While most of us are avidly watching E3’s live events for new game announcements, these boisterous carnivals also serves as a sort of school exam for the big three hardware companies. The eyes of senior bosses, analysts, financial journalists and investors will be upon Los Angeles over the next few days, paying close attention to the press conferences, hoping to understand the evolving strategies of Microsoft, Nintendo and Sony.
In a post emailed out this week, IHS Markit analyst Piers Harding-Rolls smartly divided the three console companies according to their different problems and opportunities. These are partly shaped by the companies’ performance in this console generation, so far. But also by the bigger picture goals of their corporate organizations. Let’s take a look at how the hardware companies are performing, and what Harding-Rolls has to say to investors.
Microsoft is struggling in the console race, as the chart below demonstrates. It’s found it difficult to recover from an abysmal positioning strategy at the Xbox One’s launch, one exacerbated by a weaker roster of first-party exclusives than rival Sony. Even if it delivers a rocking line-up of exclusives, above and beyond the expected franchise iterations, it’s difficult to project the needle moving that much.
But the company has innovated in ways that could pay off in the longer term. Xbox One X is clearly a better piece of kit than PlayStation Pro 4. And the company’s Netflix-style subscription service Xbox Game Pass is only starting to get into its stride. It’s a $9.99/month subscription service that offers access to a library of more than 100 games (including all upcoming Microsoft-published titles at launch).
“It’s a strong, differentiating offer that Sony has no answer to at present,” notes Harding-Rolls. “Microsoft’s financial strength allows it to take these types of disruptive risks, and although it was a commercial risk to include new releases in a cheap subscription service, the changing nature of console games monetization means that a larger playing audience and stronger player engagement can be financially positive overall.”
Sony innovated with PlayStation Plus, but after a strong start, it’s currently looking second best in the subscriptions market. Although the company is unlikely to be able to match Microsoft’s service with its own offerings, it will likely find a way to bolster its own offering, just to keep in shouting distance.
Its strength is in big name games. With The Last of Us Part 2, Death Stranding, Spider-Man and Dreams on the roster, Sony will want to highlight its software superiority.
“Sony enters E3 off the back of a tremendous run of first-party titles which have been very well received by critics and gamers alike,” says Harding-Rolls. “Sony’s confidence in its output is illustrated by the fact it has already outlined the key titles it will be focused on at E3.”
Nintendo-watchers will be happy that the company has a big name game to follow up on last year’s superb Zelda and Mario releases. Super Smash Bros. for Switch will sit at the center of the company’s Nintendo Direct presentation for E3, and is likely to invigorate the company’s hardware sales.
The rumored arrival of Fortnite on Switch is also likely to be a winning move for Nintendo, underpinning a major push into the families-and-kids markets, where it’s always most comfortable. The new Yoshi game will also be a strong play here.
“Expect content targeted at family, female and younger gaming audiences to play a central role at Nintendo’s E3,” says Harding-Rolls. “It’s important to note that Nintendo will be looking to do that without marginalizing existing Switch gamers, a difficult balance to achieve.”
All the big three companies have their weak spots, and Nintendo’s has traditionally been online technology. With Switch Online, it’s looking to brush up, but the service needs to carry a lot of value, rather than simply being a monetization opportunity.
“One area of continued weakness is Nintendo’s online offering,” adds Harding-Rolls. “With the whole console sector shifting towards a service model, I’d like to see a heavy accent on its online capabilities and content at E3 to set up the launch of Switch Online later in 2018.”
We’ll be closely watching all the E3 live events over the next few days, and will be posting reactions and analysis from our team of journalists.