So is this it? With the launch of the PS4 Pro console last Fall and this week’s launch of the Xbox One X console, two of the biggest, fastest, strongest, -est consoles in console video gaming history, is this it for the concept of video game consoles and cycles?
The easy and quick answer is “Yes,” but the realistic, informed and more lengthy answer is “no.” The hype for an iterative console upgrade will be intense this holiday season, especially given the market dynamics that the console maker currently in third place in sales this calendar year in the U.S. is now all-in for pushing the value proposition of its new console.
But first, for just a moment, if the answer is “Yes,” then it is due to the current TV upgrade cycle of 4K-ready TV sets, which could reach 30% to 40% penetration in the U.S. through holiday 2018 given how much price points have come down on new 4K TVs. What better to pair with a 4K TV than a new video game console that enables full 4K gaming and 4K UHD Blu-Ray and 4K streaming content in the form of TV or film-length content? There is your value proposition for a new console this holiday, into 2018, and beyond...until 5K and 8K arrive next. THEN, you will need another new console, but who knows? They could be built into a TV by then. However, that’s the last you’ll read about 5K and 8K in this piece.
The more interesting answer of “No” requires a deeper dive, with a look at current trends and cycles, historical cycles, and a glimpse into future cycle scenarios.
So what is the Xbox One X and does it matter? If so, why?
The Microsoft Xbox One generation of consoles includes the original Xbox One (launched in 2013), the Xbox One S (2016), and now the Xbox One X (Nov. 7, 2017). Microsoft is launching the X in lock-step with 4K TV pricing coming
down thanks to historical TV pricing curves (and Moore’s Law), where this year’s Black Friday Specials should be flooded with 50+” and 60+” 4K TVs coming in at below $600, and many closer to $500 and $400 or less. It makes for a great holiday season for any consumer looking for a TV under a tree this December.
So does the Xbox One X matter? Yes, and in a huge way to Microsoft.
Microsoft needs the X to sell well because the S not only basically allowed Microsoft to buy time until the launch of the X, but also set Microsoft up with a two-tier price point console offering moving forward. Microsoft was biding its time over the past 18 months with the S to tell consumers that it had a 4K-enabled-ish box that made games and TV/film look great, but now, that message is getting hammered home. The Xbox One X is the self-titled “World’s Most Powerful Console,” and Microsoft wants the position the X as the console for the “best console experience” for games.
And Microsoft delivered. We’ve been testing an Xbox One X on the house 65” Samsung 4K TV, and the games and streaming video looks pretty spectacular. Some of the sports titles which haven’t even been fully rendered yet in native 4K have caused visitors to the house to pause and ask if it was a live match. And the audio rocks. Playing games such as Activision’s Call of Duty: WWII has had intense but engaging audio (that, maybe because of volume, has caused the house dogs to flee the room). Streaming 4K content from Amazon has looked just as good as using the Kindle 4K Fire TV box, which may now sit idle (but the remote still works better on the Kindle than on the Xbox One X for navigation).
Microsoft needs the Xbox One X because it is facing strong competition from the various PlayStation 4 models, which have now sold north of 67 million units, compared to around 30 million units in sales of the Xbox One models. It is most likely competition for “migrators” (current PS3 or Xbox 360 owners) who haven’t made the jump yet to a Gen 8 console that Sony and Microsoft are focusing on. Further, Microsoft is looking for “upgraders” (current Xbox One or Xbox One S owners) who want to make the jump to a full 4K entertainment experience to buy an Xbox One X.
The other threat for family entertainment dollars for Microsoft is from Nintendo. The Switch has been the top-selling console in the U.S. since its launch last March, coupled with a huge rollout of top-shelf titles, including Super Mario Odyssey in October of this year. For more on Nintendo’s success this year, check out the DWR piece from January, 2017: Why The Nintendo Switch Could be #1 in 2017. If there is a second console being bought in households, it is probably a Switch, not a PS4 owner buying an Xbox One X or vice versa.
What are realistic expectations for the Xbox One X?
Microsoft needs to look no further than PS4 Pro sales, which have likely been 12%-20% of the mix of sales of PS4 consoles since it launched late in 2016. The new, high-end models from Sony and Microsoft are not cheap – they are $399 to $499. The “upgraders” and “migrators” are still viable targets because this 8th gen of consoles is in year 4, coupled with the household upgrade migration to 4K TVs over the past two years and moving forward in bulk over the next three holiday seasons.
The upgrade cycle for TVs are notable because it doesn’t mean just a new 4K TV in the living room. The average household has 2-3 TVs, so the cycle will continue for 4-6 years (at least in the advanced U.S. market compared to other global markets, meaning the 4K upgrade cycle has a long tail in marketing terms) as the other sets in the household get upgraded as 4K TV prices come down. This is all good news for Sony and Microsoft for the longer-term run rate of console sales. If Microsoft’s mix of Xbox One X vs. Xbox One S sales are 90%/10% (in favor of the S), Microsoft won’t be surprised. If the mix is closer to 80%/20% (in favor of the S), Microsoft management will likely be happy.