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Saturday, June 07, 2014
Sony And Microsoft On The E3 2014 Battlefield


E3 is expected to be a highly competitive and engaging commercial thriller between console heavyweights Sony and Microsoft, with Microsoft to have already repositioned it self at the gaming / entertatinemt market but Sony's PS4 to hold the crown of the best selling video game console.

Pre-announcements from Microsoft have already altered the stance between the companies heading into the event. Microsoft decision to aggressively re-position Xbox One as a gamers' machine and to remove the need to buy Kinect at this early stage will have taken Sony by surprise and is likely to have resulted in some change in emphasis for Sony's E3 press event.

Microsoft's strategic repositioning removes much of the difference between the competing platforms and moves the conversation on from 'general entertainment (Xbox One) versus gaming (PS4)' and the price difference between the consoles. Each console is now closer to each other than at the November launch, meaning that Sony will need to refocus its efforts and respond during its E3 press event as it seeks to retain the upper hand.

Sony remains in pole position for next generation console sales in a number of key Microsoft territories including the US and UK, according to IHS Technology. Initial findings of sentiment tracking of UK console gamers completed in early June shows that of those seeking to purchase a next generation console in the next 3 months 54% stated a preference for PS4, 28% for Xbox One and 18% for Wii U. IHS Technology forecasts show an expected global 2018 installed base of 65m for PS4 and 48m for Xbox One.

Now that the price differential is less of an issue, games exclusives and value-added services are expected to be the key strategic battle between the two consoles. Exclusives have always been central to driving adoption, but last console generation most third-party titles went multi-platform having been more aligned to Sony's camp following the dominant success of the PS2. This left the onus on first-party studios to generate exclusive games, but the success of the Xbox 360 also gave Microsoft strategic leverage to negotiate timed or premium content exclusives.

Both Microsoft and Sony aer expected to be keen to stress their platform exclusives from third-parties at E3, but we will also be looking for signs that the strategic balance has shifted back towards Sony following strong sales of the PS4.

Following Sony's decision to put multiplayer gaming behind the paywall for the PS4 and Microsoft's decision to sit entertainment apps outside the paywall, there is now limited variance in the premium online console offerings of each company. Not only are Subscription services a very significant revenue stream, they are also a vitally important tool to lock gamers into specific platforms. As a result, free games or discounts bundled with PS Plus or Xbox Live Gold are expected to become a major battleground between the companies as they seek to adjust their value proposition to gamers.

Sony, Microsoft and Nintendo are all now, more than ever, courting a wider group of game studios and developers reflecting the growth in popularity of what are tagged as 'indie' games on the PC, and more lately across mobile and smartphone platforms. With most third-party AAA console titles going multi-platform with limited exclusivity, the importance of indie games as commercial differentiators has risen. Exclusivity announcements based on indie download titles are expected from both camps at E3.

Since the launch of Xbox One and PS4 both Microsoft and Sony have witnessed a substantial shift towards digital sales of AAA games now that all new games are available through online console platforms day and date with retail releases. The next great step will be enabling the instant play of digital versions of AAA titles, rather than having to wait for downloads, and will be a key differentiator for the company that can implement it first. Further announcements related to PlayStation Now - Sony's streaming service available as a private beta in the US - are expectd at E3, possibly in the form of rolling out the service to new territories. However, while Sony has publicly taken a lead in streaming implementation, this remains a part of the digital strategy yet to be dominated by either player.

Pricing announcements are not expected during E3 for either Xbox One or PS4. PS4 continues to sell very strongly at its current price point and the new Xbox One SKU without Kinect is now comparable to PS4 at recommended retail pricing. Value bundling will probably become more central to competitive differentiation. So look out for interesting announcements on bundled download games and Sony dual hardware packs - PS4 and PS Vita.

Following Microsoft's Xbox One unbundling announcement we expect Kinect-based experiences to take a conference back seat. While there will be Kinect games on show during E3, expect these titles to play second fiddle to more traditional console games targeting the early adopter.

The concept of multi-screen access to console content has been around for a number of years, but both Microsoft and Sony's strategies in this area have stalled in recent times. Dual-screening from tablet or smartphone apps, or other companion apps have already been done with limited impact. There remains an opportunity for either company to take the lead here with a compelling offering even with Microsoft's recent update enabling a wider number of Xbox SmartGlass features.

Industry and consumer interest in virtual reality has escalated significantly since CES in January and the Oculus acquisition by Facebook. Sony announced its Project Morpheus virtual reality headset at the Games Developer Conference in March to great coverage and has subsequently confirmed that it will be supported by PS4. It will be hard for Sony to resist revisiting Project Morpheus at E3, but also understand that VR tech is difficult to successfully show off on stage, with more of the action probably taking place behind closed doors. Knowing that Sony has Project Morpheus in its locker, Microsoft may well be prompted into responding with its own proof of concept, if not for VR, then for another adjacent technology.





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