It has been about two and a half years since the PS4 and Xbox One launched, and usually during this time in a lifecycle, we are talking about the games that are releasing for the hardware. However, this generation has been anything but usual, what with unprecedented console sales on both sides, and Nintendo bringing new hardware to the market soon.
And just to add to all of that, reports have surfaced that strongly hint or point to upgraded consoles coming from Microsoft and Sony. We’ve yet to hear official word from the companies, but the evidence is strong that new hardware is coming for Xbox and PlayStation gamers.
To make sense of it all, byteclay.com had the chance to speak with Michael Goodman, who is the Director of Digital Media Strategies for Strategy Analytics, and spoke with him about a variety of topics related to the highly-rumored and talked about PS4.5 codenamed “Neo.” The transcription from our conversation is below:
Examiner: How will an upgraded console impact the current and future sales of the PS4 and Xbox One?
Michael Goodman: Some of this is devils in the details kind of thing because the question is are they going to continue to sell a scaled down version and a PlayStation 4.5? Normally, this is a time in the lifecycle when we see a redesign and a price cut on the hardware. Again, it’s unconfirmed, but what [the public has] heard is this is going to be at, what was it a $499 price point? If that’s accurate, than you have a significantly higher price point at a time in the lifecycle when you’re normally starting to cut the price of the console in order to extend the reach of that console. There are definitely value buyers out there who won’t buy the console at its initial price point ($399), so they do need to lower the price point for them to enter into that. So there’s a question that I don’t have the answer for. I’m going to guess that they are going to run two models, essentially the 4K model and the non-4K model just because of that price point because if they don’t than Sony clearly did not learn their lesson from the PS3.
Examiner: It’s an interesting decision for the people who already own a PS4 and/or Xbox One. Do they upgrade? How will that be done?
Goodman: There’s always been this deal that when you buy your hardware, your hardware is your hardware. Yeah you know the price will come down, but you know that a new or better console isn’t going to come out anytime soon. There is a risk factor involved as to whether or not Sony is going to alienate these people. We are quite frankly in uncharted territory here, nobody has ever done what Sony is doing, upgraded the hardware mid-cycle.
Examiner: The situation is fascinating too because Sony has been off to such a wonderful start this generation, this type of move makes you wonder if it’s a case of mid-generation hubris or over-confidence as to why this is happening. I’m all for breaking barriers and setting new trends, that’s all well and good, but it begins to become a concern when it angers gamers.
Goodman: I would be less concerned about the initial reaction because the initial reaction is going to be negative, so I’m not surprised by that. Quite frankly, it’s the long-term implication of this and it could work out really well for them. As I said, this is uncharted territory, nobody has done this before, so we can hypothesis as to whether or not people will rumble but they will still be buying or if Sony has broken some degree of trust with their marketplace. You can stand on either side of that and we can debate that, but the reality is nobody knows. It has never been done before.
Examiner: We touched on it a little bit earlier but the price point definitely seems like it will be, not a deal breaker because I really do think how they incentivize people to upgrade has a lot to do with the ultimate performance of the new machine, but price point will be a factor.
Goodman: The key thing here is that to be successful at that price point, they need to have their early adopters upgrading to this. If we think about the normal or traditional lifecycle, we are entering the value portion of this lifecycle and [the people who are buying now] aren’t the people who plopped down $399, so they’re not likely to plop down $499. In order to be successful with the 4K PlayStation, they’re going to have to get people, who 2 years ago bought a PlayStation 4, to want to upgrade to a 4.5 or 4K PlayStation. Again, I don’t have a good answer for how successful that will be because we’ve never seen it done before.
Examiner: Before the new generation launched in 2013, there was a lot of talk of the console market being dead and how it wasn’t there anymore, and since then, the new consoles have achieved unprecedented success. However, I could see a move like this bringing those voices out of the woodwork. Obviously, performance and reality will have the final say, but it is hard to not think this could create oversaturation. I do think having 8 years in between cycles is too long, but it’ll be interesting to see if the new gap is 3 or 4 years after the new generation, if that is indeed when the upgrade happens. Will that time period be the sweet spot?
Goodman: If this is successful then it would, to a certain degree, usher in a new way of doing business. Part of the reason why you had those extended lifecycles is because that’s where they made their money, by being able to lock down the hardware, drive the costs down, particularly at launch. They’re usually breaking even or sometimes losing money on the console at launch, it takes them years before they get to a really good position to drive the costs down on the console side and be able to have a sufficient install base so that they can generate [revenue] on each third party game that is sold.
Examiner: My fourth question was a comparison between iPads and iPhones. We’re obviously not talking about something that parallel, but I do wonder if some of the thought process is console manufacturers thinking, “hey maybe we can be a little bit more like them because there is a massive market that supports smartphones that are iterated upon every year for hundreds of dollars, why can’t we do that too?” Do you think the market is ready to support a similar trend in the gaming industry?
Goodman: Is it possible to do that? Yes, but it is something where you are going to have to retrain your consumer. Your consumer has been trained for what, 30 years now, that this is how the console market works. And if we use the cellphone example, consumers have been trained that “this is how the cellphone market operates” since day one. Now, if you’re going to change the dynamics of how you release hardware, well yes, you can do that, but you have to retrain your customer and that’s not going to happen overnight.
Examiner: I would certainly be for something like this where we shrink that gap between new cycles. If the right incentives, pricing and all of that is there, then maybe we could be looking at the dawn of a new era.
Goodman: There definitely is an argument for shrinking that cycle. I would argue from a financial perspective of the console manufacturer, it’s actually in their best interest not to shrink that cycle. From a power and performance perspective, yes absolutely, by year 8, that thing is sadly out of date, so from that perspective I can absolutely see there is a need to shorten the cycle, but from the perspective of how you make money in the business, I’m not so sure [it’s a good idea]. Lastly, from a developer’s perspective, it’s sort of a 50/50. The beauty of the console is the hardware doesn’t change and because it doesn’t change, by the time you’re getting into [late-generation] software, those things are hummin’. That is when developers get the most out of hardware compared to [early-generation] software, which is [less-optimal]. Look at the VR space right now, a lot of the software is [less-optimal].
Examiner: We’ve seen as each generation has gone on, developers learn the best ways to utilize a system’s tech, and we’re really seeing some amazing games now. I understand the allure of 4K and that’s big for some people, but really, I do wonder at the end of the day, how much more are people going to be getting out of this sort of a jump as far as performance, features, etc. go, especially for the $500 they’ll spend? I ask this, particularly when you think about the jump between PS3 and PS4.
Goodman: Granted we haven’t been able to see any games on PS4 versus PS4.5, here’s what I’m afraid you’ll get. If you think back to the days when the PS3 came out, we were right on that cusp of when people were getting HDTVs, and if you had a PS3 and you played a game on a standard TV, the graphics just didn’t look as good. You could really see the degradation in visual quality between standard TV and HDTV. So [is Sony] setting themselves up for that? If you put in a 4K game, but you play it on an HDTV, is it not going to look optimal? We won’t know the answer to that until we see something.
Examiner: Hopefully E3 will have some answers for what is going on because I feel like Sony has to say something. In my opinion, the leaks from Microsoft have been a bit more minor compared to the Sony leaks, which have been very detailed and in-depth, but I do think they have to speak up just to be straightforward with people.
Goodman: Based on what we heard, they’ve got to be close to talking and if they’re close to launching something, E3 is where they would talk about it.
Examiner: Final topic is the Nintendo NX. We still have no idea what that is, there have been a lot of conflicting reports, but if it does turn out that a new PlayStation and Xbox come out this year, how does that impact what Nintendo is doing?
Goodman: It definitely changes the market dynamics because at that point it changes whatever Nintendo is competing against. With Sony and Microsoft coming out with something new, they’re competing against the PS4 and Xbox One, which they know exactly what the specs are and you would expect the NX would be the most advanced console on the marketplace because it’s three years [after PS4 and Xbox One released]. But if you’ve got new hardware coming out from Microsoft and Sony, well that changes the playing field dramatically. Depending on what the NX is, it’s not necessarily the most advanced or most powerful console on the market anymore. They could theoretically get bounced back to secondary status in terms of console hardware again.
Examiner: I think that’s kind of mind-blowing because if power is what Nintendo’s console is going with, they were probably licking their chops thinking “we’re going to come in with way more power than the PS4 and Xbox One,” but now that may not be true anymore.
Goodman: Let’s just say they’re all relatively even in terms of power. Just the simple fact that Microsoft and Sony come out with new hardware that’s going to take some of their thunder away. Forget about the whole my specs are better than your specs kind of conversation [they would have had]. Nintendo was expecting to have, on the hardware side of the conversation, a Nintendo show because nobody else was supposed to be coming out with new hardware, which historically, is what you would expect at this point in time. You generally aren’t talking about the hardware unless someone is launching a new system. You cannot be happy if you’re Nintendo. I can’t see any scenario by which you are.
Examiner: And with how much third party support has dropped with the Wii U, the NX could be their chance to reclaim some of that support, and now this. It’ll be interesting to see what happens. Great talking with you and thanks so much for the time.