I thought I would start this series out with somthing that is on everyone mind! That would be the most recent announcement of the Playstation 4 and all the cool things that were said about what this system can do. While I do not intend to cover the technical side of things here, I will be referencing some of those features that have financial experts really looking at this current generation of consoles and the effec they will have, not only on the industry, but on even on the resalers!
A Technical Cause and Effect Look At The Market
So the first thing we should probably look at, in terms of the technical specs of the system, is the issue with "no preowned games" and just what kind of effect that will have going forward. While this was just a rumor that most of us heard and feel is somewhat unfounded, its got the financial experts talking! The pre-owned market is a big deal! We are looking at places like gamestop, bestbuy, walmart and even your local game store! For the PS4, we are looking at a potential expansion of the digital download market, meaning there is no physical media! A lot of experts are optimistic that will be the case, and feel that will drive the sales and subsequently the revenues for companies like Take Two, EA, and Activision. This could potentially mean that game prices could be reduced over time, similar to how PC games tend to be cheaper since there is no secondary market for preowned games.
Of course the problems are fairly evident in that the secondary market is the driving force for most of the gamestop style companies out there that deal exclusively in video games, accessories and consoles. The question will be left as to whether or not there are price drops on the games because of this and if not, whether Microsoft will decide against such a feature and look to pick up extra sales due to not having such an invasive feature on their system!
Moving on, there are a few more things we should observe in the market dealing with the release of the PS4. First would be looking at the major game companies that are listed on public exchanges. Activision, EA, Take Two etc.. all are priced to move right now, with lethargic (at best) movement upward, and more movement down as well as failing consumer and investor confidences, with the announcement of the PS4 it appears that across the board these companies have made pretty substantial leaps forward. Other analyst state that when there is a new console cycle, these compies can outperform the S&P 500 with a fair amount of ease. This is fairly important because of the length of this last console cycle, and what it could potentially mean for shorter cycles in order to keep company stock values consistently high, even in the face of consumer and investors fading confidence for their continuous products.
My Opinion and Things To Observe
To tie up a few odds and ends things dealing with the release of the PS4, I look at few things I, myself, find interesting and how I believe they will effect Sony and Sony's console sales, developers willingness to develop for the console and their competitive advantage/disadvantage going up against Microsoft.
So one thing that has been noted by most financial experts, but not really explored is the fact that there really aren't any radical spec changes! While that may or may not be a big deal, it means that we will be seeing a huge price, potentially, for a console who's hareware isn't a substantial upgrade. To most console gamers, that may not be a big deal, to a PC gamer that is an egregious move! The reason I bring this up is because this was the move Nintendo made with the Wii from the Gamecube! There was not a substantial improvement in the hardware, meaning gamers were paying more and not really receiving that in terms of hardware, which later came back to bite them in the butt. The question will be how Microsoft responds and what kind of technical spec's the next Xbox will have in comparison to the PS4. If there really isn't a substantial "wow factor" in terms of hardware, this point may be moot. The market looks closely at this for a few reasons, first and foremost, if they believe that the competitor will have the upper hand based on a similar price and better product, this will make the market price and confidence drop out from under them.
Another thing to look closely at would be the "more PC like" demenor of the PS4's firmware. While on the outside appearance, that may not be a huge deal to most, to me it means that it will allow for easier conversion of multiplatform games. This should put consumer's minds at ease in terms of fearing another "Skyrim situation" where there were several issues dealing with Bethesda being unable or unwilling to resolve issues in dealing with the PS3's firmware to get their game running at full capacity as well as getting the DLC out on a timely basis for the PS3.
Finally, we should look at the first strike potential in terms of sales and continuous sales, what kind of comparative advantage it gives as well as launch titles. The first thing I would say we look at is the first strike advantage. Here we know most console companies start out with a fairly substantial price, and then pull a fairly substantial price cut..Most people don't really care why they just go with it, but there is a real reason! Consoles price out early on are priced fairly high because the companies are recovering their R&D expenses, once those have been recovered, there is a price cut, to reduce the cost, keep their profit margin about the same, and bring in people who may have been priced out in the beginning! To understand the first strike advantage, we need look no further than this last generation. Microsoft came out very early on, with their high price, and no PS3 to compete with. They were on their own, and recovered their costs in a very monopolistic fashion. They reduced their price, and thus their sales increased even with the PS3 coming out, because that higher cost to recover THEIR R&D made them less competitive. The problem here is that when the PS3 released they had to cut their prices early, thus selling at a loss and taking 0 profit, while they recovered their R&D expenses. Thus when you hear they were having trouble early on, this was why! This is also why first strike advantage is HUGE as well as how much time can be allowed to pass in the release of current generation and next generation console release dates.
And of course we've got release titles, and what I call the "Wii U effect." Now, I am not downing Nintendo or the Wii U, I am simply stating tat there were no "wow" titles released for this console, thus the sales of the console were a bit lethargic at best! When the Wii originally released, it had the novelty of the motion controls, but more importantly it had....yes you got it, a ZELDA title to sell the console! Zelda is a product mover if I ever saw one because so many gamers classify it as their first RPG experience. Without this type of title for the PS4's release it could create a situation where they're opening sales are lethargic, especially if Microsoft has a better release line up! Meaning they blew the first strike advantage (if they take it) and end up in a similar situation this time around.
Well, if you made it this far, thanks for reading, I hope you found some of the analysis useful! I will continue to look to the markets, the numbers and the companies and continue my analysis going forward!
Regards,
Your friendly neighborhood gamer with a suits.
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