CES: The future of the living room

In an article called 'Yesterday's Future' published last Friday, Rob Fahey branded CES 2012, "a wasteland for games." The console announcements anticipated by the credulous few failed to materialise, replaced by extensive lessons from Sony and Microsoft in the questionable art of saying very little for as long as possible.

These days, Fahey argues, the sort of companies capable of making megaton announcements tend to do so on their own time, on their own terms, and away from the glitz of Las Vegas and the glare of their competitors' products. CES may have been a major platform for the direction of gaming 10 years ago, but today it's a mountain of phone and television manufacturers as eager to learn about the next great leap for the games industry as you or I.

Frankly, it gladdens the heart to see the games industry at the forefront of consumer electronics and entertainment rather than lagging behind, and this shift was reflected in a panel - as reported by IndustryGamers - discussing the growing use of consoles for non-gaming content.

Chaired by Ted Cohen, managing partner at TAG Strategic, the panel was composed of Verizon's director of entertainment services Joe Ambeault, Ooyala CTO Sean Knapp, PlayStation Home director Jack Buser, and Wedbush Securities analyst Michael Pachter.

No prizes for guessing who climbed off the fence first.

Cohen's question was both broad and familiar: "There's a battle for the living room right now, by people as diverse as Google TV and Apple TV, your cable company, the consoles... Do you believe that consoles will ultimately win that war?"

I think Nintendo, if they don't figure out that there really is something called the Internet, is a loser. Everybody else in the middle either wins or loses based on the decisions that they make

Michael Pachter, Wedbush Securities

For Pachter, there are three winners: content owners savvy enough to identify and the new distribution channel offered by consoles and other devices, the internet service providers offering the bandwidth to make that distribution possible, and Apple.

"Do device companies have a place in this whole ecosystem?" Pachter asked. "The answer is one device company for sure does: Apple wins. For sure. Apple is the Sony of this century. This generation is buying Apple everything because Apple are brilliant marketers and pretty damn good device manufacturers."

Buser took exception to a view of the future where Sony wasn't a clear victor, citing the company's heavy investment in its first-party studios - "more than Microsoft and Nintendo combined" - as an example of a commitment to content that its competitors don't necessarily share. And in Buser's view, this approach also extends to PlayStation's third-party partners, creating unparalleled loyalty to the brand.

"The PlayStation philosophy has always been about our third-party partners and our ability as a games industry to raise all boats together as partners," he said. "We're not like some other game platforms that say 'Hey! Put your game out here on the App Store and maybe you'll be one of these 10 featured apps if we feel like it right now, and then the rest of you guys can all go out of business.'"

"Or some other platform owners who are saying, 'Look, we're gonna make all the great games and if you guys can maybe make a great game on our platform, good luck but we're not going to help you much.' Or some other guys who say 'Hey, we hand-picked you and we're gonna shove a bunch of money in your pocket and the rest of you guys can all dial the 800 number and try to dial through to the front desk.'"

Despite Buser's less-than-generous appraisal of Sony's main competitors, Pachter conceded that the PlayStation and the Xbox had a "gigantic competitive advantage" in the race to own the connected living room over multimedia services like Roku and Apple TV. It's less a matter of opinion than simple numbers.

"There are something like 19 million 360's in households right now, connected to the internet; [Sony is] probably 15 million, and you compare that to 1.5 million Roku boxes and I don't know how many Apple TVs, but that's kind of a niche device."

It took a question from the crowd to move the discussion into more provocative territory, when a lone voice expressed the growing belief that the next generation of consoles will be the last. Cohen pressed the issue: "In 18 to 24 months, is the console gone?"

Buser predictably side-stepped the issue, painting the next ten years as a period of "radical" change in which Sony would participate unafraid, always putting the gamer first. "If the world does radically change in the next ten years we are well-positioned for those changes. So bring it on!" he stated confidently.

It fell to Pachter to actually address the question, and the answer may surprise those expecting the entire future to arrive all at once.

"There will be another generation of consoles. There probably will be others after that," he said. "We will see migration to the cloud, but it's a migration. You're never gonna have a step function, where every game developer, every publisher says, 'Screw it. We're putting everything in the cloud, on OnLive.'"

People still buy CDs and play them in CD players although there's no reason to. As long as there's somebody who is going to buy a game console, then consoles will continue

Michael Pachter, Wedbush Securities

"Just like in music; the US music industry still sold 300 million CDs last year. People still buy CDs and play them in CD players although there's no reason to... As long as there's somebody who is going to buy a game console, and buy a game in that format, then consoles will continue. Microsoft, Sony and Nintendo have a vested interest in their core royalty business: getting people to put content on their platforms. Nintendo doesn't even know there's an Internet yet so trust me, they're going to be making consoles until someone explains it to them."

Both Sony and Microsoft, with long-term strategies that encompass games, music, film and television, are best placed to survive the migration to the cloud, and potentially thrive after the fact. While strictly cloud-based services like OnLive will eventually find favour among people with particularly narrow requirements when I comes to entertainment.

"I do think OnLive thrives, I do think we're going to get a migration of the product, I think ten other companies are going to try to do the same thing," Pachter said. "When there's a cost-conscious consumer who says, 'I can live without Uncharted, or I can live without Gears of War, but I really want to play Madden Football only on OnLive, you'll get that opportunity. So I think console generations will be smaller than in the past, but I think we'll still get them."

But for every select group of winners, there is always a far larger collection of losers, and experience tells us that there will be a few surprises among their number. When Cohen asked who is likely to end up trailing the pack in the years to come, Pachter once again had the swiftest response.

"I think Nintendo, if they don't figure out that there really is something called the Internet, is a loser," he said. "Everybody else in the middle, and that includes Sony, either wins or loses based on the decisions that they make."

"I think a lot of pundits and investors think that everything is black and white, there is no gray. DVDs are going away because we get everything on the Internet - not for another 20 years. Retail's going away because you can buy everything on the Internet - not in our lifetimes."