployed over 400 million PlayStation consoles since we first started in 1995. We have a very, very rich history of actually communicating and engaging this consumer base.”
Michael Pachter got his turn to weigh in on the issue of consoles as entertainment hubs. “In this over-the-set-top migration, there are 3 winners. There may be more people who benefit, but there are 3 clear winners: Content owners win, period. If you get another channel of distribution for entertainment content, the content owners are going to figure out a way to exploit that and to profit from it, and give them time. We used to only consume content in movie theaters 70 years ago, we're consuming content in seven or eight different ways now and it's just going to keep exploding. The other winners are ISPs for sure, and by ISPS I think ISPs have migrated from the traditional ones to Comcast, Verizon, and AT&T. Those guys are going win, absolutely. Do device companies have a place in this whole ecosystem? The answer is, one device company for sure does: Apple wins. For sure. Apple is the Sony of this century. This generation is buying Apple everything because Apple are brilliant marketers and pretty damn good device manufacturers.”
"I think Nintendo, if they don't figure out that there really is something called the Internet, is a loser. -- Michael Pachter"
Jack Buser felt that there was room for more than one device maker to be a winner. “We have a 15 year heritage of investing very, very heavily in the PlayStation platform. We have actually invested more in our first-party studios than Nintendo and Microsoft combined. We have a tremendous catalog of game titles that are second to none out there, and now with PlayStation Suite and PlayStation Network the ability to deliver those experiences across so many devices and even potentially across third-party devices is an incredible competitive advantage.”
Buser minced no words when he compared Sony to other game platforms and how they treat third parties. “The PlayStation philosophy has always been about our third-party partners and our ability as a games industry to raise all boats together as partners. We're not like some other game platforms that say 'Hey! Put your game out here on the App Store and maybe you'll be one of these 10 featured apps if we feel like it right now, and then the rest of you guys can all go out of business.' Or some other platform owners who are saying, 'Look, we're gonna make all the great games and if you guys can maybe make a great game on our platform, good luck but we're not going to help you much.' Or some other guys who say 'Hey, we hand-picked you and we're gonna shove a bunch of money in your pocket and the rest of you guys can all dial the 800 number and try to dial through to the front desk.' We're all about our partners, our publishing partners, we always have been. If you talk to any game publisher out there, and you mention the word PlayStation, they are going to be very, very loyal to our brand.”
When Buser talked about how the PS Vita was focused on gaming to provide a great gaming experience, Joe Ambeault noted that “I'm going to still play Cut The Rope on my smartphone while I'm waiting in line in Starbucks, because I don't have enough pockets for all of those gadgets. But I'm a huge gamer. Sitting on the airplane? Absolutely I'd play a PS Vita.”
Cohen wondered if there was room for more than one connected device. “In the connected living room, how do the connected TV, the console, and devices like Roku or Apple TV play well with each other? Do you need all three?”
Pachter felt that the consoles were ahead in this battle. “The consoles have a gigantic competitive advantage because they have this installed base. I don't actually know PlayStation's numbers, but there are something like 19 million 360's in households right now, connected to the Internet, you guys are probably 15 million, and you compare that to 1.5 million Roku boxes and I don't know how many Apple TVs, but that's kind of a niche device.”
Buser believes that the explosive growth in gaming is good for all players in the industry. “This is one thing that we talk about a lot internally, but we don't talk about it a lot publicly, but I think it's really important. When we look at all these different devices which are coming to market right now which didn't exist five years ago, a lot of these devices have the power to run games. Although sometimes they're very lightweight games, it's actually expanding the overall market of gamers themselves, which is good for the entire industry. When I hear that word 'cannibalization' it drives me nuts because I'm like “No! No! This is a wonderful thing that's happening right now, we should all embrace it and get behind it.”
The elephant in the room finally trumpeted, when a member of the audience said “We've all heard that the next generation of consoles is probably the last.” Cohen followed up with the panelists: “In 18 to 24 months, is the console gone” Buser tried to finesse the issue. “You have to approach this business as a customer-centric, in our case gamer-centric business. Technology is going to change, the way people consume their media is going to change. It's changed in the last five years, guess what? It's going to change in the next five years. It's going to change radically in the next ten years. Because our focus is on the gamer first, and evangelizing games as a form of digital entertainment in general, we're not scared of any change. If the world does radically change in the next ten years we are well-positioned for those changes. So bring it on!”
Pachter, not having to defend any particular company strategy, was less combative. “To answer your question directly, there will be another generation of consoles. There probably will be others after that. We will see migration to the cloud, but it's a migration. You're never gonna have a step function, where every game developer, every publisher says 'Screw it, we're putting everything in the cloud, on OnLive.' Just like in music; the US music industry still sold 300 million CDs last year. People still buy CDs and play them in CD players although there's no reason to, because you can get everything over the Internet. So as long as there's somebody who is going to buy a game console, and buy a game in that format, then consoles will continue. Microsoft, Sony, Nintendo have a vested interest in their core royalty business: getting people to put content on their platforms. Nintendo doesn't even know there's an Internet yet so trust me, they're going to be making consoles until someone explains it to them. Sony is a content provider in film and music and games; I actually agree with Jack, I think they're ahead of the curve.”
Pachter continued reviewing the players. “Microsoft... if you remember Bill Gates, at this damn show, I think it was in 2000, announcing the Xbox, he talked about it being the entertainment hub of the living room. That was what they thought they were going to do. They lost their way for three or four years, and now they're right back on track. These guys want to be an entertainment hub. So you're going to get a box out of Microsoft that's going to turn your washer and dryer on, and they're going to give you the multi-purpose console of all time. I'm cool with that. So I think you're going to keep buying boxes, I really do. I do think OnLive thrives, I do think we're going to get a migration of the product, I think ten other companies are going to try to do the same thing. When there's a cost-conscious consumer who says “I can live without Uncharted, or I can live without Gears of War, but I really want to play Madden Football only on OnLive, you'll get that opportunity. So I think console generations will be smaller than in the past, but I think we'll still get them.”
The wrap-up came with the question from Cohen: “Who are the big losers?” Pachter was quick to respond. “I think conventional cable with no ISP loses; I think satellites absolutely go away. I think satellite has no reason to be, it's not two-way, it just does not make sense in this always-connected on-demand world we're finding ourselves in. I think Nintendo, if they don't figure out that there really is something called the Internet, is a loser. Everybody else in the middle, and that includes Sony, either wins or loses based on the decisions that they make. I think you have to keep your finger on the pulse of the consumer, figure out where the consumer's going to go today, and try to capture them. I think a lot of pundits and investors think that everything is black and white, there is no gray, that DVD's are going away because we get everything on the Internet – Not for another 20 years. Retail's going away because you can buy everything on the Internet – not in our lifetimes.”
