Connected Consoles: An Enduring Growth Engine by InerpretLLC


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                                                 Connected Consoles:
                                                 An Enduring Growth Engine

                                                 Lead Analyst
                                                 Courtney Johnson

                                                 Contributing Analysts
                                                 Michael Gartenberg
                                                 Michael Cai

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Published September 2009. © 2009 Interpret, LLC
Connected Consoles: An Enduring Growth Engine

Catalyst: Given a longer gaming hardware cycle for current-generation consoles, recent decreases in
year-over-year hardware sales, and lower retail game sales accompanied by growing digital-sale
revenue, the three major-player console manufacturers must discover modes through which to continue
to engage consumers and further monetize their consoles.

Core questions:

    •   To what degree do current-generation console owners connect their device to the Internet?
    •   How does online gaming behavior vary across consoles? Do console owners make use of online
        gaming features?
    •   Have consumers embraced the non-gaming online features of current-gen consoles? How
        important are multimedia features to the success of the respective current-gen consoles?

Interpret Insight

Crucial to the respective successes of the now-entrenched major current-gen consoles are strategies
around online functionality of these Internet-enabled gaming systems. To maintain its current
profitable dominance of this arena, Microsoft’s Xbox LIVE must continue to appeal to gamers with its
thorough online gaming features, while expanding its multimedia options (particularly within the Gold
membership) with app-style constituents that broaden appeal of the service to non-gamers. To
compete, PlayStation Network can increase its lagging appeal to gamers through emphasis on online
gaming and competitive online exclusives, while continuing its multimedia (music, video) prominence.
The Wii, the console least likely to be connected, should monetize its popular non-gaming-related online
features while imbuing games with online features that appeal to its unique casual installed base.

Current-Gen Console Adoption and Connectivity

In an era subsequent to broadband proliferation in American households, Internet connectivity has
spread to a multitude of other devices, not least the primary electronic living-room occupant aside from
humans and televisions: the video-game console. In terms of sheer hardware ownership, Xbox 360 and
PS3 console adoption has increased by over 60% in the past year—26% of gamers (those who indicate
that they play games on any of the consoles, handheld or mobile platforms, or PC) own the Xbox 360,
while 16% now possess a PS3. Internet connectivity rates among those consoles have kept pace: 16% of
Xbox 360 consoles owned by gamers are Internet-connected, as are 10% of PS3s—almost 50% higher
than connectedness numbers of mid-2008. However, a marked shift has transpired with respect to
share of specific consoles owned that now boast Internet-connectedness: approximately 61% of Xbox
360s are online, a proportion nearly identical to that of one year ago, while PS3 connectivity proportion
has jumped 13 percentage points to 63% of PS3s—neck-and-neck with the Microsoft device.
Wii hardware exhibits a different trend. While Wii ownership among gamers increased by a solid 54%
since mid-2008 to 33% (the highest overall adoption of any of the consoles), online-connectivity rates
for this system have in fact decreased by 13 percentage points, to 45% of those owned. A significant
portion of later Wii adopters do not appear to make use of the console’s Internet capabilities, diluting
overall connectedness.

Online Game Purchasing and Gameplay

All three consoles offer game downloads, through the Xbox LIVE Marketplace, the PlayStation Store, and
the WiiWare service. A hefty 17% of gamers have purchased and downloaded at least one video game
on any sort of g
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