On Eve of Xbox Reveal, Microsoft Issues Defense of Gaming Market

On Eve of Xbox Reveal, Microsoft Issues Defense of Gaming Market

If only things were really this rosy in the video game market

Xbox has given Microsoft a valuable consumer brand with absurdly loyal customers, but it has also paradoxically never directly repaid the billions of dollars in R&D that Microsoft invested, let alone the unexpected warranty repair costs of the current-generation console. But on the eve of a reveal event for its third Xbox device, Microsoft issued an interesting defense of the video game console, arguing among other things that more people are playing games than ever before.

Although I’m sure that’s technically true—casual games drive the mobile app market, for example, and even Facebook is a rich platform for this kind of gaming—Microsoft further argues that “global consumer spend” is actually higher on video game consoles than on any other gaming platforms.

Them’s fightin' words.

Related: "Here Comes the Next Xbox"

Well, not so much “words.” In what appears to be a carefully constructed view of the available data—Microsoft vaguely sites several sources, including NPD, GfK (a European analyst firm similar to NPD), IDG, as well as its own public financial disclosures and internal estimates—the firm has prepared an infographic to make its claim. Here it is.

On a recent Microsoft podcast, Microsoft’s Aaron Greenberg expanded a bit on the infographic, noting that when you look at the data a certain way, dedicated video game consoles actually outperform newer and more mobile video game options. And because video game console lifecycles are getting extended further with each generation—we’re in year eight of the current-generation consoles, and neither Microsoft nor Sony has yet to release a replacement—the market is healthier than ever.

“Typically, [video game] consoles have this generational arc, where they launch and build, and then peak, and then decline,” he said. “Right now we’re in the seventh generation of video game consoles. Every gen[eration of consoles] has become bigger than the previous gen. Total console units sold worldwide [are] the biggest we’ve ever seen.”

Over the past few years, Microsoft has routinely touted the fact that the Xbox 360 is the best-selling console each month. And as they’ve done so, I’ve reminded people that the Xbox is the king of a rapidly declining market. Greenberg addresses this issue somewhat by noting that “of course it’s down, it’s year eight [of the console generation]. Every year eight is down.” Which is unrelated to my point: When this generation of consoles was expanding, the Nintendo Wii was destroying the Xbox 360 and Sony PlayStation 3 in the marketplace. The Xbox 360 has only won each month in the declining years of a console generation that, frankly, both Microsoft and Sony milked in a fairly unprecedented fashion.

Greenberg’s argument that the market being down only 20 percent compared with a much bigger drop in the eighth year of the previous-generation consoles is in fact good news, or an improvement, but it also ignores the fact that by that time in the previous two generations cited, each of the three major console makers had released a new console. So these numbers are not necessarily comparable. I suspect that Xbox 360 sales would have dropped off much more quickly had the next Xbox appeared, say, last year.

Greenberg also noted that 57 percent of US households own current-generation video game consoles compared with 40 percent for the previous generation. But this expansion is somewhat artificial, because the devices have been in the market far longer than the previous-generation devices. And the capabilities of the Xbox 360 and, to a lesser extent, the other consoles have expanded past gaming to include music, TV shows and movies, and other content. In the past, Microsoft has championed the fact that over 50 percent of Xbox 360 usage was non-gaming activities. But this week, the message is that “gaming is healthy, people still play games, they just [watch TV shows and movies] too.” In the past, console users could only play games. Now they can do more, and they do.

For the coming generation of consoles, Microsoft predicts that hardware makers—itself, Sony, and Nintendo—will sell 385 million units, up 28 percent from the current generation (which has sold 250 million units so far, and will hit a predicted 300 million units by the time everything winds down. But Greenberg credits this predicted growth to emerging markets in Asia, Latin America, and China. So it’s unclear whether these next consoles will actually sell as well, or less than, the current-generation devices in mature markets.

Look, I’m not trying to rain on Microsoft’s parade. But I find the dancing around the numbers here to be somewhat disingenuous, and Microsoft has never really addressed the fact that the Xbox 360 will never repay R&D and unexpected extended warranty repair costs that it accrued over the past decade. I see the Xbox as an investment, one that Microsoft hopes to parlay into a viable third-screen (perhaps fourth-screen) computing experience to which its services platforms can extend. And that’s absolutely fine.

But looking at the numbers that I think really matter, I see that Microsoft has sold 77 million Xbox 360 consoles in over seven years in the market and there are 46 million Xbox LIVE customers, though it’s unclear how many pay and how many use the free version. That latter number likely equates to the actual number of people using the Xbox 360, and they spend over half their time on the console not playing games.

All that said, I’m certainly among the crowd of perhaps foolishly loyal Xbox users, and I’m looking forward to the Next Xbox reveal as much as anyone. I can’t wait to see what Microsoft announces, and I'll be the first in line to purchase one in early November.

Related: "What Your Next, Next XBOX Might Look Like"

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