Analyst: No New Game Consoles Until 2013, If Ever

Are we gaming in the final days? The waning moments? The terminal ticks on some ominous, premonitory tech-trending clock? Are all the breathless pundits prognosticating about Xbox 720's and PlayStation 4's just the blithe leading the blind? Are the days of console cycles and turbulent software development kit refreshes on the verge of evanescence?

Wedbush Morgan analyst Michael Pachter raises at least the ghost of that question in his May 2009 monthly gaming rundown. Moreover, he says he doesn't expect to see the next round of consoles arriving earlier than 2013. Cue pause followed by creepy organ music to an ominously appended "if at all."

Wagging his finger at investors who "remain convinced that industry growth will peak in 2009," Pachter says fiddlesticks, calling the notion video game software sales always peak in a console cycle's fourth year an "urban legend."

We note that video game software sales typically peak in the year prior to the introduction of a new generation console, as many consumers begin to slow purchases in anticipation of purchasing a new console the next year. We do not expect a “new” console in 2010 (other than the long-rumored high definition Wii, which is likely to upgrade the Wii to current console technology). We do not expect the “next” generation to begin before 2013, if at all .

Last summer, I poked fun at Sony's Jack Tretton for suggesting consoles have a 10 year life cycle. That's right, a decade. Tretton's hypothetical would put the PlayStation 4 up for grabs sometime late 2016. Get serious, right?

Time to eat some crow. Not because I think Tretton's clairvoyant, or that we're wrong to balk (at least a little) but because I've started to think maybe I actually want him to be right (and Michael Pachter, too).

Here's why.

1. Today's consoles are future-angled multimedia hubs. USB? Check. Wireless? Check. HDTV? Check. Streaming video? Check. Peripherally expandable and flash upgradeable? Check and check. I wouldn't go so far as to say future-proof, but flexible enough to roll with most near-term technology shifts? Easily.

2. I don't care if games ever look better than they do right now. Really. It's a rare game anymore that has me thinking "Boy, they sure could've rendered that mip-mapped alpha-blended bump-mapped monstersaurus better." And unless you're some nebbish, troglodytic, pixel-obsessed, forum-trolling graphics activist, you've probably stopped minding all that adolescent whizbangdroolinducingeyecandy nonsense too. Visual style? Fair game. But that's entirely different from the 3D monomania stuff.

3. Who wants to hemorrhage money? Spend thousands upgrading their television sets (or buying new ones) for the next visual leap, e.g. S-HDTV? Buy boxes of new gizmos, gadgets, and peripherals? Spend oodles more on warranty plans and higher-speed broadband and online service fees? Prolong the current console cycle and its paper cuts instead of ye olde arterial exsanguination.

4. Remember Rare's Donkey Kong Country for the Super Nintendo? More or less revolutionary for its time, right? And then the Nintendo 64 showed up to grab developers' arms, shove 'em behind their backs, and march them off to 3D-land. Point is, technical "mastery" has all kinds of evolutionary perks. How many DKC-caliber games might the Xbox 360 and PlayStation 3 have to offer given an extra year or three of development time?

5. Notice how Pachter appended "if at all" to the line "we don't expect new consoles before 2013." What's he talking about? The so-called cloud computing revolution. You know, dumb set-top box in your home, all the processing boo-yah running on some central site's server farm. (See my piece 6 Reasons OnLive Could Be a Bust for a list of pros and cons). If the notion catches fire before the next cycle breaks, we may be talking about toaster-box "services" with catchy names like "Storm" or "Stratus" in lieu of client-side hardware with numerics like "720" or "4."

6. Last point (but not least) comes from Pachter, who says

...publishers will resist the introduction of any video game hardware technology that requires a refresh of software, as the publishers have as yet to capitalize on the immense investments made in being competitive in the current cycle. We therefore think it is likely that the “next” generation will begin after 2013, meaning that software sales are likely to grow by a compounded annual rate of 6 – 10% for another five years. Because R&D costs are likely to flatten out with the benefits of a learning curve, we expect earnings leverage as the publishers are able to exploit R&D investments. In brief, we think that investors have it wrong so far this cycle, and think that investment in video game publishers will bear fruit for many years. However, pessimism about software sales in April could limit share price.

There you have it. Crazy-nutty conspiracy-theory madness? Or plausible crystal-ball gazing?

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