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Why Apple TV is so dangerous to Sony and Microsoft

By on September 16, 2010
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Last week, Dean Takahashi of Venturebeat wrote a post on the threat posed by Apple TV to the existing console manufacturers. He said:

“Apple has the premium brand name and the huge momentum of iTunes, an established store with millions of pieces of content. There are marquee games on the App Store, such as Angry Birds and Doodle Jump. Those games aren’t the equivalent of console hardcore games such as Gears of War. But they are keeping addicted fans occupied for many hours. It would take work to reformat games for the high-definition resolution TVs. But creating apps that run on connected TVs won’t be that difficult, particularly if developers are convinced there is a market for such apps…

Everyone can see this coming. If Apple moves in slow motion and the console makers respond, then they can escape the fate that the portable game devices are facing. But if Apple moves fast and the console makers move slow, then it will be a bloodbath in consoles.”

(For the full argument, go read Dean’s full piece).

Stuart Dredge of the excellent iPhone Games Bulletin picked up on the piece and had this to say:

“I’m not so sure it’ll be direct cannibalisation, at least not of all consoles. The potential of apps on TVs is less about tempting hardcore gamers away from console, and more about reaching a much wider audience of non-console owners, surely?”

I am more inclined to agree with Dean than Stuart, and this is why.

Nibbling around the edges

The console manufacturers run a razor-and-razor-blades business model. As I argued in Death of the Console, Microsoft and Sony offer high-specification technologically-sophisticated pieces of hardware for subsidised (yet still expensive) prices. They then charge publishers around $7 per disc sold as a royalty/tax for publishing on their hardware. (Nintendo, in contrast, makes a profit on every single Wii sold AND charges the royalty/tax).

Hardcore gamers would like to think that they were the people who sustain the games industry. That their money, spent on high-budget titles like Modern Warfare 2 and Red Dead Redemption, is what makes the games industry go round.

Unfortunately, that’s not true.

To make their money back, Sony and Microsoft need lots of consumers buying lots of titles. They need the casual consumers who buy a bunch of Singstars or also-ran titles. They need the mass-market consumers that propelled the PS2 to an installed base of over 140 million.

But here is the terrible truth. I’m not sure that the hardcore audience is growing. I think it’s been stable at the core of people who have bought the Xbox 360 (41.7 million units shipped) and the PS3 (38.1 million units sold). The mass-market that took the PS2 to 140 million bought the Wii instead.

And now Apple is about to offer the mass-market a cheaper, easier-to-use home entertainment box with familiar brands (assuming titles like Doodlejump and Angry Birds and Pocket God make the leap).

They won’t be buying games that give publishers a $7 royalty. Sony and Microsoft will have much less money to spend on developing and marketing new consoles. Meanwhile, the hardcore gamer will demand consoles with more horsepower and games with more assets and explosions, and hence bigger budgets.

The long and the short of it is this: Apple TV won’t suck hardcore gamers away from consoles (not many of them). But it might suck the mass-market gamers who previously subsidised the hobby of the hardcore with their purchases.

If enough of the mass-market moves to Apple TV, the hardcore may not be enough to support Sony and Microsoft’s business model.

And the console dies.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • Didn’t know that Apple TV has the exact same CPU inside it as the iPad – ARM based Apple A4. Thanks for letting us know, interesting stuff here.

  • Swuth

    People were playing games on machines totally incapable of any form of video playback LONG before media players came out. The tech exists in Apple TV to play games at least as good as anything we saw on a SNES or Genesis. Which means MANY iPhone iPad games could run just fine if ported correctly.

  • Ben Board

    Great as many of them are, I’m not sure people will want to play iPhone games on their TV. They work on iPhone/iPad because they can play it on the toilet/at work/on the bus, using the touch controls it’s made for. Do I want to sit in front of the TV and play a game like that, even if Apple released a touch controller? I’m sure they’d be fun, but would they be *phenomenal*, in the true sense that some AppStore games have been, and so steal a market?

    I think how people see the TV is changing. In an on-demand world, we need only watch great stuff – TV has become a premium experience. Sky+, Netflix, iPlayer, catch-up TV, HBO mega-serials… gone are the days of watching something crap just because it’s on.

    Can’t help but think AAA games are part of that. I don’t see why people will go to the effort of booting up their TV and set-top box and sitting in one room to play something casual that they could play on their phone or tablet or PC.

    Of course, nothing stopping people from making more complex games on AppleTV, CPU power permitting. But then you’re back to the extant console model, and I can’t see what AppleTV would have that the consoles don’t. (Indeed I can see some unique problems.)

    The status quo will likely shift in the next ten years but AAA blockbusters will always be in demand, as will some sort of box to run them. And while I agree that the hardcore audience is not growing – anyone who’s ever likely to be interested in hardcore games arguably already plays them – *blockbusters need not equal hardcore games*. We expect Kinect to enable widescreen, triple-A games with Saturday night appeal.

    There are markets for games in every category, such as AAA console games, smaller XBLA/PSN games, DS games, phone/tablet games, browser games, and comes-with-the-OS games (Minesweeper et al). In each category good games succeed, bad games fail. iPhone made phone-scale games viable, arguably creating that market; but while it may choose to compete with Xbox/PS3 for the same eyeballs, I don’t think AppleTV adds a category in the same way.

  • Nice post – the key point to me is that for all bar hard-core gamers consoles are over-specced and hence over priced (whether via console cost or game cost). Hence when a cheaper alternative arrives they will migrate, which will then undermine the economics for hard core games as well.

    Apple TV may be that cheaper alternative, or we may all start putting PCs under the TV. Or inside it. Or simply networking to our existing ones.

  • Talorc

    Apple TV has the exact same CPU inside it as the iPad – ARM based Apple A4.

    http://www.apple.com/appletv/specs.html
    http://www.appleinsider.com/articles/10/09/01/new_apple_tv_runs_same_custom_a4_processor_as_iphone_4_ipad.html

    Other bits are problem though – does it have enough internal memory to load and run the game? And crucially, what is your input device?

    I don think the current Apple TV answers those questions. I agree though that an Apple TV running iOS with access to the App Store and an input device would be a strong competitor in the console space

  • That’s a very fair point. I’ll spend some more point looking at the tech specs. But the heart of my argument remains: that the threat to the console is not the death of the hardcore gamer, but the diminution of the casual gamer’s interest in expensive premium gaming

  • db82

    Err. The new apple TV will not be able to run any apps. It’s just a stripped down media steaming device. I agree that if Apple bring out something with the same internals as the iPhone (or use the iPhone directly with a TV) then they could run apps on a TV. But right now that’s not the case.

  • Painful because you think it’s wrong, or because it’s right and the outcome is unpleasant?

    And while I agree that the market often gets confused, phones now “do everything”, and seem to be quite popular. That’s the potential seismic change that prompted this post.

  • Ouch. Painful analysis. So far, the mass market has got quite confused by devices that “do everything.”