Lewis Ward, IDC research director for VR/AR, talks about the current trends in gaming.
With 2018 off to a strong start already, it’s amazing to look back on 2017 and the successes we’ve seen. Sony had an amazing year with more than 70 million consoles sold worldwide by December. Microsoft launched the Xbox One X and actually overtook the PS4 in December with hardware sales. Meanwhile, Nintendo shocked the world with lots of great games exclusive to its Switch platform. This is not counting all the great third party titles, PC releases and indie games that also released.
To speak more about the future, especially with regards to Sony’s exclusives, how Microsoft will make up for the lake of first party games on the Xbox One and much more, GamingBolt spoke International Data Corporation’s Lewis Ward who is the research director for gaming and VR/AR.
Note: This interview was conducted in December 2017.
I wanted to start by talking about Sony, I am sure you’ve been following them. Their lineup in 2018 is looking quite huge. What are your thoughts and do you think exclusives add value?
Well, like Nintendo, Sony has a massive worldwide game development team. Sony of course makes movies and music and other forms of entertainment, so understanding story structure and character development is in their DNA. If you notice, they really don’t make free-to-play games that are open-ended and therefore have no clear conclusion other than player burnout.
Sony’s internal studios like to tell beautiful looking stories that have some emotional impact, possibly with a deeper message or philosophy buried in them if you think about them. That’s an increasingly unusual position in the games industry. As far as exclusives games go, see this figure:
"As far as the broader 8th gen war is concerned, it’s already been lost to Sony. Microsoft will not catch Sony this generation."
This is from a survey of ~3,000 US console gamers in 3Q17, and as you can see, about 10% of respondents said the exclusive games catalog is a key reason why they’re leaning toward buying one console system over another in 4Q17. So exclusive games are far from the only factor in buying decisions, but they’re nearly tied for 3rd most important factor.
Why do you think Microsoft is struggling to match Sony on the first party front?
Microsoft doesn’t have as big a game development studio team in house as Sony or Nintendo and doesn’t have as deep a history of producing first party entertainment products and services. They have a few massive franchises like Halo and Gears of War and Minecraft and so on, but Microsoft’s strategy for a long time has been to seek out indie studios and partner with big third party studios in order to obtain exclusive content.
Microsoft has been more aggressive than Sony or Nintendo in terms of identifying external fits for the Xbox community that come from a PC or mobile background, and making these games work on TV sets – and potentially buying the associated studio and IP if the terms make sense. You mentioned Ryse earlier, and that of course was developed by Crytek. Microsoft got World of Tanks on Xbox years before Sony. This holiday season their big move was to tie up Bluehole’s PlayerUnknown’s Battlegrounds. Since Microsoft has a smaller internal development team, they have to get more creative around getting exclusive content and I suspect this trend will continue. It’s largely paid off for them.
Microsoft’s upcoming lineup for 2018 includes Sea of Thieves, State of Decay, Forza 7, Crackdown 3, and I’m assuming they have a new Halo and Gears in the works. But do you think this is enough the counter the PS4 and Switch?
Yes, they don’t have much of a choice. I think the exclusive lineup is respectable, at least as far as we can see it into 2018. I’m sure they’ll be some massive Halo title coming to Xbox One in 2018. As far as the broader 8th gen war is concerned, it’s already been lost to Sony. Microsoft will not catch Sony this generation.
The goal now is to make the Windows 10-based gaming ecosystem as large and as profitable as possible. Microsoft’s bigger game is to unify in some important ways their PC and console business on a Win10 platform on the terminal side and on the server side with Azure. They view PCs as a growth opportunity from a gaming angle as well, and that’s very different from Sony, which has more or less gotten out of the PC market. A nearer term race to watch between Sony and Microsoft is whether or not Xbox One X will outsell PS4 Pro in the US in 2018. This could happen and would be a significant step forward for Microsoft as the latter half of the 8th gen race begins.
"Microsoft has had plenty of opportunities to unload their games business in recent years and hasn’t, and of course selling at a low point doesn’t make much sense regardless."
The Xbox One X has gotten off to a great start in North America. Do you see sales of the consoles increasing over the next one year?
Yes, with the impact of Switch in particular, I think total hardware sales will be up in 2017 versus 2016 in this region by about 30%. I explained my preliminary forecast on Gamesindustry. I also believe 2018 bundle sales in North America will be up versus 2017.
Do you think the Xbox One X is Microsoft’s last console?
No, Microsoft has had plenty of opportunities to unload their games business in recent years and hasn’t, and of course selling at a low point doesn’t make much sense regardless. If anything, Microsoft has more tightly pulled gaming into its core DNA in the past year. Xbox boss Phil Spencer got a promotion in 3Q17 and is now part of the executive leadership team reporting to the CEO, for example.
And as I said before, the company’s broader goal in the next several years is to make Windows 10 – on TV sets through Xbox One, on desktop PCs and at least Surface tablets – a unified gaming ecosystem across all these screens and on the back end with Azure. UWP apps are coming from all sorts of third party development teams, including business apps, and Microsoft wants to deliver storefront for all that content. Think of it as a Steam competitor and a business app storefront in one. Ripping games out of that mix doesn’t make much sense and I’ve never been one who’s thought Microsoft was close to unloading its Xbox assets.
"I think console gamers like to hate on EA and are overly sensitive about microtransactions. It’s like they don’t notice this business model completely dominates in the mobile space and is at the core of many of the most popular PC games worldwide."
Shawn Layden confirmed there will be a PS5. Why do you think Sony launched with the PS4 Pro at all or do you think the Pro was a failure?
Pro is mostly a marketing gimmick. It’s nothing like Xbox One X in terms of the performance lift. It’s basically a standard console refresh, but Sony tweaked a few internals and got a 10% performance boost for the Pro. Big whoop. Xbox One X is a much more fundamental redesign and it’s at least 40% more potent than the PS4 or the initial Xbox One SKUs.
Xbox One X will be able to do VR and AR, although Microsoft will wait to turn that feature on until there’s some great software for it – and that will largely be about Win10 PC app development. Xbox One X will eventually run content preexisting Xbox One’s don’t, and I kind of don’t blame Microsoft for holding onto that shoe for a while (at least late 2018 and perhaps 2019). Xbox One X is a 8.5 gen console. PS4 Pro isn’t.
When do you think Sony will ideally launch the PS5?
Right now I think PS5 and the next-gen Xbox will arrive in 2021, but that’s really just a tentative placeholder in my forecast.
You recently stated that loot boxes are here to say. What is your take on the whole Star Wars Battlefront 2 fiasco?
I’m kind of over it. I think console gamers like to hate on EA and are overly sensitive about microtransactions. It’s like they don’t notice this business model completely dominates in the mobile space and is at the core of many of the most popular PC games worldwide. Most people on earth simply can’t afford to spend $60 on a game. There will be more of these games seeping into the traditional home console market over time – it’s inevitable. I’m not a lawyer, but I don’t think loot boxes are gambling, and I’m going to assume companies like EA aren’t dumb enough to shoot themselves in foot by gouging customers with in-app purchases to the point that they start boycotting key franchises.
Many third party games like Star Wars Battlefront 2, Call of Duty, and all these other multi-platform games have PS4 exclusive content. Do you think this is key from a marketing perspective?
This is a way of using the word “exclusive” without having to actually pony up all the dough to get a full exclusive game. I think most players see through this, and I don’t think it’s a big factor in platform buying decisions.
"Single player games are great but their star is fading broadly simply because they’re a riskier bet. If they flop out of the gate, it can destroy a studio."
In 2017 Sony had Horizon and Nintendo had Zelda. Do you think that this sort of lack of exciting single player games is something Microsoft should address?
These games take a long time to make and are very expensive. As you pointed out, Microsoft tried their hand at some AAA games with strong narratives earlier this generation and kind of crapped out. Perhaps the canceled Fable game would have scratched that itch, or perhaps the new Crackdown will be a monster – it certainly looked good at E3. At the end of the day, I kind of don’t blame Microsoft for focusing on partnerships that involve multiplayer like PUBG.
That’s where the esports wave is going and that’s where the monetization tail can last for year and years. Single player games are great but their star is fading broadly simply because they’re a riskier bet. If they flop out of the gate, it can destroy a studio.
What is your take on PSVR? Do you think it will go the way of PS Move?
Nope, it’ll be a slow burn. I really want to play Doom in VR just to see if it’s great – or has me puking in the first hour. I think it’ll be a few years before PS VR hits a 10% attach rate to PS4 consoles in North America, but I think this tech will get better in rev 2 and the content will get better and more varied, and so Sony will stick with it through the end of the PS4 life-cycle at least.
And finally, which of the three consoles do you think has a great chance to reach 100 million barrier sales wise?
I think the PS4 will probably get there in 2019.