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Thursday, April 04, 2013

Will the Game Console Market Recover in 2013?

Last year was very troublesome for the video gaming console vendors. After shipping over 3 million Wii U units during the 2012 holiday season, Nintendo’s next generation console is now facing a challenging market.

2012 saw just under 30 million game consoles shipped from Microsoft, Nintendo, and Sony (excluding PS2) -- that's roughly 10 million fewer than the previous year.

Despite these results ABI Research looks at 2013 and beyond with cautious optimism, but the company expects Microsoft and Sony to determine the future prospects for the game console, not Nintendo.

"The Nintendo Wii U’s troubles are not indicative of the expected market reception for the remaining 8th generation of consoles," said Michael Inouye, Senior analyst at ABI Research.

In fact, the Wii U will likely prove a closer fit with the current generation than the next.

The software released to date also bears out this assessment with many cross-platform games that were previously available from Microsoft and Sony. While the Wii U Gamepad offers some novel gaming elements it has not yet resonated with core gamers.

ABI believes that 2013 is expected to start a chain of positive growth years for the game console market, ending the previous annual declines. This optimism, however, is predicated on several factors.

First, that the Wii U receives a price reduction in 2013. Second, that next gen consoles from Microsoft and Sony launch with adequate time and production to meet holiday demand, with pricing below $450 and ideally at $350.

Finally, that the next generation consoles don’t adopt significant consumer unfriendly practices that will cause consumers to rethink their purchases -- such as steps to inhibit the used game market or requiring an always on DRM/Internet connection to prevent other forms of piracy.

"Mobile gaming has certainly diminished the opportunities for console manufacturers in the casual gaming market and this has impacted Nintendo the hardest, added Sam Rosen, TV & Video practice director.

The evolving business models and added competition have also created additional pricing pressures that encourage price cuts sooner than manufacturers would like.

New entrants into the console market will add an additional layer of complexity, which should make things interesting, but ABI still anticipates the market will prove a difficult one for the upstarts. We'll have to wait and see.