AAA Games versus Smart TV

DISCLAIMER: This is a speculative opinion piece based on public information. These opinions are my own and do not represent my employer.

The game industry is about to get flipped. The console in the living room has long been the king platform for games, but these days the living room is different. Only blockbusters like Call of Duty or breakout indies profit in the arms race of the AAA. The traditional games business as a whole is shrinking.

The old console cycle of simply iterating on graphics hardware is dead, and it’s never coming back. Nobody is sure what the next game box will look like. What’s more, Apple TV and GoogleTV are trying to bring some of the magic of Android, iOS, and the Web into the living room and are threatening to upend the PS3 and Xbox 360 in the process.

Game consoles are primed to be disrupted, and the next generation of Smart TV might just be the new champion.

Where We Stand

There is massive growth happening in the games industry on smartphones, Facebook, the Web, and Steam. That style of game product – digitally distributed, service oriented, focused on ongoing revenue – is bound for the living room.

Enter Google and Apple

When they get there, an app store will meet the realities of couches and big screen TVs and a very peculiar new box will be born. This new box will have a fancy controller, sort of like a game controller, and it will happen to play games, but it won’t be an Xbox or a Playstation.

It’s not just games that are in for a shakeup, there is a full on war brewing in the living room around access to video content. There are Smart TVs like those from Samsung, there’s Roku and Boxee, and the old giants like Comcast and Verizon are getting smarter about the services they offer. The Web and services like Hulu and Netflix are changing TV behavior forever.

Google and Apple that are the most interesting contenders because they are big and don’t keep content out like the game console manufacturers. In this respect they are open. What also makes them interesting is that games will be important part of their arsenal in this battle and that will pit them against Microsoft and Sony’s AAA firepower.

It certainly doesn’t look good for games in the short term – the traditional business is in decline. But, once the dust settles and the new living room app store reigns supreme, this new box could be incredible for the game industry. Read on for the full analysis:

Where We are Going

The current console cycle has passed it’s 5 year mark and is getting a little long in the tooth. Away from the living room, very interesting things have been happening around the App Store, Steam, Facebook, and the resulting indie games boom. Open development and frictionless downloading have proven to be fruitful.

To Microsoft, Sony, and Nintendo, an app store model is not attractive. The race to $1 apps terrifies them. Too bad for them that their current model won’t support growth.

A low-power app box that is sold for profit (the Apple model) will have a hundred times as much content as a high-power box sold at a loss (the likely PS4). The old game industry console will get trumped by a great set of services and a great user experience – an app store in the living room that works and makes app management effortless. The decline in the PC graphics card race means that the gap in graphics capabilities will be negligible. There will be very little reason for anyone, even gamers, to prefer a PS4 over what is coming.

The Smart TV Revolution will be like the Smartphone Revolution (but different)

You might think that cable providers are in the same position that the old phone carriers were in in the smartphone revolution. They are primed to be disrupted by great software, UX, and open market apps. But, the apps won’t be the same for Smart TV. Try this thought experiment: Item Sales (call it DLC, MTX, or in-app-purchase if you like) is a massive growth business model in games everywhere. What if TV had the same option?

  • Watch a free HBO show and one-click sub to the rest of the season (then select an option for a special collectors DVD to be mailed to your house).
  • Instantly pay NBC $5 to make this season of The Office ad-free and available for streaming when you are available.
  • That TV ad for an iPod can be clicked, taking you to the Apple store right there on your TV.

If iPhones were the smartphone revolution, this is the true potential of Smart TV. Apps on Smart TV will be nothing like apps on smartphones. Apps on phones do things. When you’re out and about you need “an app for that” so you can get a thing done and move on. When you’re ass-deep in the couch you don’t want to do things, you want to be engaged in great content. Apps on Smart TV will be about making content convenient and social.

That may not sound as revolutionary as apps on smartphones, but when you consider the variety and complexity of content available in the living room (TV, News, Movies, DVR, Internet, Games), it becomes clear how much convenience and control actually matter. Smart TV services will be the difference in getting TV content owners to unclench and leap into the future where they will make more money.

There will need to be a standard of interaction – an iOS for the TV. This open standard will attract the best software, and the customers will follow, much like how apps sell iPhones. Apple and Google have the experience in OS building and app focus that can define a new standard of interaction with TVs.

But, wait a second, what do games even have to do with Apple TV or GoogleTV? Why don’t they just skip games all together? It’s possible they will, but if they manage to build a great user experience (UX) for Video, Apps, and their conflation in Smart TV, it will be a great user experience for games as well. The couch is an even better place for games than your phone or PC. Games will dominate living room app stores even more than they do on mobile and the web.

Next Page: The Winning Recipe

9 Responses

  1. Nice article.

    I think three things:

    1. There’s no incentive for the content people to make this happen. I used to work for BSkyB on the interactive TV games as a producer, and for decades the various interactive teams inside Sky have been agitating for up to date technology, but companies like Sky won’t bite. Their reasoning, which is hard to argue with, is that they need to get cheap boxes into people’s homes that can carry digital signals, and once they’re in they have no incentive to go around replacing millions of boxes with technology that allows viewers to do things other than watch TV.

    All the cable and satellite companies have the same problem, and they’ve spent a long time figuring out how to deliver VOD etc onto their existing technology as a result, and that’s not going to change. So that means that any extra Google or Apple box has to be in addition to the cable box, and not free. That’s a bit of a problem.

    2. They may always end up falling between two stools. It’s hard to say what problem these devices actually solve. With VOD, DVR and hundreds of channels the average consumer arguably has far more video content than they actually need, so yet another source seems a bit frivolous. With game consoles that use dedicated (therefore better) controllers, the play experiences are very likely to be better and so the enhanced App Box’s versions might seem quite lightweight by comparison.

    I think nobody has solved that question yet. Without a compelling problem to solve (and I’m not sure box reduction is that compelling) it has to be sold as an nice-to-have, which instantly reduces the market ubiquity.

    3. Perhaps the solution is to go upwards. It doesn’t apply so much to Google, but what strikes me as odd is that Apple doesn’t have a gaming machine. They have all the components in place, from a development platform, to a commercial platform, an approvals department to a great reputation for designing awesome hardware. So isn’t the answer (for Apple at least) to do a PS1-era Sony and create a game console?

    Overwhelmingy, I think yes. What they could do is create a console that is wholly iTunes based, uses the App Store etc, but sells big games as opposed to just Angry Birds. Of course it could do Angry Birds as well, but – notionally at least – they could take a huge wedge out of the business model of the disc-based platforms that exist today. That to me is the missing link in the chain, because it gets the Apple tv into the homes through replacement rather than as an additive box.

    Summary:
    All in all though, I think there will not be one mega-convergent box. The economics just don’t stack up and there’s too many power players on the content side who really don’t want that to happen. There’s nothing stopping a whole lot of disruption happening on the console side though.

    February 2, 2011 at 3:35 pm

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  3. Lucas

    Tadhg,

    Thanks so much for the reply. Looking at this from the perspective of the TV world is the best way, and it’s the arena that I have the least experience in, so your comments mean a lot. The big media conglomerates will undoubtedly act as a massive drag on this transition. As you point out, they may prevent it from happening at all. After reading your reply and doing some more research, I can readily see how big of an obstacle it is that they represent.

    However, with so many companies like Hulu and Netflix working on services that can offer these companies more revenue, not less, I think that angle can be solved. There are many incentives for MS, Sony, Apple and Google to bring a iOS-like experience to the living room (as described in the article). That pressure, and the competition between these companies has the potential to sidestep whatever challenges Sky, Time Warner, Comcast, and their ilk represent.

    -Lucas

    February 7, 2011 at 2:37 pm

  4. Pete Morrish

    Another website, another disagreement with Tadhg.

    (We’re mates, by they way, and have worked together in the past; whilst he was producing at BSkyB, I was producing at one of their developers. Part of my current day job involves working in the next-gen connected TV space.)

    Just a couple of thoughts from me.

    1) I don’t think that the connected-TV games market will start with trying to appeal to gamers that are already out there (i.e. your Xbox gamers, PS3 gamers, etc). So I *do* disagree with the idea of Apple bringing out a dedicated games console. From my point of view, games consoles already exist to meet the needs of dedicated gamers; they ain’t going anywhere just yet. Such a device – with App Store – would be a great step, and would shake up the established industry players, but it wouldn’t be disruptive from the consumer’s point of view.

    2) I think the unmet consumer need will distil out of the mass of non-gamers who want quick, convenient distractions. People that are scared of traditional game controllers (the iPhone has shown that good content fits new non-scary controllers, so a traditional-style controller is by no means a pre-requisite for connected-TV gaming to properly take off), and that can’t be bothered turning on another box, waiting for it to boot up, then navigating menus until they finally get to the content they want.

    Instead, here’s a thing (and I’m thinking on the fly here; I’ve not heard anyone posit anything similar to this before): games as channels.

    The ideal setup for the traditional use case of the TV-watching experience, and for the traditional UX of the those slumped in front of the telly, is to have games ‘always on’. I’m thinking that (e.g.) Angry Birds is on channel 626. Flick to channel 626, and *there’s* Angry Birds, exactly where you left it. No loading time, no extra set-up, no nothing. It’s just another TV channel from the user’s point of view.

    From a tech viewpoint, it’s similar to the iOS implementation of multitasking, I guess. It would be the ultimate in convenience, and would leverage pre-existing mental models of both TV channels and the TV-content consumption experience (meaning that there’s no learning going on; the entire experience is self-evident from start to finish).

    As far as I know, none of the current or over-the-horizon boxes work in this kind of way. It’d make for a nigh-on perfect user experience, though, and could well be the blue touch paper that the space needs.

    February 10, 2011 at 9:48 am

  5. Lucas

    Pete,

    Great comment. The Wii calls their games “channels,” but you don’t flip between them, you still have a loading screen. It’s essentially the same as the iOS home screen of apps.

    I think a lot of modern TV users are used to a guide screen – one that lets them watch while they browse for something else to check out. That’s also similar to a home screen of apps, but with multitasking (as you point out). There’s definitely a great benefit in multitasking – flip to Angry Birds while your show is in commercials, or watch/play split screen.

    However, managing all of that is just another layer of complexity that requires finesse and a sublime input method.

    There is no doubt that any one of the four major companies I profile could make huge UX improvements over the status quo.

    February 10, 2011 at 11:19 am

  6. Dani

    So what’s your view on this and Nintendo after the announcement of the Wii U?

    September 1, 2011 at 8:00 am

  7. Lucas

    If I were to rewrite this now, I’d put Nintendo just under Microsoft, but above Sony.

    The capability to play a game on the small screen while the big screen is occupied is a really slick innovation. Nintendo continues to dabble in using it’s innovative controllers for more than just games. Netflix on the Wii is a huge hit. The Wii U controller will let you surf the web. It could potentially combine the browse-and-sling navigation of an iPad with the tactile surfing of a remote (using the game buttons).

    Yet, I don’t think there’s any indication that Nintendo will want to tackle the UX problem of managing TV and Movies with its controllers. Nintendo has typically strayed from providing live services, and I don’t think they have the experience or back-end services/infrastructure capability to pull it off right now. As long as they are relegating their offerings to the 3rd party Netflix/Amazon VOD realm, they will never have direct control over UX and will be limiting the potential of those offerings.

    Let us also remember the 3DS and Virtua Boy and that not all of Nintendo’s innovative controllers have legs. The Wii U is more of a hardcore machine than the Wii – it sort of splits the difference between a Wii and a PS3. Who knows if there is actually a market there?

    September 1, 2011 at 9:08 am

  8. Lucas

    Another interesting development is Google buying Motorola. They are now a hardware company and can potentially begin to offer a great UX that integrates software with a controller.

    September 1, 2011 at 9:12 am

  9. Dani

    Thanks for your insights! Good stuff!

    September 1, 2011 at 9:53 am

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