Given Mr. Hoyt's note, it seems that there are many misconceptions, and several facts wrong, regarding my stance on "a one-console future." First of all, my discussions about a one-console future are not recent. These discussions took place around my 1-hour presentation at GDC in Leipzig Germany two months ago. I can only glean that Mr. Hoyt is getting most of his information from press snippets from this time, which may be the source of his misconceptions. I will be presenting a similar talk in Lyon, France, in December at another GDC event, and I would invite both Mr. Hoyt and Mr. Florin to join me there for a discussion, if there is interest.

Mr. Hoyt is incorrect in thinking that my thoughts on "a one-console future" are from a monopolistic standpoint. I specifically stated in my presentation at Leipzig that a closed monopolistic economic model will be increasingly difficult for the 1st parties to maintain because of various economic stresses. Although I hesitate to say that my views are the same as Mr. Florin's, as I have not seen the details of what he is describing, they are certainly similar on the view that the future is an open format with many manufacturers.

In his note to you, Mr. Hoyt criticized me for "completely ignoring the present economics of the games industry." This is completely false and inaccurate, as my views stem from the study of economics, commoditification and the history of technology. So not only do I focus on the current economics of the industry (economics that I am deeply familiar with since I have run a company in this industry for the past 15 years), I also draw upon the historic trends of technology to further support my thoughts.

Let me start with the concept of commodification, which is a core construct to my thoughts on "a one-console future." Here is a definition from Wikipedia:

In the business world, commodification is a process that transforms the market for a unique, branded product into a market based on undifferentiated price competition. While in economic terms, commodification is closely related to and often follows from the stage when a market changes from one of monopolistic competition to one of perfect competition, a product essentially becomes a commodity when the repeated changes- because of competition-outplay themselves. It is essentially called a performance oversupply- which means that the market is performance saturated and any differentiation, even when being offered, is more than what the market demands. Commodification can be the desired outcome of an entity in the market, or it can be an unintentional outcome that no party actively sought to achieve.

All technologies tend toward commodification. I have yet to find a technology throughout history that has not become commoditized over time. This includes a wide variety of technologies -- everything from cars, cell phones to DVD players. With commodification, the more features that are integrated into a technology the more it loses its value. Take the cell phone for example: At first they were seen as a luxury item, allowing people freedom to do business outside of the office. They were extremely expensive and had few features beyond allowing voice communication. Today the opposite is true: cell phones today include functionality for email, music, web surfing, 2-way radio, taking pictures, video and more. However, the phone itself is much cheaper and is often given away for free with service plans. Cell phones, therefore, have become commodities. The same will happen with video game technology. Like cell phones, video game consoles today do more than play games -- they are connected to the Internet, allow shopping, support pay-per-view movies, a DVD player, etc... This trend of more features seems to indicate that video game consoles are also heading toward commodification.

Commodification does not mean that there will only be one manufacturer. With commidification technology loses its value and moves toward an open model (or one of perfect competition), where several companies can manufacture the console. In this open model, we would see a video game machine made not only by Nintendo, Sony and Microsoft, but also from Samsung, Toshiba, Sharp, IBM, Dell, etc... This model would be significantly more competitive from both a software and hardware point of view than the current closed monopolistic model that we currently have.

Furthermore, we are starting to hit a perceptual threshold with consumers. Most consumers cannot tell the difference between 720p and 1080p. And, without question, the consumer perception of 480p to HD found in the last generation consoles was less noticed than when games went from 2D to 3D on the previous generations. The distinguishable differences between each successive generation of game technology is getting smaller and smaller and of less perceived value by the consumer. This trend I see as performance oversupply.

Other signs of performance oversupply are manifesting in the video game industry, such as the over-crowded holiday release schedule, where over the last few years around 250 games were released in November. I hardly see this as an "intensely competitive landscape, by all valid metrics." There simply are not enough consumers to even support this number of games, and most of these games are bound to be complete failures. This trend is very unhealthy and unsustainable. With the huge number of games released each year, it is hardly the most exciting time for developers or publishers, the vast majority of which are unlikely to be successful. For the consumer, it means that they will not even try 95% of the games out there – also not exciting for developers, publishers or consumers.

Mr. Hoyt wrote: "The number of developers in the industry is at an all-time high. The total number of game consumers is at an all-time high (thanks in large part to the proliferation of casual games and innovative new gameplay styles made available by disruptive, new, platforms like the Wii, DS, and mobile devices)." Having different hardware platforms for these games does not increase the number of gamers. Rather these new platforms are disruptive, only serve as a barrier to the consumer and are a source of false economies. Today if a mother wants to buy a Mario game for her child, she must also find out the correct system to play it on. The average consumer does not want to choose between Nintendo, Microsoft, and Sony, but would rather just buy a machine that plays all the games. I would argue that this is a choice she should not have to make, and this barrier probably results in fewer games being purchased overall by mass consumers.

Publishers and developers also would like to get 100% penetration on a single SKU rather than making several versions to cover the entire market. As an example, last year the third-person shooter, Gear of War was released on the Xbox 360. Concurrently, Resistance: Fall of Man was released on the PS3. Since they are on different hardware platforms they really did not compete with each other, as there were only a very small number of consumers who had both platforms and actually had the option to choose -- again, hardly an "intensely competitive landscape, by all valid metrics."

This is a complex issue and time will tell who is correct. However, I do feel that the possible future I have outlined is based upon facts, historical technology trends and current business economics.

Denis Dyack
President,
Silicon Knights