According to GameStop, "purchase intent" for Microsoft's (NASDAQ:MSFT) Project Scorpio console is high. Half of nonowners plan to upgrade to a PlayStation 4 or Xbox One, management said during the March conference call, and intent for Project Scorpio is at "[Playstation 4] levels or higher." Sony's (NYSE:SNE) Playstation 4 (PS4) has outsold Microsoft's Xbox One by about two-to-one since both consoles launched in 2013, so GameStop seems to be expecting very strong demand after the Scorpio console launches in late 2017.
Sony will likely release its next console by 2020 which will likely be even more powerful than Scorpio, so, at best, Microsoft has a few years to close Sony's roughly 25 million-unit sales lead in the current console war. The big question is: Will Microsoft narrow the gap with technology alone?
Scorpio bridges console gaming and high-end PC gaming
When PS4 Pro launched in November 2016, it offered a much faster processor and more powerful graphics capability than the launch version of PS4 or Xbox One. Scorpio will leap ahead of PS4 Pro with even more power and much faster processing speed as the console war rages on.
|Project Scorpio||PS4 Pro|
|CPU||Eight cores clocked at 2.3 GHz||Eight cores clocked at 2.1 GHz|
|Teraflop (floating point operations per second) GPU||6||4.2|
|Memory||12GB GDDR5||8GB GDDR5|
|Memory bandwidth||326 GB/s||218 GB/s|
|Optical drive||4K UHD Blu-ray||Blu-ray|
Even with all of that added power, Scorpio won't achieve the top performance of a gaming PC featuring an NVIDIA GTX 1080 graphics processor, but it will bridge the gap between console and high-end PC gaming better than any console before.
Scorpio is powerful enough to play games in pure 4K resolution while using much less than 100% of the console's power. PS4 Pro, on the other hand, uses upscaling and rendering techniques in order to replicate the look of 4K, and therefore doesn't offer a true 4K gaming experience. This will be a key selling point for Microsoft.
Not only will Microsoft's new console run circles around PS4 Pro, but it will also feature a 4K Blu-ray player, while PS4 Pro is stuck with traditional Blu-ray. Sony made the decision to leave 4K Blu-ray out of its console based on lack of interest in expensive 4K TVs as there is more interest in consumers streaming 4K video on streaming services like Netflix.
Time will tell, but I think Sony made the right decision to leave out 4K Blu-ray on PS4 Pro, and I don't expect it to be a difference maker for Microsoft Scorpio.
What about the price tag?
This is where it gets tricky for Microsoft.
In an interview with IGN, Xbox head Phil Spencer mentioned that Scorpio is a "premium" console and will be sold at a "fair" price given that premium status:
I'm not trying to scare anybody on the price. We're going to come out on a price that we think is fair for the product that we build and the customers will tell us as they always do. I call it premium because I don't want people to get confused that somehow Scorpio is the thing that is going to take over the Xbox line.
This sounds like $499 to me, which would not be surprising given the advanced technology inside of Scorpio. The traditional price for new consoles from Sony and Microsoft has been $399 -- the cost of the PS4 Pro. We'll likely know for sure when Microsoft unveils Scorpio at E3 in June, but a $499 price tag could dampen demand for the flashy new console.
Will Microsoft close the gap with Sony?
OK, so, Microsoft can produce a high-powered console, but to win the console war it has to prove it can produce quality, Xbox-exclusive games. This point sort of becomes cliche in the industry, but it's the truth. You have to have great, exclusive games available only on your console if you want people to spend hundreds of dollars to buy your console over the competition.
Sony has already released several exclusive titles in 2017 that have drawn praise from critics, and there are still more to come. For this reason, it is possible Sony may extend its console unit sales lead even further before Scorpio arrives, which will create an even stronger network effect working in Sony's favor. The more people playing PS4, the more people will want to buy a PS4 so they can play with their friends online.
Sony will be a tough nut to crack. Gaming makes up more than 20% of Sony's annual revenue and, therefore, is more important to Sony's livelihood than it is to Microsoft's. Sony's strong console sales are translating to good financial performance in its Gaming & Network Services segment. Playstation-related revenue increased 21% to $3.3 billion in the 2016 fiscal fourth quarter. A stellar game release schedule in 2017 should further strengthen Sony's financial performance, as well as allow it to hold the lead over Microsoft in console unit sales.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. John Ballard owns shares of Nvidia. The Motley Fool owns shares of and recommends Netflix and Nvidia. The Motley Fool owns shares of GameStop and has the following options: short July 2017 $24 calls on GameStop. The Motley Fool has a disclosure policy.