PlayStation 4, Xbox One Dominance To Be Challenged In 3-4 Years
According to DigiTimes, the upstream supply chain expects to see "strong orders" for Xbox One and PlayStation 4 components during the first quarter.
This suggests that both consoles will maintain their sales momentum this winter, even after the holiday shopping season is over.
At least one senior executive is convinced that the new consoles will sell faster than their predecessors.
During a presentation at Credit Suisse's 2013 Technology Conference, Take-Two Interactive Chairman and CEO Strauss Zelnick was asked if sales of PlayStation 4 and Xbox One would exceed their predecessors in five years.
"I'd specifically say yes because it appears that -- and this is largely anecdotal but tablets are a good example -- all these new iterations of more and more exciting hardware seem to have picked up in velocity generationally compared to five or 10 years ago," said Zelnick, as quoted by GamesIndustry.biz. "But if we had a big market meltdown, for example, a repeat of '08 and '09 in three years, or two years, or two minutes, that would influence it. But if this economy stays on this track, yeah, I feel good about it."
Electronic Arts CEO Andrew Wilson is much less optimistic. Wilson (who attended the same Credit Suisse event) told investors that Sony and Microsoft will be seriously challenged in just a few years.
"I think that three years from now, four years from now, they're going to be under some fairly stiff competition for the living room, from mobile providers, from Apple, from Google, from Roku, from Comcast, to try and own that living room experience," said Wilson, who was also quoted by GamesIndustry.biz.
If nothing else, Macquarie Securities analyst Damian Thong thinks that PlayStation 4 will sell at a faster rate than its predecessor.
"I think the PS4 will sell at a faster rate than the PS3, helped by the lower price, and lack of initial production problems," Thong told Benzinga. "I am currently assuming comparable lifetime volumes versus the PS3, but I see potential for greater sales depending on the success of game titles."
Thong does not expect PlayStation 4 to sell as many units as PlayStation 2, "which benefited from an exceptionally long life and clear market dominance."
"I think it is more likely that Sony will introduce a new console quicker, than extend the life of the PS4," he added.
Fighting For The Living Room
Evercore Partners analyst Kirk Materne told Benzinga that Microsoft has had a good head start in the battle to control the living room. He noted that the company has already acquired 48 million subscribers for its online gaming service, Xbox Live.
"I think the question becomes, 'Can that core gaming constituency expand?'" said Materne. "Can they expand to people outside of that one demographic? Can they use the Xbox to broaden the relationship with Microsoft or Windows in particular beyond just the Xbox?"
The answer to these questions could be why Microsoft is adjusting its corporate structure.
"You see them having the operating system group under one roof, so the people working on the operating system for the Xbox are the same people working on it for Windows Phone and Windows in general," Materne told Benzinga. "I think it's pretty clear that the Xbox is going to be a big part of what they're trying to do, at least in terms of their consumer initiative."
While PlayStation 4 seems to be selling at a faster rate than Xbox One (more than 2.1 million PS4s have already been sold versus one million Xbox One units), Materne does not expect these early sales to have a negative impact on Microsoft's long-term success.
"I'm not sure it really matters that much," he said. "They're going after a different audience and they have a little bit different strategy. Clearly it seems like Sony has done a better job this time around, so it'll be more competitive. But I'm not sure in the immediate near-term one doing better than the other is necessarily mutually exclusive."
An Unseen Advantage?
Brett Golden, President and co-founder of The Chart Lab (a provider of quantitative advice solutions for retail and institutional investors), thinks that Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) already have an advantage in the living room space.
"I think Microsoft is so legacy," Golden told Benzinga. "It's really easy for these guys to take advantage of the whole entire audience. I think that Microsoft is really coming from behind at a really big disadvantage. I think the loyalty of Apple, whether they come out with a product today or tomorrow, it doesn't even make a difference at this point. If they come out with a superior product, they're gonna blow the doors off Microsoft with the cult-like following of their existing users."
Golden is less optimistic about Google's strategy to rule the living room.
"I think it's hit or miss with Google on the consumer side," he said. "I haven't really seen Google do anything that well on the consumer side. I'd even be worried about their search business as well going forward over the next several years."
Xbox Is "Irrelevant"
Cole Wilcox, the Portfolio Manager, CEO and CIO of Longboard Asset Management, still thinks that the Xbox franchise is an "irrelevant component of Microsoft's business in terms of its effect on earnings and the franchise value of Microsoft as a whole."
"I think the Xbox strategy and Xbox One and how it's going to play into their future strategy for consumer devices and unification across what they're doing on a go-forward basis might be strategically important for how they integrate all that stuff," Wilcox told Benzinga.
However, Wilcox does believe that the Xbox brand is important to Microsoft's perception with consumers.
"The most meaningful thing that Xbox has for Microsoft as a brand is that it is obviously the company's most successful consumer-facing product," he said. "From a brand value standpoint and consumer perception, it's important that they've had that success there."
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ
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