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Game On: Smartphones pose little threat to gaming as we know it

Gaming is in a transitional period right now. We're approaching the end of a console generation, new handheld systems are attempting to gain a foothold, and smartphone gaming is just starting to put on its big boy pants and doing its best to swing with the big dogs. In short, it's a rather exciting time.

A recent article by Horace Dediu and Dirk Schmidt of Asymco suggests that rather than standing before the scheduled rebirth of home gaming -- as we do every 5-7 years or so -- we are actually witnessing its last days, and the smartphone craze will be the executioner. I disagree.

Before I dive in, I think it's important to separate mobile gaming and home console gaming. These are two very different beasts, and while you might see headlines for portable games alongside their console counterparts, the markets don't always share each others problems. First, let's look at home consoles.

Couch gaming is king

Nearly all of what Asymco's article uses as evidence of an industry on the verge of demise is taken from the current (7th) console generation, with little in the way of a historical perspective. So just to make things clear, the consoles that have been on store shelves since 2006 have overall handily trumped their predecessors in total sales.

Gamecube: 21 million
PlayStation 2: 155 million
Xbox: 24 million
Total: 201 million consoles

Wii: 100 million
PlayStation 3: 78 million
Xbox 360: 78 million
Total: 256 million consoles

It's important to remember that the previous generation of consoles also has an additional 6+ years of sales at this point, and the Wii, PS3, and Xbox 360 have not yet approached their final sales numbers.

The iOS App Store opened for business in 2008, so to take the twilight days of the 7th console generation and suggest that the products are somehow dipping in sales due to the emergence of gaming on smartphones appears a bit shortsighted.

Nintendo

Nintendo is featured prominently in the article because its tale of woe has been well documented and the company is extremely open with its sales numbers. What we see is a company that hit its sales peak in late 2008/early 2009 and is now coming back down to Earth. There are, of course, reasons for this:

  • The Wii: The original Wii resonated with consumers in a way that no console before it managed to. This was thanks to its intuitive controller and a suite of games that even your grandmother could play -- and she probably did. It had all the appeal of a must-have holiday toy, a la Tickle Me Elmo, combined with a bargain price and, oh, it also had Mario. It was a perfect storm for Nintendo and they bathed in the riches for a long, long time. Now, the honeymoon is over and both the non-gamer and gamer markets have had their fill.
  • The Wii U: It's still relatively new, but the fact remains that there has been very little in the way of must-play games for the console. There were already countless critics that pointed out the system's shortcomings even before we all realized its sales figures were nosediving, but it's extremely clear at this point that Nintendo dropped the ball here. It's an undesirable product, which has nothing to do with outside factors.

Taking the flash-bang success of the Wii and following it up with a product like the Wii U produces a pretty convincingly negative trend on a graph, but there is no data that shows that smartphones are the cause. The only party to blame for this turn of fortune is Nintendo.

I recently made the case that Nintendo needs to strongly consider using iOS as a platform for its own first-party games. I didn't suggest this because I think the console market is unsuitable for standalone gaming systems, but rather because after a string of very poor decisions it may be the one play Nintendo has that could both win favor with disenfranchised gamers and bring new fans into the fold.

Consoles make money, but not in the same way smartphones do

When Apple sells an iPhone 5, the company makes as much as $442 in profit. When Sony launched the PlayStation 3 it lost upwards of $300 per console. This is what makes debating console sales figures so difficult; It's a much more complicated metric than just listing how many iPhones were sold and calling it a success.

Microsoft lost $125 on every Xbox 360 it sold during launch, but when the company turns around and sells 4.2 million copies of Halo 3 at a minimum of $60 each, things start to look a lot different. Halo 3 had a reported budget of $60 million (roughly half of which was spent on marketing), but the game made over $300 million in just its first week. That's why companies like Sony and Microsoft have historically sold their systems at a loss -- it's about building the install base that will buy your games later, not about how much money is made from selling the console.

The number of consoles sold is still important, which is why it's significant that more consoles were sold in the current generation than the previous one, but the point here is that Apple (or any smartphone manufacturer) needs to sell more and more of the profitable hardware each time. Console makers don't have to worry about selling a new system every year, or even every five years, because the profit comes from licensing content, selling first-party games, collecting subscription fees from online services like Xbox Live and PS Plus, and several other avenues.

If home game consoles in general were hemorrhaging cash from their respective companies it would be pretty hard to explain why we're just a few weeks away from the third Xbox and fourth PlayStation.

Apples and oranges

Suggesting that an at-home gaming experience could somehow be replaced by a device like the iPhone or even the iPad is a bit like saying microwaves will soon replace stoves. Sure, your microwave can do some of the same things, and it may be more convenient, but when you want a hearty, home-cooked meal the microwave just can't do what your stove can do.

Yes, there are first-person shooters on the iPad that -- at least in screenshots -- look like they could have been taken from an Xbox 360, but you'd never consider one as a replacement for the other. That's why home versions of Call of Duty regularly shatter previous sales records while portable versions of the franchise pop up out of nowhere with zero fanfare or anticipation. These aren't two sides of the same market; They cater to completely separate needs.

The easiest way I can prove that is with a little help from the Angry Birds. Angry Birds is one of the most recognizable IPs in all of digital entertainment, with billions of downloads and fans in every corner of the globe. So, if portable games are reaching a point where they are making home consoles irrelevant, a console port of three of the franchise's most popular titles -- Angry Birds, Angry Birds Seasons, and Angry Birds Rio -- would probably flop pretty hard, right? Nope. In fact, sit-on-your-couch-and-play versions of these mobile hits are so popular that the crossover title Angry Birds Star Wars is scheduled to hit PS3, Xbox 360, Wii, and Wii U next month.

Portable gaming may feel the effects

Consoles are one thing, but when it comes to games you can play on a bus ride or during a break at work, smartphones may soon push out the competition. I say this because unlike the systems we play in our living rooms, the portable gaming scene has long been unpredictable and prone to dramatic shifts. The 3DS, for example, was a hot preorder item only to see sales wane and then explode again a few months later.

I still think there is room for dedicated handheld gaming systems and judging by the fact that we've seen new entries from both Sony and Nintendo within the past month, the companies believe so, too. In fact, the renewed life of the 3DS -- thanks to the 3DS XL and new software titles -- was the biggest factor in helping Nintendo turn a profit after the dismal Wii U launch.

That said, the 3DS and PS Vita will definitely serve as the canaries in the gaming coal mine, offering us a more concrete glimpse as to what effect as smartphones and tablets gain gaming clout. But until Apple releases an iPhone with a pair of analog sticks, there's no need for gamers to panic.

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