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August 8, 2007

Analysts give insight on 'connected console' market

Posted by Benjamin J. Romano at 10:11 AM

As Microsoft's Xbox 360 price cut takes effect today, analysts are taking a broad look at the marketplace and focusing on additional features beyond playing games.

Billy Pidgeon, a veteran analyst with IDC, notes that the Xbox 360, PlayStation 3 and Wii all have the ability to connect to the Internet and store downloaded content, giving rise to three new business models beyond hardware and software sales: "premium subscription fees, paid downloadable content (DLC), and a fledgling advertising market."

He said in a press release that the "use of connected consoles is expanding the business opportunities and cash flow this console cycle" and has "huge potential."

The IDC report predicts:

"Revenue derived strictly from connected consoles will grow from $981 million in 2007 to $10.5 billion in 2011. In 2007, online console revenue will be 2.5% of total global video game market revenue, including console and hand held hardware and software revenue. By 2011, revenue from connected consoles will represent 18.6% of total market revenue."

Meanwhile, a study from the NPD Group indicates gamers are not always aware of the additional features in their next-generation consoles:

"While playing games is the primary function of all video game systems measured in the study, it should not come as a surprise that, despite marketing efforts to educate the consumer, awareness of functions that extend beyond gaming are comparably lower.

"... PS3 owners are downloading additional content as frequently as Xbox 360 owners, but unlike 360 owners, the majority of owners and likely purchasers are simply unaware that this is even possible on a PS3. Were awareness higher, one could logically deduce that download activity would increase as well."

NPD analyst Anita Frazier said additional features will become more important in the future, but "currently the importance of these features and the awareness among consumers of these features is far from universal. To make headway in this 'next-gen' race, manufacturers still need to be primarily concerned with the quality and entertainment value of the games themselves."

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