Abstract

Diversification of Game Console Functions Focuses on A/V Entertainment

Surveys of home entertainment habits among consumers in North America have shown that watching TV and watching movies are still the most important forms of entertainment for most households. In order to boost the game console penetration rate, console vendors have been working to improve consoles' hardware and software capabilities to meet consumers' home entertainment needs.

The PSX integrates game console and DVD player/recorder functions; it can be used to play games, watch DVDs, watch TV and record TV programs. The PSP can be used to view movies or TV programs online, or to browse the Internet. Users of the next-generation game consoles ?the Xbox 360 and PS3 ?will be able to use them to watch movies, watch TV, access the Internet and view multimedia files; these consoles will also support high-definition image output and Dolby surround sound. Audiovisual entertainment has thus become the main focus of the game console's home entertainment role within the digital home.

Business Opportunities from Peripherals and Internet Service

Just as the popularity of the iPod has stimulated sales of iPod peripherals, so the increasing diversification of the game console's role within the digital home has created new business opportunities for game console peripherals such as memory cards, hard drives, batteries, audiovisual cables, file management software, screen output devices, headsets etc.

Currently, annual shipment volume for conventional game consoles and handheld game consoles combined exceeds 50 million units. With the gamer age range continuing to expand, it is anticipated that the market for game consoles will also continue to grow, thereby boosting demand for game console peripherals.

With the increase in broadband penetration rates, the increasing maturity of online transaction mechanisms and the building in of Internet access function into new game console models, the number of consumers using a game console for Internet access is set to increase dramatically. Besides game-related operating revenue, game console Internet access will also help to create revenue from other types of services, including movie and music downloading.

In the case of Microsoft, the Xbox Live service ?which is the core element in Microsoft's Internet services plan ?is mainly oriented towards gaming. Besides matching up gamers with other gamers for online play, Xbox Live also includes a Marketplace service whereby gamers can use Marketplace Points to purchase game software and accessories.

Sony's PSP online service is oriented more towards audiovisual entertainment, with services that include being able to pay to download movies or music. In the future, as the online environment reaches maturity, game console vendors are expected to start offering an even wider range of online applications.

Gaming Still Core Value

The integration of the PS2 and a hard drive-equipped DVD player to create the PSX sent shockwaves through the game console industry. Not only was the PSX able to provide most home entertainment functions with one device, it was also very reasonably priced. However, the sales performance of the PSX has been far from impressive. While this lackluster sales performance was partly due to poor internal communication at Sony, the main problem was lack of clarity in product positioning.

All of the next-generation game console models provide a wide range of entertainment functions. The console vendors anticipate that the addition of these new functions will encourage users of older models to upgrade; they are also hoping to expand the potential market for game consoles by getting families that do not currently own a game console interested in buying one. While the situation facing vendors when they roll out the next generation of game consoles will be different from that which Sony faced with the PSX ?since the PSX was based on an existing model which had been on the market for several years, the PS2 ?the vendors will still need to pay attention to the issue of product positioning.

For both hard-core gamers and ordinary home users, the main consideration when purchasing a game console is its gaming capabilities, not its ancillary DVD or Internet access functions. Regardless of whether a game console can provide multiple home entertainment functions, those home users who have no real interest in gaming are unlikely to buy a console just for the other entertainment functions. Vendors still need to focus on the gaming aspect when marketing new game consoles.

Furthermore, the main source of profits for game console vendors is game software sales, not the sale of the game console hardware. If they want to encourage ordinary home users to buy game consoles, the vendors will need to concentrate on providing new types of games that are simple, fun and easy to get into; only then will the game console be able to secure a dominant position within the home entertainment market.

Appendix

List of Companies