Why console gaming is dying

By Blake Snow, Special to CNN November 9, 2012 -- Updated 1952 GMT (0352 HKT) | Filed under: Gaming and Gadgets

Despite $60 games and a $350 price, Nintendo's Wii U will compete with free mobile games when it arrives November 18.

STORY HIGHLIGHTS

• Dedicated gaming sales, including traditional consoles, are in a four-year tailspin
• Rise of casual and social gaming and waning consumer interest are affecting consoles
• Despite this, Nintendo will release its new Wii U console later this month

Editor's note: Since 2005, Blake Snow has covered video games and other male-interest topics for some of the biggest names in journalism. He lives in Utah with his family and is currently writing a book about finding offline balance in an online world.

(CNN) -- If console gaming were a first-person shooter, it would be taking heavy fire right now. A red hue would envelop the viewable screen from all sides, an ominous sign of spilled blood.

Or worse, near-death.

Despite this, Nintendo will release its new Wii U console on November 18, ushering in the eighth and possibly last generation of traditional home consoles as we know them.

Consider this: Dedicated gaming sales — including living-room consoles and handhelds — are in the midst of a four-year tailspin. You might say that's because of a bad economy, but then you'd have to explain why movie revenue and cable TV subscriptions have largely stayed the same.

Or why music sales, gutted by online streaming and piracy, have held up better than slumping sales of console games. Or why the popularity of social, mobile and PC games have skyrocketed to unthinkable heights.

Hands on with the next Nintendo Wii

The problem seems to be isolated to dedicated video games. Video game industry sales in the United States, including game discs, consoles and accessories, were down 24% in September when compared with the same period last year. Many experts believe these decreases in profits, the rise of casual and social gaming and waning consumer interest are affecting makers of the three big living-room consoles: Microsoft's Xbox 360, Sony's PlayStation 3 and Nintendo's Wii.

So is this it then? Is the death of dedicated gaming upon us? In a word, no.

"I bristle when people suggest as much," says Adrian Crook, a game design consultant. "Consoles will grow again and will never go away."

But today's dedicated gaming business is arguably in its most tumultuous period since the 1983 gaming collapse. It's nowhere near ruin yet, thanks to big franchises like "Call of Duty," "Madden," and a select few mainstream console games. But the console's influence is waning, and there's uncertainty about its future.

Here's where the shots at console gaming are coming from, and how the industry might dodge and counter them.

Trojan horses

Since the '80s, console makers have dreamed of using their "dedicated gaming machines" as Trojan horses to further control the living room with a single, proprietary device.

That time has come. Gaming consoles have transformed into entertainment hubs for people to stream movies or YouTube videos. So much, in fact, that gaming consoles no longer are being used primarily for gaming. In fact, "40% of all Xbox activity now is non-game," Microsoft boasts. Amazon and Netflix streaming accounts for most of that, as they do for Wii and PS3.

Combined, game consoles account for half of all Netflix users. This is great news for the movie industry. Not so great for console gaming's bottom line, especially since the industry largely subsidizes consoles now.

I'd sooner pay nothing up front and $5 to $10 later than plunk down $60 on a game and hope I like it.
Adrian Crook, game design consultant

In other words, a console isn't helping the gaming industry if it's mainly being used to stream Netflix movies.

Not only that, but gamers' tastes have evolved to include quick, bite-size gaming sessions -- something consoles have never been good at. (Gamers must go to the living room, wait for the console to power on, load the game from the main menu, wait for it to boot.) It's much slower than tapping an icon on the smartphone you already carry in your pocket.

"Most people who liked console games in the past still do today," says Alex Hutchinson, creative director of Ubisoft, "but they're also looking for a wider spread of experiences. I want some games I can play quickly after work or while the kids are asleep and have a short satisfying experience."

As the number of gaming scenarios has increased, so, too, has the number of diehard gamers, says market researcher DFC Intelligence.

"Gamers have not only increased in number, but they are playing on multiple platforms now," says analyst David Cole. "Fewer enthusiasts describe themselves in a single camp such as 'I love Nintendo and hate Sony and Microsoft' or vice versa."

If enthusiasm for a single dedicated machine has waned, however — or at least has been spread thin — then the machine that demands the most attention will invariably suffer. That machine is the console — the one you hold dear to your heart, but probably reach for less than you used to, whether you like to admit it or not.

Creative stagnation?

When it's not taking a backseat to more convenient app gaming, some say the console has stagnated creatively.

"You would think that XBLA (Xbox Live Arcade), PSN (PlayStation Network), and the rise of 'free to play' would have opened a door to smaller games that can take more risks creatively, but right now they're just cut-down versions of box-product games, or retreads of games I played on the SNES (Super Nintendo Entertainment System)," says Hutchinson, referring to the online gaming networks offered by Microsoft and Sony.

"I don't honestly think that someone who didn't want a 2-D platformer 20 years ago is going to wake up today and buy it on XBLA."

We need to offer more experiences that are understandable to people's real lives.
Alex Hutchinson of Ubisoft

In addition, even big-box games have lost some of their visual allure in recent years. What were once graphical leaps in previous generations have now become bunny hops, at least to the average eye.

"People aren't as motivated by cutting-edge graphics as they once were," says Paul Neurath, creative director at Zynga, makers of "FarmVille," "Mafia Wars" and other social games on Facebook.

"Gamers that care intensely about graphics will continue to do so, but I think there are fewer now than there were in the past," he says. "Big leaps in graphics no longer exist. Unless there's some futuristic holographic display or direct brain implement we don't know about, it's hard to get a lot better."

Cole, the gaming analyst, agrees.

"Cutting-edge graphics in the past amounted to nothing more than killer CGI videos that added nothing to gameplay," he said. "That's a problem for an industry that up until recently prided itself on "buy this console because the games look a lot better than the ones you currently own.'"

In that sense, next-generation is no longer "next." We've arrived. Looking back, NES was certainly a step above Atari and imprecise joysticks. SNES and Genesis offered a huge leap in affordable home graphics. PlayStation and N64 immersed players into 3-D worlds replete with camera control. PlayStation 2 and Xbox overcame polygons in favor of rounded and non-jaggy looks. All of these were improvements upon previous generations of gaming systems.

But this current generation of consoles? With the exception of the early Wii years, they've largely offered better-looking versions of games we've already played. There have been a lot of great games to be sure, but fewer must-haves — the kind that truly take the medium into uncharted territory.

Rise of cheap, social gaming

On the other hand, cheap, bite-size games such as "Angry Birds" and "Plants vs. Zombies" have thrived in recent years, ensnaring new players with novel gameplay.

"Virtually all of my clients are in social and mobile sectors, which have totally exploded in the last few years and continue unabated today," says Crook, who previously worked as a console designer.

As such, the demand for games has grown. "It's not so much that gamer interests have changed since the last generation, but that a whole group of new players have started playing games," says Zynga's Neurath. "These people would never have played last-generation console games. They're more into it for the social aspect."

Console makers so far have been ill-equipped to meet this demand, given their lucrative, 30-year-old model of selling games for $50-$60.

The Wii U's handheld controller displays a game during a presentation by developers Ubisoft.

This partly explains why Nintendo, after five years of phenomenal Wii growth, is slumping. Industry experts say they're not in a position to meet the demands of most new social gamers.

We'll soon find out whether the Wii U can revive Nintendo's fortunes. The console's big new feature is a 6.2-inch touchscreen GamePad controller that interacts in creative new ways with the gamers' TV. Wii U players can play together, with one person using a TV screen and the other using the GamePad. A single player also can access additional content on the GamePad that enhances the game on the big screen.

Nintendo declined to comment for this story.

In a struggling economy, consoles also have fallen victim to the cut-rate pricing of games -- something consumers are exceedingly demanding but consoles have yet to offer.

In what has become a successful business model, many developers give away their games for free, then charge players later for status upgrades or gameplay perks.

"Say what you want about freemium, 'nickel and diming' of players, but I'd sooner pay nothing up front and $5 to $10 later than plunk down $60 on a game and hope I like it," says Crook.

Ubisoft's Hutchinson refers to it as a rising "fear" among console gamers. With so many deals to be had elsewhere, a lot of console gamers are making fewer full-price purchases than before.

"The free-to-play model has certainly impacted the industry," agrees Zynga's Neurath.

On top of that, 99¢ iPhone and iPad games are also taking a toll on the perceived value of dedicated gaming systems. Even PC games go on sale for as little as $5-$20 on occasion, a trend that has breathed new life into PC gaming and changed how some of the most ardent gamers value games.

"The business model for a five-year life cycle isn't working for Sony and Microsoft," says Cole. "They spend billions to R&D and market these new systems, they sell them at a loss for the first few years and then they don't really have the software business to make up the cost. They are better getting out of the business entirely rather than go after a five-year life cycle."

How console makers can fight back

In wake of all these changes, what's a console maker to do? What might reinvigorate interest in living-room and dedicated handheld gaming?

A first step would be fresher consoles themselves. The Xbox 360 is 7 years old, while the Wii and the PlayStation 3 are both 6.

Newer motion-controlled gaming systems such as Microsoft's Kinect and Sony's Move, which let players control in-game avatars by moving their arms and legs, have helped sustain interest. But experts say more upgrades are needed.

"New consoles would help, and the rumblings have already started at Microsoft and Sony," Hutchinson says. As if reminded by the lackluster sales of the handheld 3DS and PS Vita gaming systems, he adds, "But I don't know that we really need a new hardware cycle at this point from a creative standpoint."

Zynga's Neurath, who's worked with consoles and PCs since the 8-bit days, says console makers would do well to act more like nontraditional platforms. A new console dubbed Ouya will launch next year with free-to-play games and a $99 launch price, but keep the focus on what its manufacturer calls "TV gaming."

Crook believes there is still plenty of time for traditional console makers to correct their downward trend.

"There will always be a big market for core game systems," he says. "It all comes down to how consoles can get back to taking creative risks again, and what the platforms can do to broaden their markets and offer innovative means of interaction."

Ubisoft's Hutchinson wants console games to deliver more meaningful experiences.

"Games need to explain to players why they made certain artistic decisions, what mood they're setting with their lighting and color choices, and less about the technical features," he says. "We need to offer more experiences that are understandable to people's real lives, either in terms of mechanics or narrative, and attract people who don't read fantasy novels or watch the SyFy channel. Our mechanics are often not the barrier, but our content sometimes is."

The good news for the industry, and for gamers, is that video games in their broadest sense are most definitely here to stay. It's just that the way we access, control and define them has rapidly evolved. Despite the weakening sales of consoles and console games, the growth of mobile, social and PC-based games means that total spending on gaming is actually on the rise.

"Inviting more people to the fun and wonderment of games isn't just good for social games, it's good for the entire industry," says Neurath.

It will likely take at least one more console cycle to gauge the long-term sustainability of dedicated gaming devices, experts say. Their ultimate survival all depends on how well console makers adapt to evolving business models and changing consumer tastes.