Ben of Stratechery posted an interesting article about how Apple TV can disrupt the game console market.  It’s insightful and I highly recommend you read it; then come back here for my take.

I have two areas of push back:

1. The high end games market is still largely mainstream and still growing
2. The low end market already exists and is already well served with mobile phones, tablets and previous generation consoles

Apple has a chance to disrupt Sony and Microsoft, but it won’t be through the Apple TV.  Casual gamers won’t purchase a new device for games they can already play on existing devices.

For Apple to make inroads to gaming on TV, it should be via a Chromecast type device that connects the iPhone or iPad to the TV plus a controller.  Price all that for $60 and Apple can disrupt Sony and Microsoft.

 

It’s not helpful to think of high end, console games as the exclusive domain of geeks afraid of sunlight.  Just because a game has a big development budget doesn’t mean it is niche and “hardcore.”  For example, the average person is more likely to play a racing game from a modern console because the cars look more realistic, versus a pixelated, more abstract version on weaker hardware.

High end console games are just as mainstream as high budget Hollywood movies.  Grand Theft Auto 4 generated over $1.35 billion in sales — if the game was a movie, it would be the fourth highest grossing movie of all time.  Grand Theft Auto 5 is reportedly doing even better.

The purchasing power of console gamers have also grown significantly over the past thirty years.  In the 1980s, most console gamers were young and depended on parents to buy games.  Those same gamers are now adults and they still play console games; except now they have more money to buy many more games.

Console games market = number of gamers * games purchased per gamer

The high end console game market isn’t niche.  Even if it is, it’s a sizable, growing one because the number of high end gamers and the spending power of those gamers are both still increasing.

PS3, Wii and Xbox 360 generation was 50% larger than the previous one

The game console is still a valid strategy for Sony and Microsoft to win the living room, and it’s not even one limited to the high end.

Ben implies the low end market is underserved and that the Apple TV can disrupt Sony and Microsoft from there, as shown below:

Graphic from Stratechery

I don’t agree.  The low end market is currently served very well.  By Flash games on the PC a decade ago, and even more so today by mobile and tablet games.

Mobile and tablet games are more suitable for the low end market than an Apple TV because of mobile’s update cycle: people buy new phones every two years so they will always have reasonably up-to-date hardware to play the latest games.  “Low end” gamers won’t buy new devices to play low end games when those games are already on their mobile phones and tablets.

Ben also forgets that the price of consoles don’t stay high.  As consoles become less cutting edge, manufacturers lower prices.  A $180 Apple TV might seem competitive to a $400 Xbox One; but how about a $200 Xbox 360 that has TV streaming capabilities and a vast library of great games?  Or a $140 Playsation TV that can stream PS3 games?  Previous generation consoles sell well even with the new generation because they become attractive to the low end market.

This is what Ben’s chart should actually look like:

If I was Microsoft, my Apple TV competitor would be a disc-less Xbox 360 selling for the same price.  And then get publishers to offer games at a much lower cost digitally.

So I’m not sure what market the Apple TV will be disrupting.  On the low end there are mobile phones, tablets and previous generation consoles.  On the high end…well, they’re not going there.

Yet, I do think Apple has a big opportunity to disrupt the TV gaming market, but it won’t be a brand new box that consumers have to buy.  Instead, I think it’s a game controller plus Chromecast-type device that projects games from iPhone or iPad to the TV — all for just $60.  That would be killer.

Consumers will naturally update the underlying game hardware every two years so the experience will be reasonably good; they only need to maintain one games library which game developers are already widely supporting; and they can get true gaming-on-TV experience for an incremental $60, cheap even relative to a discounted Xbox 360.

Maybe the disc-less Xbox 360 isn’t such a great idea after all.