Gaming Consoles a Goldmine for More Than Just Games

Think gaming consoles are mere toys ? Online content and services tied to Microsoft’s Xbox, Sony’s PlayStation, and Nintendo’s Wii will generate more than $8 billion in revenue for those companies by 2013, according to a projection by industry analyst Michael Cai of Parks Associates.

“Downloadable games and video are the most important revenue streams, now and in the future,” said Cai. “Downloadable Hollywood movies and TV shows are already generating $250 million in annual revenue for Microsoft, even though the service is available in only a few markets. The revenue potential for that business model is significant. Other business models, including in-gaming advertising and micro transactions are also becoming increasingly important.”

Cai maintains that Microsoft has the clear lead in this space, thanks to its Xbox Live service, but that Sony and Nintendo are working hard to catch up. Nintendo, for instance, announced a pay-and-play initiative for the Wii at the Game Developers Conference in February, and Sony’s PlayStation Network boasts nearly 10 million registered accounts.

Having three mainstream gaming consoles offering downloadable movies and TV shows could reduce video-only hardware platforms such as Roku’s Netflix Player and the Vudu Box to niche-player status, according to Cai. “Those guys can’t compete against Microsoft and Sony,” he said. “But I think Roku has a better opportunity than Vudu because it’s relatively inexpensive and it’s tied to Netflix. You can download Netflix movies to an Xbox 360, too, but the Xbox is a more expensive solution if you’re buying one just for downloading movies.”

Will ISP download caps, such as the one that Comast recently announced, put a damper on things ? Cai doesn’t think so. “Comcast established a 250GB per month cap,” he said. “This will cut back on peer-to-peer activity, but I don’t think it will impact these legitimate services. I’m actually a little relieved ; I thought they’d put the cap at 10- or 50GB per month—that would have an impact.”