PlayStation 4 and Xbox One Have a Huge Software Problem

The latest consoles from Sony and Microsoft are posting respectable sales, but a lack of "must-have" software threatens their respective futures.

Apr 10, 2014 at 1:00PM

The latest console hardware releases from Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) debuted with a bang. The PlayStation 4 set a record sales pace, and the Xbox One has been the fastest-selling hardware in Xbox history. While demand for the Xbox One lagged heading into 2014, the PlayStation 4 has continued to sell at a rapid rate, suggesting that consumers are eager to make the transition to new gaming hardware.

The newest systems from Sony and Microsoft offer improved graphics, media features, and online networks -- a solid value proposition when it comes to courting hardcore gamers and tech enthusiasts. That said, there's a major issue that faces both consoles and complicates the notion that they will be able to outsell their last-gen predecessors. Both consoles look extremely weak when it comes to must-have, generation-defining software.

Why should consumers buy new hardware?
The gap between current-gen and last-gen hardware capabilities has never been smaller. Alternatively, producing a triple-A game has never been more costly and time consuming. Publishers need to be certain that their big projects will be able to reach a large enough audience to generate solid returns on their investments. In most cases, the combined user base of the PlayStation 4 and Xbox One simply isn't large enough to justify large-scale development. These factors have made cross-gen software the norm, and the trend looks to continue well into the life cycles of the latest consoles.

Just get it on 360 or PS3
Examining the list of the biggest games expected to hit PlayStation 4 or Xbox One in 2014, you'll probably find that most of these titles will also be available on last-gen hardware. Platform exclusives still exist, typically developed by first-party studios or in conjunction with a third-party publisher as the result of a mutually beneficial financial arrangement, but there is less to differentiate the latest batch of gaming systems than ever before. Games like Watch Dogs from Ubisoft and Destiny from Activision Blizzard have been hailed as next-gen experiences by their respective handlers, but both games will also be available on PlayStation 3 and Xbox 360. The promise of "next-gen" experience, whether from a visual or gameplay standpoint, is not being delivered.

Between announced 2014 games and those heavily rumored to debut this year, many of the most important PlayStation 4 and Xbox One games will be ports and remakes of games that appeared on older systems. Sony recently announced that an updated version of its critically acclaimed PS3 game The Last of Us will be hitting its latest console. The Last of Us: Remastered will offer improved resolution and better performance than it's last-gen counterpart. Considering the success of the initial release, and the fact that the big hitters in PS4's exclusive 2014 lineup consist of games like Infamous: Second Son and The Order: 1886, it's likely that The Last of Us: Remastered will go on to be PS4's best selling game of the year.

Who's up for some Halo 2?
On the Microsoft front, a remake of Halo 2 is expected to be one of the Xbox One's biggest holiday titles. Many fans of the Halo games consider Halo 2 to be among the best in the series, but the highly rumored remake would be a poor stand-in for a 2014 release of a truly next-gen entry. A remake of the 2004 smash hit would do great numbers and be a highly profitable endeavor, but would it drive the mainstream audience to purchase an Xbox One?

It's fairly safe to say that Titanfall, published by Electronic Arts, is the biggest game on Microsoft's newest console. The Xbox One version of the game launched alongside a PC SKU in March, while a slightly less graphically impressive version of the game recently launched on the 360. Marketing has ensured that Titanfall is largely viewed as a "next-gen" game, but it's clear that the game's core experience does not hinge on the capabilities offered by more modern hardware.

Take-Two plays the numbers game
Third party publishers have approached the new consoles in a tepid and bottom-line-conscious fashion. Take-Two Interactive (NASDAQ:TTWO)recently announced that the latest entry in the successful Borderlands series will debut on Xbox 360, PlayStation 3, and PC, with no versions announced for the newer systems. Alternatively, updated versions of the company's incredibly successful Grand Theft Auto 5 for PS4, Xbox One, and PC are widely expected to be among the biggest releases of the year.

Mainstream success revolves around must-have software
Developing games exclusively for release on Sony and Microsoft's newest consoles stands as a risky proposition, but the console gaming industry will ultimately suffer if the transition is not made quickly and effectively. Getting the mainstream gaming audience to make the jump to new platforms requires impressive and novel experiences that were not possible with the last batch of hardware. A quick look down the pipeline reveals those experiences to be in short supply.

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Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Take-Two Interactive. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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