Will Xbox One and Playstation 4 Completely Flop This Holiday Season?

Beginning this November, when the Xbox One and PlayStation 4 are both launched, Microsoft and Sony will hope holiday shoppers flock to stores to purchase the next generation of game consoles. However, even a profitable fourth quarter may not save this declining industry, which faces headwinds from mobile and computer games.

The tactic of releasing consoles at the start of the holiday shopping season is not new for either company. In fact, both have taken this route for their last two debuts. This strategy has been successful thus far. Year after year, sales peak around the holiday season (see the chart below). Besides high sales volumes, there are three main reasons why game companies continue to push their releases to November.

The first reason is that both companies know that massive sales of consoles will provide continued revenue down the road. Consumers will not buy only the consoles, but also new video games and peripherals later on, such as controllers and webcams. For example, since the 2006 release of the Xbox 360, Microsoft has introduced various add-ons like the Kinect, which allows users to play games by moving around, much like how Nintendo’s Wii functions. This has helped boost earnings for Microsoft. The establishment of a strong consumer base is vital to securing future business.  

Secondly, both Microsoft and Sony want to create hype behind their products. Their new consoles have been in the pipes for years. However, details were mostly hidden from the public in order to create a sense of anticipation in the market. Both consoles were officially announced early in the year to heighten this anticipation. By the time November rolls around, buyers will likely queue for hours to get a chance to purchase these new machines.

Finally, these companies want to put past mistakes and disappointments behind them with a strong performance at the end of the year, especially Microsoft. When the company behind Xbox One announced that the new console would require users to connect to the internet every day and not allow the sale of used games, buyers were outraged. Furthermore, Microsoft has acknowledged that its highly-anticipated release will be delayed in 21 countries. It has been a PR nightmare for them. Sony, on the other hand, has not received major backlash from the public. However, the company does face inventory shortages across Europe, which has led to frustration across the Atlantic. Both companies are eager to start selling their units in massive amounts and improve their public record.

It remains to be seen whether these new releases will bear fruit. The once-lucrative business has slipped in recent years, faced with competition from smartphone apps and computer games. The number of game apps offered on iOS and Android platforms has exploded in recent years. As gaming consoles become more advanced, consumers will begin wondering why they should shell out $400 or more on a console when their PC will do the same job. Game companies must compete with these new forces by demonstrating that consoles are not simply less capable PCs.

As a result, revenue from console sales plummeted 21% in 2012 compared to the year before. Nintendo’s release of its new Wii U last year failed to generate much interest. Four million games for the platform were sold within the first three months, compared to the 5.5 million which Nintendo expected to sell. Revenues in the industry as a whole continued to deteriorate this year, down 20% in July compared to June.

Microsoft and Sony have been rivals in the video-game sector ever since they released the Xbox and PlayStation 2, respectively. But if the industry continues to plummet, it could be game over for both of them.