Apple, The “Un-Console,” And The Future Of Gaming

Regular readers of this crazy blog may remember my last business-oriented post speculating on the future of Apple TV and how it is primed to morph into a game console. Since that time, the pieces have started to fall into place.

Consider these recent developments and rumors:

Apple Snags Xbox Exec (PC World)

Apple Hires AMD Graphics CTO (EETimes)

Is Apple Developing A Game And Media Console? (BNET)

“Chatter that Apple is eyeing Electronic Arts as a takeover target.” (The Street.com)

All point to “something” going on. But what?

Today, the market for video games is a hit-driven packaged goods business which has seen its margins continually squeezed by rapidly escalating costs, long development cycles, short product shelf lives and the competition of used games at retail. Third parties and independent developers have all been squeezed by this model and the industry has been accused of playing it safe with less innovation and more reliance on pre-sold franchises.

Today’s market for dedicated game consoles is split between three first parties: Microsoft, Nintendo and Sony. All sell downloadable games through speciality online services attached to their current generation of hardware. The holy grail for the video game business is the direct download of episodic game content to a mass audience, a model for profit which is widely seen as the future of the industry. As noted by Kiplinger.com:

“(Videogame publishers) … recognize that their future lies in direct game downloads via the consoles themselves. XBox has gone the furthest along this path, with its XBox Arcade and incorporation of video rental business NetFlix into XBox consoles … TakeTwo has already recognized this reality and is shifting … toward releasing an annual new module for Grand Theft Auto and other popular games. The modules will cost about one-third the price of a new title but will cost far less to create and will be distributed directly to consoles via the internet.”

The Fight For Your Living Room

So, the video game industry is racing toward downloadable distribution of games on a mass scale. Both Microsoft and Sony would like you to use their platforms to download music and rent movies as well. Each of these companies has designs on the living room that they believe they can achieve through a dedicated game console that doubles as a media center.

“The ill-fated Pippin”

What about Apple? Not only is Apple a non-factor in the console space, but they have historically steered away from gaming and, save for the ill-fated Pippin, have shown no direct interest in entering the home gaming market.

But they will. In fact, Apple is poised to redefine the home gaming industry exactly as they have already done to the music and mobile phone industries.

They have no choice.

Today, Apple makes most of its income on the sale of Macs, iPods and iPhones. All of these products carry industry-leading margins for Apple for a variety of reasons including industrial design, excellent hardware and software, class-leading retail experience, characteristic ease-of-use and thoughtful consumer-centric design.

But taken by themselves, these elements can be copied and/or overcome by dedicated competitors. Windows-based PCs crushed the Macintosh for precisely this reason, offering far more applications and compatibility at a lower price. Entertainment hardware is not sold in a vacuum — it is part of a larger content and product ecosystem that must be continually renewed. The history of entertainment platforms is littered with great stand-alone products that became orphaned without an ecosystem of supporting content.

Through iTunes, Apple has built the world’s best distribution system for media and used it to launch it’s Apple-specific App Store, an ecosystem that only services Apple iPhones and iPod Touches. Since its inception last June, over one billion applications have been downloaded and the catalog has grown to 40,000 applications. In less than a year. Apple has re-written the value proposition for smart phones and every manufacturer is racing to build and stock their own App Stores. Right now, it is a crushing advantage for Apple’s mobile hardware.

As the App Store becomes larger and more ubiquitous, more iPhones and iPod Touches are sold. As more iPhones and iPod Touches sell, more music and media are downloaded through iTunes … which leads to sales of more iPhones and iPods. As the market leader in digital distribution, iTunes keeps a conglomeration of media titans beholden to Apple. And as the ecosystem tree grows larger branches, Apple can hang more and more products from it, like the rumored “MacBook Touch” or any other devices which, in turn, feed the ecosystem.

Enter The “Un-Console”

What does this have to do with game consoles?

Everything. Exactly as the iPhone was four devices in one (an iPod, a Web browser, a mobile phone, and an email device) Apple’s new “Un-Console” would build off of today’s Apple TV to become not only a home internet browser, a media player, and a rental service but also an entertainment console with a catalog of thousands of Apps, all available through a consistent and already familiar App Store. Perhaps Apple could team with AT&T’s U-verse service and incorporate a software-based DVR into this box as well.

The Un-Console would mean consumers don’t have to buy a dedicated game console and turn it into a home media center — instead they’ll buy a home media center that happens to play games. Instead of having to buy a bewildering amount of equipment, users could replace the multiple boxes under their TV with one box controlled through their iPhones with an easy to use, consistent, reliable and (most importantly) familiar set of interfaces.

Behold … The Living Room Of Tomorrow (Maybe Not)

Games would be more episodic, shorter and probably cheaper than today’s $60 USD console titles. But the Un-Console will offer more than games — the Apple OS already supports a huge variety of non-game applications that seamlessly support the digital lifestyle (something the game-centric libraries of the big three console companies will need years to match). Controllers would be touch based using existing iPod Touches or iPhones or cheaper multi-touch controllers designed expressly for the system. Video chat, social networking, GPS awareness, seamless iPhone integration — all of these become the building blocks for new types of games, experiences, applications and services.

By leveraging already existing technologies and products, there is a huge opportunity for Apple to continue to build on top of Apple’s ecosystem and sell even more hardware at very good margins to an ever larger base of consumers.

Why It Has To Happen

That’s the opportunity. But this goes beyond opportunity. Remember when I said Apple has no choice but to make a strong play for the living room? What’s the risk to Apple if they just sit tight and skim billions off the distribution system they’ve already built?

Suppose Apple continues to treat Apple TV as a “hobby” and allows somebody else (say Microsoft) to occupy this space? This could put iTunes is at risk which would then start to reverse the momentum that Apple has spent so many long years building — jeopardizing their entire ecosystem including the iPod and iPhone franchises. Can Apple really build their strategy around “Digital Lifestyle” and not have a strong presence in the living room? Can they own this space without home gaming?

Apple will make a serious play for the living room that will involve the App Store and the direct download of console-type games to an Apple TV- like device. It is not a matter of “if,” but “when,” and not an “opportunity,” but an “imperative.”

At Appy Entertainment, we’re staking our professional futures on bringing our console game development expertise to bear on Apple’s iPhone, and we’d happily support an “Un-Console,” too. This market is vibrant, dynamic, and only just offering the first glimmers of what it will someday be. As far as we’re concerned, the future can’t get here soon enough!

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Tags: App Store, Apple, Apple Gaming Console, Apple TV, Apps, Appy Entertainment, DVR, games, iPhone, iPod, iTunes, Macintosh, Microsoft, Pippin, Sony, U-verse, Ubi, Ubi-Soft, Ulm, Un-Console, videogames

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