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Commentary: Smart TVs and cloud gaming will never replace consoles.

Radford C. Feb 6, 2012 0

Online Smart TV

A prediction from a company exec said that Microsoft will make a TV. Microsoft has to be laughing about this. It’s apparent that the boys at Redmond want to turn the Xbox, be it the 360 and/or its upcoming Xbox 720 or whatever we’re calling it, into an all-around entertainment hub where people get get internet, TV, movies, radio, and video games all from their console.

So, where the hell did this whole point of the nextgen XBox coming into form as a TV comes into play? Two words: David Perry.

David Perry is the head of cloud gaming company Gaikai. He says “the transformation from a console to a media center is making things too complex for the overall consumer” and that the “public will get confused”.

According to David Perry, the transformation from a console to a media center is making things too complex for the overall consumer.

He’s completely out of touch and is mostly analyzing the gaming landscape from an anecdotal perspective. That and the fact that he said that a mass market console includes plugging in “a cartridge and flick a switch and a game appears on the screen”.

He delineates how large retailers like Best Buy provide services to install something as complex as the Playstation 3 into your home and that they need to “just work”. But, Mr. Perry. They do work.

As of this writing, I have queried Microsoft, Sony and Nintendo to get the current number of people who have used their console system outside of playing games (Netflix in particular) and I anticipate that the number of people using this app within their consoles are in the millions. Last year, half of Netflix users connected to their service via game consoles, according to a July 2011 Nielsen report which also included Hulu into the mix as well.

According to Perry, TVs are including everything except the kitchen sink. Movie streaming, game streaming (which Gaikai does) brings hardcore games to households without the need for hardware to run it because of the cloud streaming. Sure, I’m very aware of OnLive as well. Perry says that it would be a mistake if Microsoft or Sony turn their next console into the next TV but are forced to make TV with embedded console functions. According to Perry: “the digital TVs are also including all of that media stuff. I think the mistake that the console companies are making is not a mistake of their choice – it’s the evolution they have to go through.”

But does everyone need a console AND a TV?

How often do consumers go out and buy a TV? It does not make sense to even consider making a television in combination with a console. At one point, Cable TV tried to move into the world of the CableCARD to negate the need for a set top box and avoid “confusion” in the cable market. Now we’re in a world littered with millions of set top boxes.

Smart TVs have been offering games and many different types of services. Google TV, which uses Android as its operating system, is integrated in a couple of TV sets and boasts gaming capabilities but nobody is running out to buy those TVs. Perry says consoles have to keep up with all of the TV functions but I believe he really does not understand the console gaming  industry and mostly paints a picture that generalizes its mass market.

Consoles offer far more flexibility and portability. It offers owners a chance to move or share their experiences on a variety of displays and a variety of households not limited to screen size, TV style, etc.  It’s true that a large pie of the gaming industry is mostly driven by franchises and platforms and not hardware. But developers have contractual obligations to create compelling content for the hardware. I don’t see this happening on a Smart-TV – even one armed with cloud gaming. Big companies won’t allow it. This is why we see  top studios produce exclusive games like God of War on the Playstation 3 and Gears of War for the XBox 360. Moreoever, we haven’t even talked about Nintendo’s million dollar franchises. Good luck trying to get those because those will never show up on any other hardware except Nintendo’s.

Convergence works on some things but not all. Console companies will continue making consoles for generations to come. If console companies decide to embed into TVs, they will only end up fragmenting their platform and possibly lose interest from either higher price points or lack of consumer need. If companies take the console route, every release of a new console will continue to create buzz for the press and create better anticipation and interest from potential owners. Perry argues that consoles are entering space like TiVos, Boxees and Rokus at high price points but that’s not why people buy consoles. Gamers have a tendency to buy systems for their Maddens, Halos and Killzones – not because they want to watch Netflix on their system. That’s just a bonus. People buy TVs because, well, they need one; not because Gaikai or OnLive is embedded on their TV. Again, Smart TVs and their entertainment functions are just a bonus and mostly creates value and differentiation when the time comes for the consumer to make choices.

What about cloud gaming?

Until we see major franchises create games exclusively for OnLive or Gaikai, I don’t expect cloud gaming to eat away from console marketshare. Instead, I view them mostly as another platform complimenting the console with multiplatform titles.

Console boxes are here to stay

There’s no doubt in my mind that big companies will take the route of the ever friendly console or portable. It’s the only way to get the mass market involved. It’s the easiest to understand and the most predictable. It’s the easiest to market to create buzz and tremendous anticipation for.  The console gaming industry is one of few those industries that can drive different types of content to new platforms that wouldn’t have otherwise been discovered. But ultimately, consoles will never be embedded. Not even tablets – and that’s another commentary.