Are games consoles facing extinction?

The games industry is in constant flux; what we think we know today as fact is gone often completely different the next day.

Once upon a time, we used to go to a brick and mortar shop to buy the latest releases; now we can snap them up online and download them to our device without leaving our homes. Developers used to have to partner with publishers for their games to reach market; now they can use digital platforms and release their wares into the world without a middle man. We used to have a dedicated device like a console or PC to play the latest AAA blockbusters, now we can also play these directly on our mobile phone.

Much has changed in the last decade so there’s no reason to believe that how we play games today will be the same ten years from now. At the recent IGN Live, GamesIndustry.biz head Christopher Dring spoke to some of the smartest minds in the business to see how they feel playing games will change in the future.

For a long time, consoles have been one of the dominant forms of playing games, but the sector has stagnated somewhat, failing to grow and attract new audiences.

Tencent advisor and PlayStation alum Shawn Layden believes that consoles are indeed in trouble, but this isn’t anything new.

“If you look at the history of consoles, the global install base in any one of those generations never rose above 250 million,” he said. “There was that one point when Wii came out, and thanks to Wii Fit, an extra 20 million units were sold because everyone thought they could lose weight. But that wasn’t sustainable and came crashing down and we’re still in that 250 million overall install base of active consoles. That’s a challenge.

“During the pandemic, revenue rose by 20 or 25%, but we were still getting more money from the same people. It wasn’t necessarily bringing new people into the console gaming world. That’s the existential threat to gaming right now.”

Van Burnham, the author of Supercade: A Visual History of the Videogame Age, said that, having spoken to a variety of developers, she believes that an immersive-like Holodeck experience is the Holy Grail for game creators. That kind of technology is a long way off, but she thinks that consoles are going to play a vital role in bringing about that type of an experience at the point where we are capable of creating such things.

“Consoles are going to have to evolve to meet that future,” she said. “Are they going to be able to do that or not? A lot of that has to do with content, with how we make this business more sustainable, with how we foster more creativity and more experimentation in the risk-averse world that we are in, it becomes a little more of a challenge. I’m interested to see how publishers and console manufacturers are going to rise to meet that challenge.”

“The global install base in any console generation never rose above 250 million. Wii Fit [helped sell] an extra 20 million, but that wasn’t sustainable”

Shawn Layden
Meanwhile, Wedbush Securities analyst and MD Michael Pachter believes that consoles aren’t going anywhere. He does, however, predict that each successive generation will be smaller than the last. He added that developers will be able to choose their audience based on the hardware they opt to release games on.

“The best experience will be on a console. There will be a small subset – a couple of hundred million – who play it that way, and there’ll be a large subset – three billion – who consume games a different way,” he said. “What I think is really interesting is the convergence of the technology, where small screens get really powerful.”

He continued: “Microsoft recently announced three new consoles. Two were digital-only with 1TB hard drives. Clearly that’s the Game Pass device. What are they trying to do? They’re trying to get a PlayStation owner to buy their first Xbox and sign up to Game Pass. It’s smart. Business models will evolve but you’ll always have a chance to play a game on a console.”

Though platforms like mobile have evolved to the point that consumers can play AAA games such as Assassin’s Creed Mirage and Death Stranding on them, the inherent limitations of the hardware mean that consoles are often a more enticing proposition.

“Nothing is going to replace the experience of having an 85 inch 8K OLED and having an experience that’s crafted to that, which is a really deep narrative where you can get into your Resident Evil 4 and your Last of Us, these type of really story-driven narrative experiences that make the most of that type of gameplay experience,” Burnham said.

“That’s what really needs to be focused on in order to differentiate it from PC gaming, which is a totally different experience.”

One issue facing the console space is simple economics – AAA games cost much more to make, and thus, success is more precarious and harder to come by.

“Van puts forward a future I agree with, except for the fact that those games are going to cost $400 million to make and they’re going to take seven years to get done,” Layden said in response to Burnham’s comments.

“That is the kind of cash burn and excessive time needed to get the product, which is really going to be an albatross on the console experience if we can’t get a greater variety of content out there and because games are [expensive] to make, you don’t get a lot of risk-taking.”

As a result, the games industry has become more risk-averse. Rather than creating a wide variety of content that serves many different audiences, companies are more likely to stick to known IP and genres.

“We have to lower that entry point to get really high-end content into the community and business at a lower cost point in order to bring more variety,” Layden continued. “Nothing was more variable than the PS2 era – from Katamari Damacy to SingStar to Eye Toy. At those development costs, you can make a lot more bets.

“Now we are seeing, sadly, most of the big ones that are coming out fall into well-known genres and categories, with the exception of something like Hi-Fi Rush, which was fresh and new. Almost everything else we’re seeing now is pretty much an extension of where we’ve already been. That’s not how you get new people into console gaming. The people who aren’t console players now have already told us we’re not interested in Fortnite, God of War, you name it. So by continuing to make more of the stuff we’ve made before, you won’t get those people in now. They’ve already decided they don’t want to play Call of Duty. Our lack of variety and the offering of content are some of our biggest risks going forward.”

Van Burnham believes attempting to replicate the accidental or organic success of Fortnite or Roblix is “not a viable business model”

While consoles have long been one of the main ways that people play video games, there are always new technologies on the horizon that put forward new ways for people to enjoy their favourite titles. For a long time, streaming threatened to open up games to a wider audience by removing the need for powerful hardware in their home, though to date this promise has largely failed to materialise.

As Layden points out, one major limitation streaming has faced is good, high-speed internet. “If you live in Tokyo, Seoul or Stockholm, you can have a streaming game live right now,” he explained. “If you live in Stockton, Muncie, Indiana or London, England, you can’t have a streaming experience.”

“Nothing is going to replace the experience of having an 85 inch 8K OLED and having an experience that’s crafted to that”

Van Burnham
Burnham had similar thoughts on the matter, pointing to the litany of failures in this new sector, such as OnLive and Stadia.

“The technology is just too far away to make that a really viable platform,” she said. “That said, I am very excited to see what Netflix could possibly do with the right direction.”

Layden, however, didn’t feel that streaming was out of the running. At the moment, most cloud platforms operate purely as delivery and distribution services; but they can also be used to provide powerful hardware remotely to the user.

“[There is also] cloud gaming where you are able to leverage the power of server-side CPU and GPU compute, which will give you more power than your console ever could at a price point you could afford,” he said. “Then it becomes kind of interesting. If we make the server side do more of the heavy lifting and provide something that current console technology or even next-gen can’t do from cost and maintenance and all that, then maybe you get some more interesting ideas around that.”

Wedbush’s Pachter said that streaming is going to “absolutely dominate” but does not think that it will ultimately replace consoles.

“We will continue to buy consoles or some very powerful device to play multiplayer because latency matters,” he said. “You can absolutely stream single-player RPGs. Who cares how fast your internet connection is; if it buffers, you won’t die. I don’t think that you’ll see Call of Duty multiplayer on streaming ever, but will you see Call of Duty single-player campaign? Trust me, there’s a reason Microsoft fought so hard to buy Activision. They want that on Game Pass.”

In recent years, we’ve also seen the rise of so-called ‘metaverse’ platforms – virtual worlds where people can gather to do a variety of things, including playing games. So far, Roblox and Fortnite are two of the biggest names in this burgeoning sector, at least on the video games side of things, both allowing players to take part in a variety of experiences. The former allows regular people to make and release games to the platform’s audience, while the latter features a variety of different experiences, including games and even concerts.

Layden feels that while this is an interesting new addition to the industry, it also is not a threat to single-player narrative titles that are beloved by console fans.

“I don’t think that you’ll see Call of Duty multiplayer on streaming ever, but will we see Call of Duty’s single-player campaign?”

Michael Pachter, Wedbush Morgan
Burnham, meanwhile, says that these platforms are an entirely separate category to the rest of the games industry. She believes the success they have seen is not predictable or planned, but rather has been accidental or organic. For example, Fortnite was initially a full price survival game before its swift pivot to battle royale and, later, complete cultural domination.

“Part of the problem is that so many publishers look at the success of those platforms and think they need to do that,” Burnham said. “It’s an accident. Will there be more content that will be able to achieve that level of success and find that audience? Maybe. But that’s not something you can design. It’s something that has to resonate with an audience. It’s like lightning in a bottle. Replicating that is not a viable business model.

“A lot of publishers have gotten into trouble trying to chase that when it’s not something you can just attain by throwing money at it. It’s something that has to happen organically. Will there be other games like that? Absolutely. But I don’t think that’s something that can exist just as a category. You can’t engineer success like that.”

While Roblox features a massive number of games, these are all titles built on the platform itself. The company is yet to sell third-party titles, something Pachter says is down to its rather aggressive business model. The firm keeps 70% of revenue from sales – compared to most other game platforms, which retain around 30% – which the analyst said is something Roblox needs to adjust before it can be a meaningful contender to other game platforms.

“They’ll be just like iOS, Android, Xbox or PlayStation,” Pachter said. “It won’t be for AAA experiences, but [absolutely perfect for games like] Helldivers or Palworld. I think they’re onto something and will figure it out.”

Layde says that as long as platform holders focus on extensions of what’s come before, growth for consoles will be limited

Rounding things off, we asked our panel what the future of playing games looks like. Layden pointed out that Microsoft and Sony used to make machines with very different architectures, but now, they are more or less the same AMD hardware. They are so similar now, that we are talking about small differences in technical issues that most people will not notice.

“We’re talking about ray tracing differentials and most of us [don’t have good enough TVs] so can’t see the ray tracing anyway,” Layden said. “Xbox, PlayStation, high-end PC, that’s almost at a plateau where all things being equal, they’re pretty much the same. We’d be in a better world if we could get down to one standard home console technology that we could come together, and get this platform war thing out of the way.”

Burnham, meanwhile, is more interested in newer kinds of games. “I want to imagine a future where there are more really exciting location-based gaming environments; just like how people still go to the theatre to see a film, people will create some amazing metaverse volumes where you can go and interact in a specific type of world,” she said. “But we’re going to generally be playing games at home in the environment we have created.”

Finally, Pachter believes we are going to be scalable experiences that can be played across a variety of devices.

“It’s exactly like the consumption of video entertainment; 100 years ago, no one could have conceived that we’d consume film entertainment outside of a movie theatre and now you can consume it right now on your phone,” he said. “I just think that games are going to keep going that way. The experience will be dumbed down for your phone and sped up for your 80-inch LG OLED TV.

“I think we’ll play games everywhere.”

You can watch the full panel discussion below:

Watch on YouTube