Video Games are on the cusp of their fifth revolution. Actually, that’s a bit of a lie, the revolution has already started, it’s just taking a bit for it to come to completion.

Since the invent of video games there have been four revolutions. The first was the invent of video games which took games out of the physical world and into the electronic one. The second was the introduction and focus on games as a story-telling device, which changed the way games were made, and the way games were played. The third was the introduction of 3D modeling, which fundamentally changed the way games were created and rendered. The most recent revolution was the online revolution that moved the vast majority of multilayer interactions to the online world.

The next revolution is something entirely different as it’s almost solely taking place on the business end of things. Until somewhat recently, video games were a commodity, much in the way literature, movies, and other goods are/were. As things move more and more away from physical to electronic distribution, those goods are increasingly being converted to services. You purchase a license to utilize the work, but don’t hold any true ownership over it. Ebooks, streaming media, digital movies, digital download video games, etc are all examples of this. You are buying something that has no intrinsic resaleability.

With the announcement that the Xbox One will feature licensing control to do away with used games and curb pirating, and the writing on the wall that basically says the PS4 will follow suit after the shit-storm dies down, we are fast approaching the time where video games will no longer be a physical commodity. Everything will be purchased and licensed online, and indeed, any trading will be handled directly with the video game service providers.

As much as I’ve always been a console game player at heart (having started with an Atari 2600 back in 1996 and followed consoles up to today), I’ve come to realize that there’s a predictable outcome to this revolution. This revolution will spell the death of consoles as we know it. But, this isn’t actually a bad thing.

To step back, the upshot of moving to licensing is twofold. First, by controlling the flow of games to remove the middle-men reselling of used titles, more money will go to the actual producers of games. This will reverberate with a general restructuring of the pricing of games. Some companies will certainly double-down and refuse to move their prices downward to promote sales, but those companies are basically in the process of collapsing anyway. Companies that are more proactive about lowering prices to accommodate the greater percentage of profits will steal the market from the less mobile companies. When you no longer have to worry about 50% of your sales being lost to used resale companies, you can afford to slash prices a bit, which suddenly puts your games in reach of those people who couldn’t normally afford them. That’s the way non-consumable goods work in general: you have to overcharge for them with the expectation that a resale environment will undercut your ability to sell the good in the long-run. If you don’t have to worry about the good existing as a radical in the market, you don’t have to charge as much up front since you control the full distribution. And if the market is open, which the video game market is, then prices have to shift down as competition erupts. Pirating is still an issue, but licensing is a way to curb that a bit, and lower prices will also cut into the desire to partake of pirated software.

Additionally, this creates an environment where independent companies can start making money again. Indeed we see this already with independent game companies springing up all over the place producing excellent games at low prices. The key here is that they all sell these games online only in electronic format. By charging low prices and selling more directly, the both garner more profit to themselves and undercut piracy, and with less overhead than a big company, their prices fall even more. If a game only costs $5-10, it’s easy to justify that as a purchase and the incentive to go find it illegally for free is reduced proportionally. With the vacuum created by some of the big box companies failing under the weight of their own inability to adapt to the new environment, we’ll likely see another explosion of novel games from new companies offered up at affordable prices in the nearish future.

Unfortunately for the console companies, these new companies are usually pretty smart about where the business is going. One of the things that has been the hallmark of the small game company is adaptability and availability. They strive to release their games in many locations and in many forms. That is to say, they strive for platform independence. This goal is laudable and essential to the health of the industry as well as the ongoing revolution. But it’s also going to kill the console, or at least transform it into something completely alien to the past iterations.

There are really three reasons why a person buys a console (as somebody who owns many consoles, I take these for granted as being true.)
1) Exclusive titles
2) Stable platform
3) Commodity of games and the stability thereof

For the first part we can already see that exclusive titles are already going away. If you’re patient, just about any gave released for X console will eventually hit Y console and the computer. Mass Effect is one of the best examples of this. It was originally released as an Xbox-only title, and you can now get it, and both sequels, for the computer and PS3. The profits available with platform independence far outstripped Bioware’s desire to form a sole-release contract with Microsoft. This makes business sense as making your game more available results in more sales, and since the console companies have been selling their hardware at a loss, increasing game sales is in line with what they want, but universally increased sales is ultimately detrimental to them, so they make deals for “exclusive releases” which is basically just “you can play it here first!” With so many games on the market, a lot of gamers will find that they can be patient and wait the 3-6 months for the title in question to come out on the platform of their choice. A mindset that has been reinforced with all the pre-order bonus-content shenanigans that has done more to alienate gamers than anything else. Further, the independent companies are creating more and more tools which allows them to readily convert their games to other platforms, further reducing the barriers to a wider distribution. With the tools available and profits to be had, even the big-box companies are going to find themselves pressured by market forces into giving up the exclusive release angle. At some point the up-front profits of a wide-open release are going to far outstrip any deal they could make with a console company.

The stability of platform will still make them somewhat attractive, mostly because, as stated earlier, consoles are usually sold at a net loss to the company, meaning you’re getting more bang for your buck than if you build a computer. However, as platform independence grows to be the norm, basing their console sales on the idea that they can recoup the costs in licensing may not prove to viable in the long term. This one is hard to predict since the success of undercutting with hardware sales will ultimately rest with how well they can sell their services, which I’ll touch on in a bit.

For the third part, this is the gotcha. One of the draws of commoditizing games is that physical, unlicensed game copies provides a level of security to the buyer that the current trends in online licensing haven’t approached yet. As an example, I have a NES hooked up in my basement. I still buy games for it; they’re still around, and they still work. I don’t have to worry about any specific company being in existence to validate a license in order to play those games. I just have to worry about the hardware working, which it still does. And even in the case of hardware failure, there’s still a lot of presence on the market to recover from it. Couple this with the general unavailability of many NES games, and there’s no incentive for me to explore other avenues of purchasing these older games even if they do exist.

That’s where the industry needs to establish clear goals and rules. What happens when one of them fails? If Steam were to go under tomorrow and close its doors, what happens to your licenses? Where do you download the games you bought from them? There are no easy answers there, which is the largest barrier to this conversion. Right now if one of these license and software distribution entities folds, your money is basically gone. But, and emerging synergy between these licensing companies and the actual game companies may start to provide a level of security for the user. It’s hard to know where this is going to go, but as individual companies take more ownership of providing solutions to removing single points of failure, we’ll see a greater security in purchasing non-physical media. Indeed, we’re already seeing this as a result of the decentralization of video gaming.

This is where consoles need to evolve. They can’t be what they used to be, not even close. Looking ahead, most of them will need to become, essentially, licensing agencies that provide a service to broker the purchase of games from other companies. As they make this move (which is already happening if you listen to what Microsoft is saying about the Xbox One) the ultimate expression of this move is the reduction in importance of the console itself, since it is only the means of brokering these services. All the gizmos and gadgets in the world are not going to sell a console if the supporting service that makes the games playable doesn’t work correctly. This is the harsh lesson that EA has taught the industry through their recent debacles, most notably with SimCity. In this case they forgot that they’re trying to move their games to a service, but they couldn’t supply that service.

This refocusing of effort within the console giants will be what makes or breaks them. And there will be pressure. A lot of pressure. Companies like Ouya already smell the blood in the water and are moving in. The Ouya is one of those; however, even the Ouya isn’t quite where the industry is going. They have a system and development platform built into one, with cloud sourcing and a focus on free trials and free play. However, it’s all still platform dependent; an isolated gaming industry in a vacuum. For now. It’s really only a matter of time before the tools are made to convert between the Ouya and everything else, as developers try to sell their products to a wider audience. Once that happens, it’ll be hard to predict if Ouya will be able to remain a viable platform.

And that’s where it all folds back on itself. The driving force behind a large portion of the industry right now is wide availability while still netting the largest percentage of the actual profits from the game. As it stands, consoles, even the Ouya despite it’s increased freedoms of development and interconnection, are almost directly in opposition to this push for true platform independence because it’s counter to what they’ve always done to assure profit.

As this revolution proceeds the consoles are going to have to redefine what they are, and produce new reasons to buy them over any other platform. They will have to sell themselves less as a specific video game device, but rather on the accessibility of their hardware to be molded to other uses. In this race, the Microsoft has a head start on Sony, since they’ve been in the computer biz and have show more capability to adopt the PC model for their hardware, but neither are really very good when compared to a regular computer. And, as the trend of gamers continues to lean towards the realization that the glitz of graphics is really only a small part of what a video game is, it’s going to be harder to sell expensive hardware on the sole merit of the glitz it can produce and the gadgets it can use.

Indeed, many of the gamers I associate with are less and less impressed by the graphical draw of a game, and more and more invested in how much fun any given game is. And that’s really the soul of gaming right there: to have fun. It is also very heartening to see that the newer generation of gamers is starting to learn this lesson. As the dazzle of high-end graphics wears off, these gamers start looking for substance, and substance is just as easy to get with a $300 laptop as it is with a $500 game console. With glitz starting to take a back-seat, it’s going to be much harder for the next generation of consoles to survive in a world games that don’t require top-end hardware and companies who want to release those games on every platform without restricting themselves. When this environment is realized, the hardware you own won’t matter so much as how accessible the license providers make themselves. We’re seeing this already with smart phones, and we’ll be seeing it increasingly with video games.

When Mikael Hed of Rovio games (makers of Angry Birds) said that consoles were dying, he was right; just not in the way he thought he was. He imagined a world in the near future where all games were on mobile devices, which may eventually be the reality when the hardware of mobile devices can directly compete or supplant that of stationary ones a few decades form now, but the real death of consoles lies in the increasing focus decentralized distribution of games and the perception that console producers are ill equipped to produce a platform that can exist in this environment. Consoles can no longer afford to restrict their platforms like they have in the past if they hope to adopt the market strategies that are becoming pervasive. But that means they have to open the doors to their platforms and allow the masses to use that hardware as a sandbox. In the past, none of the console companies has been very willing to do this. And that unwillingness will be what kills the console.

For my part, I don’t really have any plans to buy any of the next-gen consoles aside from maybe the Wii-U, as it’s sticking with the commodity view of games and that allows it to have platform dependence for many of game series I’ve followed since I was a young lad. Right now, the other two are painting themselves as easily replaced with a decent computer and an internet connection, both of which I already have.

-Confusion is a state of mind, or is it?