Microsoft bets gaming consoles have a future

Microsoft is battling the trend towards mobile gaming. Photo / 123RF

Microsoft pulled out all the stops this week - flashing lights, pounding music, fake smoke - to debut its new $500 game console, aimed at the kind of hardcore gamer who appreciates a good glamour shot of a microprocessor. But how many will actually buy it?

That's the question looming around Microsoft's launch of Xbox One X, as the technology giant touts its most powerful console ever to an audience that's increasingly becoming more casual.

Mobile games now make up 42 per cent of the game industry's revenue worldwide, according to a report from Newzoo, a firm that tracks the industry.

The figure is expected to pass the 50 per cent mark by 2020. Console sales have continued to grow, but at a much slower pace - keeping more or less steady with 20 per cent of revenue for the industry.

The group of gamers Microsoft is pursuing with Xbox One X is "a fairly limited market," analyst David Cole of DFC Intelligence said. Mobile, he said, is where there is real growth potential.

But Microsoft, with no mobile device and no mobile distribution channel, isn't well positioned to tap into the rise of the casual gamer, Cole said.

The increased importance of mobile games is apparent from the firms at the game industry's Electronic Entertainment Expo this year, with more than 100 mobile and social game companies coming to the floor, up from 70 two years earlier.

Big publishers, including Electronic Arts and Bethesda Softworks, took time in their preciouskeynotes to speak about mobile titles. Nintendo is expected on Tuesday to heavily play up its portable Switch console, which has been a runaway hit.

"I've been looking for [Microsoft] to use gaming as a way to break out into new and emerging markets," said Andrew Tonner, an analyst at the Motley Fool. "Not seeing them do that here was a bit of surprise."

The mobile trend is also being reflected beyond our borders.

A global audience has already declared its allegiance, said Kate Edwards, executive director of the International Game Developers Association. "In a lot of countries, the mobile platform is the default platform - that is where games are played," she said. Internationally, mobile gaming is a $46.1 billion industry, driven largely by Asia, Newzoo says. In the United States, it's a $6.9 billion industry, Unity, a developer platform, says.

But in this corner of the Electronic Entertainment Expo, you would never know. Microsoft's presentation was entirely focused on the new console and what it could do with its platform, including providing graphics updates and compatibility for old games. Those are crowd-pleasing announcements, but analysts noted that the crowd it pleases isn't as large a part of the overall market as it used to be. Plus Sony's PlayStation has a sizable sales lead over the Xbox, leaving little maneuvering room for Microsoft.

So why is Microsoft still betting big on the console? Money is one key reason, analysts said.

"Console profits are higher . . . , so the ecosystem is making a lot of money. And in the end, this is what keeps everything moving," said Patrick Moorhead, principal analyst at Moor Insights. "Therefore, I think this upgrade was a necessary one."

Others said Microsoft may also be trying to position itself in front of the next wave of expected growth in the game industry: the yet-unproven success of virtual reality and augmented reality.

"Xbox needs to separate themselves from the others," said Brian Blau, analyst at Gartner. "Traditionally, performance has been one way developers can make their content look its best and one that gamers value." Consoles, he said, will need to evolve to support these different experiences.

Microsoft doesn't have its head in the sand completely. After all, it surprised many by spending $2.5 billion to pick up Minecraft developer Mojang in 2014. Other publishers have taken a similar tack: Activision bought King, maker of "Candy Crush," in 2015, giving it short-term cash and mobile developer talent.

Microsoft is still offering consoles because it wants to offer choices to gamers rather than a single option, said Mike Ybarra, the company's vice president for Xbox and Windows. "Now's a great time for anyone to come into the Xbox family," he said.

But not everyone is buying it.

The Xbox One X, while technically impressive, isn't a sensible choice for the company as it faces a shifting industry, Tonner said. "Microsoft is kicking the can down the road for some of the new platforms that people are hoping for with this console."