Microsoft announced the Xbox One this week, and the reaction from hardcore gamers is that the sun is about to fall from the sky.
"Oh my God, where are the games? Can you believe they spent so much time talking about television? Who cares about sports? Shut up about Game of Thrones! Aren't there any games besides Madden and Call of Duty? Microsoft is dead to me!"
Okay, granted, the one-note nature of the presentation made for some hilarious YouTube video moments. And there's a lot for potential Xbox One players to be concerned about: Its lack of backward compatibility with the thousands of dollars' worth of content currently sitting on our Xbox 360 hard drives, the uncertainty over used games, the nebulous "always-online" requirements, the fact that game developers can't self-publish like they can on PlayStation 4 and Wii U. These are valid concerns and some of them may be issues that Microsoft is forced to address when it launches the Xbox One.
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How Xbox One Will Fight Sony, Steam, and Everything ElseBut to the dedicated gamers that wish Microsoft would stop pushing the all-in-one entertainment angle – do you really know what you're asking for?
It's not hard to figure out what the gaming-first crowd wants: a super-powered box that connects to the TV, has a handheld controller and has a huge library of games from the biggest-budget epics to the breakout indie hits. They don't want a PC because they don't want to mess with settings and deal with crashes; they want a standard platform that Just Works. It can do other things, sure, but games are the meat and everything else is somewhere between the gravy and the pepper shaker.
Hey, that sounds like an awesome product! Tuned precisely to our very needs. Say, do you know how many companies – in the entire world – currently offer such a product?
Two.
Nintendo bailed the hell out of that business in 2006 when it shipped the Wii. Nintendo had been graphically competitive, if not superior, up until then. But it saw the writing on the wall and opted out of the more-power arms race. So it's down to just Microsoft and Sony. And as we are all now aware, Microsoft's strategy has shifted from gaming to everything. It won't be happy until you're doing everything in the living room through your Xbox One, and if that means it has to take steps that impact its performance as a pure gaming machine, well, you can't make an omelet without breaking a few eggs.
So I rescind that comment. It's not two corporations currently creating high-end game boxes for gaming gamers. It's one.
How's that working out for Sony?
Oh, right. It can't seem to figure out a way to make any money off the PlayStation business. This chart is from a 2012 speech by game developer Ben Cousins titled "When the Consoles Die, What Comes Next?" To bring it up to speed, Sony only made about $17.2 million in operating income on the PlayStation business off revenues of $7.2 billion, a 94 percent drop from the last year's income.
So as a general matter, Sony's PlayStation business is not making money. And yet they're doing everything hardcore gamers want. PlayStation 3 is a graphical powerhouse. They're giving online gaming away for free, instead of charging 60 bucks a year like Microsoft does. They pour money into indie developers and generate critically acclaimed arthouse hits like Journey. Microsoft refuses to take risks with its software, releasing endless iterations of Halo and Forza while Sony releases out-of-the-box concepts like Heavy Rain and The Last of Us.
Surely Microsoft's Xbox business is doing even worse, right?
Hm. Well, although Cousins points out that the division of the company that contains Xbox has, over its lifetime, lost a bunch of money, we can see a clear upward trend in recent years. And again, to bring this up to date, the Entertainment and Devices Division had an operating income of $342 million in the last quarter. Since other products (like Skype and Surface, e.g.) are lumped into that division, I can't say whether the Xbox 360 in particular is turning a profit. But it would seem as if Microsoft is at least on the way to turning it around.
If it's possible to create a superpowered game box, why hasn't anyone been able to do it successfully for almost a decade? Why did Nintendo quit, why is Sony hemorrhaging cash and why is Microsoft putting all of its effort into pitching Xbox One as a TV-enhancement device? Ben Cousins thinks he's figured it out: because the console is dead, a sentiment with which I would strongly agree.
All indications are that the math is not working out on this deal anymore, and has not for a long time. It's looking more and more likely that what the gaming-only crowd wants is, as a financial matter, simply impossible. There may be no way to make money selling a bleeding-edge $500 games-only box with $60 games anymore. The expense of producing it all may be well out of whack with what players are willing to spend to get it.
By broadening the functionality of the Xbox 360, Microsoft hoped to attract more users (and dollars) from outside the core. By positioning the Xbox One as an everything device right at launch, it's hoping to widen that circle even more. I'm not saying it will necessarily prove to be a successful strategy. But neither is it the obvious misstep that people think it is. Maybe my household is just another cliche, but we've been using our Xbox 360 at home to binge-watch Game of Thrones, and the HBO GO app on the 360 is an infinitely more appealing experience than navigating Comcast's On Demand menu. And yes, I have heard a lot of people do like sports.
Having games as just one part of a broad entertainment device with multiple, diverse revenue streams might not just be Microsoft's (and Apple's and Google's) preferred outcome. It might be the only way that high-end game machines survive at all.
