Microsoft, Nintendo, and Sony Have a Problem

Microsoft (NASDAQ: MSFT  ) probably thought that the Xbox One would be a slam dunk. Its Xbox 360 has been the top-selling console in this country, every single month, for more than two years. Even last year's debut of Nintendo's (NASDAQOTH: NTDOY  ) Wii U didn't get in the way of that winning streak. The Japanese gaming giant's dual-screen system got off to a slow start during the critical holiday shopping season, and it's just about toast after clearing just 160,000 units worldwide in Nintendo's latest quarter.

Before June, it was also easy to prematurely call November's Xbox One rollout the winner over Sony's (NYSE: SNE  ) PS4, but that's changed now that Sony priced its system $100 cheaper. More importantly, Microsoft lost the confidence of a lot of diehard gamers for the restrictive nature of the Xbox One, even if Mr. Softy has backtracked on some of the more controversial features.

However, Microsoft may be battling more than just dwindling industry sales and a re-energized PlayStation platform when the Xbox One becomes available in three months. Game Informer hears that Amazon.com (NASDAQ: AMZN  ) will throw its hat into the ring with a console of its own in time for this year's holiday shopping showdown between Microsoft and Sony.

Now, this won't be a standalone console with a proprietary format. This is part of the long-rumored set-top box that Amazon is reportedly working on to take on Roku, Apple TV, and other video and audio streaming devices. However, apparently this set-top box will also be the gateway to gaming.

The recent rollouts of Ouya and NVIDIA's (NASDAQ: NVDA  ) ambitious Shield are carving out a market for Android gaming systems.

Microsoft, Sony, and Nintendo might be laughing off the Android challenge for now. Diehard gamers won't trade in their Halo 4 or The Last of Us experiences for Candy Crush Saga or Temple Run. The $100 Ouya platform is too obscure, and even after a pre-release price cut, the NVIDIA Shield is still too expensive for a handheld. However, let's not dismiss the Android challenge entirely, especially given Amazon's cutthroat ways.

The depth of Android games continues to improve. We can't ignore the value proposition of a free or nearly free Android game when pitted against the $60 console titles. Disposable income isn't unlimited, and a lot of teens and young adults have hefty smartphone bills to pay that didn't exist when the last generation of consoles came out several years ago. There's a reason physical software sales have been on a downward spiral for four years, and it's not the myth that gamers are holding out for new hardware.

Then we get to the power of Amazon. The main appeal of Amazon's set-top box won't be games. It won't even be streaming media, browsing the Web, or whatever features will be available. No, the real problem for everybody else is that Amazon is crazy like a fox when it comes to aggressively pricing its hardware. Amazon has been practically giving away Kindle e-readers and tablets because it gets consumers locked into their ecosystems. It drums up subscriptions to Amazon Prime, through which millions of shoppers pay $79 a year for free shipping and a growing catalog of digital media to consume at no additional cost.

At least one analyst -- Webush Securities analyst Michael Pachter -- opined earlier this year that the online retailer could give away a year of Amazon Prime to help move the set-top platform that may very well cost less than $100. Amazon is just that brazen when it comes to winning market share.

Android games may never catch up to the depth of console releases, but just as "good enough" computing on tablets and smartphones have stalled the PC industry, why can't "good enough" gaming do the same to consoles?

Someone who's zapping away at candy pieces or playing digital Scrabble -- and then using that same platform to stream music and watch video -- isn't going to have as much time to play traditional video games as someone still smitten by the more expensive yet expansive console-gaming experience.

It will eat into the market. How can it not? Amazon's a pretty voracious eater when it gets hungry.

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Read/Post Comments (16) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 11, 2013, at 4:05 PM, RiddleofSteel wrote:

    Motley Fool,please stop writing articles about the gaming industry. You have yet to publish an article that has come close to coming to fruition. The people who would buy the Amazon product, are such a small percentage of the gaming community that it's almost negligible.

    In fact, the opposite usually occurs. They get hooked with some of the basic video games, and usually end up buying to consoles to step up to the next level. They were publishing articles 30 years ago talking about the death of Console gaming when the personal computer came out. Guess what happened? The market exploded for both platforms.

    Again, you guys should just stop writing about anything related to video games, as your bias makes your articles poorly written and it becomes obvious that you are just trying to manipulate the marketplace with your predictions. You've been doing this for years now, and everyone is on to you now.

  • Report this Comment On August 11, 2013, at 4:23 PM, montleyTool wrote:

    @RiddleofSteel You took the words out of my mouth! It's garbage. The dumb are usually amused by the drum.

  • Report this Comment On August 11, 2013, at 4:35 PM, feliciagjm wrote:

    I'm sick of Motley Fool and how they think they know the gaming industry! Not one of these systems caters too ONE type of gamer. There are plenty of us who have different preferences, and own the systems that offer what we like! Sony offers more RPGs then Microsoft, while they cater to shooters. Myself, I prefer playing on my PC. While my husband doesn't discriminate ;)

    And STOP assuming that Nintendo is out of the market because the WII-U sucks. I played it a bit at a gamestop. I think it's pretty cool. You forget that they're more into their handhelds. Remember... the 6th generation of pokemon is being released in October. Most hardcore pokemon players will buy TWO 3DS and both games (as I've done for every generation :P). Don't forget about Fire Emblem either. Plus the new Zelda, Super Smash Bro, and Mario games will help vault WII-U sales. Never count Nintendo out. They just know their market. They know what works for them.

    Fools, indeed.

  • Report this Comment On August 11, 2013, at 5:34 PM, moopert wrote:

    I hate android based games. They're little more than time wasters and the entire premise of them is to nickle and dime you to death with micro transactions. I'd rather pay $60 for a game with compelling characters and well written story than $5 for a time waster that ends up costing me $100 over time.

  • Report this Comment On August 11, 2013, at 5:51 PM, Wingeddamnation wrote:

    People are sooner or later going to realize that another Gaming Crash will happen if idiotic companies like Amazon keep making consoles. History is slowly repeating itself...

  • Report this Comment On August 11, 2013, at 6:39 PM, xvdfsshsv wrote:

    This article is so wrong. Apparently the xbox one was hoing to win this gen at one point? Really? Cause even at the announcement of the console people hated it. It was never favored once. And stop with this "mobile is killing the gaming industry". 3ds has proved that iphone and android isnt that much of a threat. Its a common misconception that only idiots like the guy who wrote thus article would think. Someone who has no clue about the industry. Also this guy failed to mention the 3ds is the top selling platform for the past 2 months. Not xbox 360. The qorst part is that he actually take micheal pachter seriously.

  • Report this Comment On August 11, 2013, at 7:17 PM, stefanog1 wrote:

    I can't agree more. The day Mötley Fool actually creates a article about the gaming market that is true is the day I play my Xbox. Xbox has way too many shooters and boring rehashes that it amazes me people love the 360 but then I find out they r playing Skyrim, Assasins Creed and Minecraft: Games they can get on another console. Sony Playstation has plenty of good games like Final Fantasy, Kingdom Hearts and Infamous but the others are bit too meh and can be played on other consoles. Nintendo had a bad start, why? No body knows that the WiiU exists! No commercials, GameStop website doesn't advertise it and it looks too much like the original Wii but it will change soon. Nintendos IP can't be multi platform and great exclusives are on the horizon like The Wonderful 101, Bayonetta 2 and Monolith Sifts X. All consoles are gonna succeed in there own way for different reasons. Microsoft for its graphics and its tv an music functions, Sony for its AAA titles and cheaper price and Nintendo for its kick ass IP and exclusives. These are just my predictions but we will have to wait till the Xbone and PS4 arrive...

  • Report this Comment On August 11, 2013, at 7:39 PM, Bunnyking77 wrote:

    There are perhaps 2 contributers that know anything about gaming at Motley Fool.

    Rick Munarriz is not one of them.

  • Report this Comment On August 11, 2013, at 8:04 PM, speculawyer wrote:

    Yeah, this is an amazingly stupid article.

  • Report this Comment On August 11, 2013, at 8:28 PM, ShadowOfTheVoid wrote:

    What RiddleOfSteel said. For a business-focused website, Motley Fool's writers don't seem to know much about the video game business. Every gaming article on this website reads like it was written by someone with minimal interest in video games. Anyone who comes here looking for expert opinions will find none because the site lacks the necessary experts on the subject of gaming. Let's see just a couple of examples of what went wrong this time:

    Referring to the Wii U: "It's just about toast after clearing just 160,000 units worldwide in Nintendo's latest quarter." Technically, the Wii U's LTD sales aren't that bad. It's sitting at 3.6 million right now, just short of the 4.2 million PS3s Sony sold by June 31, 2007. Of course, history shows that it's impossible to extrapolate long-term sales based on just the first few months of sales. The GameCube sold better than either the PS3 or 360 in its first 7-½ months, yet look at where they all ended up (22 million GameCubes vs. 78 million each for PS3 and 360). The Wii U's problem is that it's had an 8-month dry spell lasting from right after launch on up to the release of Pikmin 3. If the Wii U's sales are still terrible by the end of Nintendo's current fiscal year (and by "terrible" I mean less than 8 million units sold LTD), at which point they'll no longer have the excuse of lack of content, then and only then can we count it out.

    Next problem, the author says "Microsoft may be battling more than just dwindling industry sales" and later makes the related statement that "There's a reason physical software sales have been on a downward spiral for four years." The author seems to think that the decline in industry revenue is due to things like the rise of mobile gaming. Nope. The decline in industry revenue is due to where the console market is in its cycle. Said cycle is like the ocean tides. The transition period between generations is low tide, while high tide is around 2-3 years into a generation. The console market has always been cyclical like that. By 2015, all you'll be hearing is about how gaming revenues from the console market (which is still the biggest chunk of the gaming market even at the current nadir in the cycle) are going up, up, up, and all the doomsayers will forget they ever claimed that the industry was "in decline."

    Finally, there's the focus of the article: the rumored Android-based console from Amazon. *sigh* That thing will suffer the same fate at the Ouya. It will be a niche product that will never make any serious waves in the console market. The average consumer won't bite, because the core gamers go where the games are, and the games that the average consumer wants are on Nintendo, PlayStation, and Xbox, while the casuals who play games like Candy Crush on their smartphones will stick with their phones for playing those games. There's only been four major names in console gaming in the past 30 years: Nintendo, Sega, Sony, and Microsoft. Lots of other companies tried and failed to make a lasting impact. Some got lucky and had one system that had decent sales (most notably NEC's TurboGrafx-16) but nothing like the big guys. Most were consigned to the dustbin of gaming history. A little bit of knowledge about the game industry, including its history and the buying habits of its customers, should give everyone every reason to be skeptical that Amazon's rumored console (or the Ouya, or the Shield, or the rumored Apple console) will ever be anything other than a footnote on the current page of gaming's history book.

    If Motley Fool wants to keep publishing gaming articles, then they need writers who are intimately familiar with gaming, including its history, its business cycles, its customers, etc. In other words, they need insight from real experts, not commentary from people with minimal knowledge on the subject.

  • Report this Comment On August 11, 2013, at 9:38 PM, philthymcnasty wrote:

    No mention of steam. Yet valve is making a console. To give you an idea about how much competition steam gives the consoles AND retail, look at their latest promotion:

    preorder xcom the bureau and get: a bonus map, spec ops the line, and all the previous xcom games, including enemy unknown+ dlc. thats 8 games for the price of one. This is ON TOP OF THE 10% discount for pre-ordering. No sales tax because its digital distribution.

    How can you compete with this? The game is 10 dollars cheaper then the console version at launch, and comes with all this extra.

    The reason why sales are bad is because the other companies have become greedy when they should be competitive. If you are stupid enough to have invested in them, then you should sell and invest that money somewhere else, because its only going to get worse.

  • Report this Comment On August 11, 2013, at 10:11 PM, normgarry wrote:

    Corporate businessmen should NOT IN ANY WAY BE RESPONSIBLE FOR GAME PRODUCTION.

    Motley Fool should stop writing these ridiculous articles and conjecture. The video game console industry is going to keep chugging onwards so long as parents remain stupid enough to mindlessly spend large amounts of money on thei underperforming, undeserving children.

  • Report this Comment On August 11, 2013, at 11:17 PM, william7718 wrote:

    that is right people keep your noses up in the air! if you do you will trip over some little guy. the ONE and the PS4 are the top dogs in gaming hardware. I do not care how elegant the picture looks but, if the game does not make me want to keep playing it than the game is a waste of my money.

    .

  • Report this Comment On August 12, 2013, at 1:55 AM, shadowysea07 wrote:

    @stefanog1 yeah sony had ff and kh but they haven't even been exclusive to them for years. kh has bounced around on handhelds while ff was multiplat and the last 2 entries were a crap mmo and a game most people felt was ok. honestly the ps3 and xbox360 were both mediocre to me and it takes both of them pooling their games to keep my interest compared to the monsters that the ps2 and ds were.

  • Report this Comment On August 12, 2013, at 2:00 AM, shadowysea07 wrote:

    also laughable that you would say to play skyrim on another console when the ps3 version is well known for being a mess.

  • Report this Comment On August 12, 2013, at 6:57 AM, ernestmac13 wrote:

    Microsoft lost the trust of its userbase after the whole red ring of death fiasco. I mean, the failure rate was 60% or higher. Then Microsoft had a second issue with some error message appearing on the screen which would crash the system, & this issue Microsoft wouldn't cover under the two year extended warranty they gave users, due to the red ring of death. I mean, I went through 3 systems, & after the third, they said "sorry sir, but your warranty has expired, so your only option is to send it in & pay us to fix it. There are many first person shooter I have enjoyed on the 360, but I won't spend my hard earned cash, hope there isn't a repeat of the 360 fiasco, & that if there is Microsoft will come through with an extended warranty. Add to this the fact as Forbes points out, Microsoft is requiring the Xbox one to be on 24/7, & it will have facial recognition, emotional data stored by recording our heart beat, which makes me wonder how sensitive its microphone is, or whether this will be done via inferred. The X-box 1 is also region locked, & again as Forbes points out, if Sony can have a region free system except for one game, why can't microsoft? Microsoft is puting limitations on trading & lending of games, this will not go well with many users. It also appears that, we will have to pay a fee when we buy a used game.

    The fact we need to log in even for play a single player game we are playing off-line just makes it seem like Microsoft wants us to jump through a lot of hoops. Further complicating things in my point of view is, it appears from some videos I have seen that, the Xbox one may be running under Windows 8, and I really don't want to have to constantly download updates, security patches, run virus & anti-spyware, etc.

    I have a Wii U, & I love its unique interface via the gamepad. Having the gamepad as a map, having a 5 player influence the game for the other 4 players, etc, are just a couple of cool uses for the gamepad, it simply makes games more interactive. Microsoft said it would have a similar feature via linking a tablet to the X-box one, but this feature won't be ready till 2015.

    Although Sony's only attempt to replicate the gamepad thus far is to put a touch pad on their controllers, I still think the PS4 will be a safer investment. I will play the wait & see with the X-box 1, much like many other gamers apparently, for many have reported PS4 pre-orders are way outpacing those for the X-box 1.

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