Videogame Dilemma: Old Hardware, Shrinking Market

The annual E3 videogame convention is the most important week of the year for game and console makers — they’re showcasing their upcoming products for fans, while showing Wall Street how they’ll compete in the coming year.

Nintendo's Miiverse Social Network
Source: Nintendo
Nintendo's Miiverse Social Network

Billions of dollars are at stake: this is when retailers put in their orders for the all-important holiday season. And this year the stakes are higher than ever.

Videogame makers are unveiling their new slates — which no surprise are looking to seize spots in the top three games of the year — as well as find new ways to make money.

Electronic Arts is launching a new $50 a year annual subscription service for its “Battlefield 3” game, which turns the one-time sale of a $60 Battlefield game into an ongoing revenue stream. This follows Activision’s launch last year of a $60 a year service with additional online features for its hit “Call of Duty” franchise.

Meanwhile Activision is announcing some big games in its hit franchises — Call of Duty: Black Ops, Skylanders Giants, and Transformers: Fall of Cybertron. ‘Skylanders’ builds another kind of revenue stream — it integrates virtual game play with physical toys, so gamers want to buying the cross-platform toys long after purchasing the game itself.

Videogame sales continue to fall off a cliff — down 42 percent in April. The problem? We’re at the end of a console cycle and consumers are spending more time on social and mobile games on their smartphones and iPads.

The impact: people are not buying that fourth or fifth game every year, so the pressure is on for game-makers to be in the very top tier.

This year’s E3 is missing the big news of a splashy new video game console from either Microsoft’s Xbox or Sony’s PS3. Nintendo will be rolling out details of its new console, the Wii-U, which it first announced last year, and which is going on sale this holiday season. Nintendo has a unique window to snag new customers for its console — it’ll be another year before Microsoft or Sony come out with a next-generation product.

The Wii U aims to embrace social networking with what it calls the “Miiverse,” to allow gamers to see what others are playing, and to share game content and tips. Nintendo will eventually allow gamers to connect to the “Miiverse” not just through the console, but also through its 3DS handheld, as well as computers and smartphones.


Nintendo is looking to change the definition of a console, by introducing a controller which looks an awful lot like an iPad, with a 6.2-inch screen. This controller offers motion-sensing control and also includes HD graphics — a 3-D extension of what’s on your screen.

With this new controller Nintendo’s hoping to go after the hard-core gamers that are typically loyal to its rivals, while also offering something different enough that the families that are now playing Angry Birds on their Apple iPads also have reason to go out and invest in a new console.

Microsoft and Sony may not have new consoles, but they’ll both promote the slew of new games from Activision, Electronic Arts, Take Two Interactive, THQ and Ubisoft. And they’ll roll out new features to keep their devices fresh at the tail end of this console cycle.

Microsoft’s Xbox, which is the leader in the US, is bound to continue to promote its non-gaming content as it becomes more of an entertainment hub for the living room. We can expect to hear about how Microsoft is embracing the “second screen” — the tablets and smartphones consumers are already using quite a bit as they watch TV. Sony’s big news may revolve around the cloud — there’s an expectation that it’ll announce a move to cloud-based play, so users can stream games.

-By CNBC's Julia Boornstin
Follow Julia Boorstin on Twitter: @JBoorstin

Julia Boorstin will be reporting on all the E3 announcements starting with Microsoft’s press conference Monday morning. Check back here for the latest.