Console Wars: Microsoft vs. Sony vs. Nintendo | Pixels & Profits #2 (Part 1 of 2)

foreign and welcome to pixels and profits episode number two so we're gonna keep rolling here thanks for all the folks that send really great feedback about our first episode really happy how that turned out and how much people seem to enjoy it but today we're gonna be shifting Focus to console Wars so meaning the big three Sony Nintendo and Microsoft and again if you don't know who we are with us today you have myself Joseph Kim content contributor for game makers and CEO of Leela games Matthew contraman director of research from Round Hill investments in Brian peganov from Timber advisors so just to set the stage for the discussion today we're going to start kind of like first half with a focus on profits meaning a characterization of the console market today and specific market dynamics and the second half of

our discussion will shift to more of a pixels based discussion meaning high level strategy themes and trends but let's go ahead and Dive Right In Brian can you uh tee us up on the high level market dynamics yeah so uh we figured it would make sense to kind of set the table here with an overview of the three main companies that we're going to be discussing today uh namely Sony Nintendo and Microsoft we'll get a few bits and pieces of some other players in there too uh a key thing many investors look for in public equities is how exposed a company is to a certain theme or Trend and since we're talking about consoles and specifically the modern day console war it's a good place to start so let's kick things off with Sony and its PlayStation business so Sony is a publicly traded company with a market capitalization of about 120 billion dollars so it's a fairly massive company they did about 83 billion dollars of Revenue into fiscal 22 and they're projecting about 82.8 in fiscal 23 so roughly flatish year on year they also do a bunch of other things ranging from music to movies to financial

services uh the PlayStation gaming business is called game and Network Services and that business did about 26 billion dollars Revenue in fiscal 22 and they're projecting about 28 in fiscal 20 or 28 billion in fiscal 23 that's about seven to eight percent year-on-year growth they also report adjusted oi by segment which is a loose proxy for ebito and they did 2.4 billion in fiscal 22 which is about 9.2 percent margin and they're looking for 2.6 billion in fiscal 23 which is again roughly flat so gaming is about 31 to 34 percent of Sonia's total business and about 20 to 21 of OI or IO so I classify that as pretty damn important but it's not necessarily Mission critical so uh Matt what else do you have to add there yeah I don't think that people realize that Sony's a bank they you know Sony Financial used to be a Loosely Affiliated company and a few years ago they bought it out and Consolidated it they're actually in talks to spin it out again so you know fun Financial engineering but people don't realize

that Sony's Bank they're also like the leader in um smartphone camera chips so like they are a big supplier for apple and a lot of other smartphone vendors so like when you look at the overall Revenue piece the smartphone Market's been weak that's a lot a lot of that is driven by their lens their image sensor business being weak um you know there's lots of other things going on they still make computers they still make TVs right so there's a lot of moving pieces in Sony's business I mean Brian you're probably going to dive into Microsoft next or or third right but it's similar story where Sony is really important to the games industry particularly the console games industry but as a percentage of the whole business it's only 30 percent of Revenue 20 something percent of operating income so it's it's just important to keep in mind like you know how this flows through the p l of Sony as a Consolidated entity and we're gonna go to Nintendo next we're going to dive Sega and Sony Nintendo Microsoft for each of these uh so Nintendo is a publicly traded company with a market cap of about 56 billion USD they did about 12 Spot 2 billion in fiscal 22 and guided to 11 and a half

billion in fiscal 23 so that's down about five and a half percent year over year uh they also did about 4.25 billion oi in fiscal 22 and guided to three six in fiscal 23 and that represents 35 and 31.5 percent oi margins respectively so significantly more profitable than somebody's games business and at a high level you can attribute this to a higher tie ratio of software High ratio and extraordinarily High mix of first party content so switch Hardware guided to 15 million units which is down 17 year over year from 18 million and again this is kind of like end of a cycle and then the software the most profitable part of the business uh to 180 million units versus 214 Million last year that's down 16 the important part here to note is like almost 97 of their business comes from gaming hardware and software so this is the very definition of mission critical this is a gaming pure play uh very very rare So this mix will go down a good

amount next quarter with the inclusion of IEP related income from their Mario movie right maybe I could just uh stop you real quick just because one feedback I did get from some some of the listeners is that they had some trouble understanding some of the terms but just for a couple of the things that you mentioned oi meaning operating income and then Tire ratio is the um if I remember correctly it's the total amount of software divided by the total number of console units so basically yeah okay so maybe I'll like as we go through if other terms pop up I'll just kind of jump in and kind of explain a little bit for uh for a more General audience yeah definitely helpful to Define some of those terms and you know it's also important to compare when we're comparing Sony and Nintendo where they are in the cycle and we'll talk about the console Cycles in a bit but Nintendo's at the later stages of the switch cycle and so that's when you start to see Hardware Sales decline software sales go up that's when you make more of your profit dollars because Hardware is a lower margin business than

software so you know it is important to make that consideration when thinking about the numbers the other thing I'll just mention with Nintendo um corporate management teams they all have different strategies with how they give guidance a lot of them tend to sandbag and kind of you know guide very conservatively so they can beat it if you actually go through like you know CEO and exact compensation you can pretty much figure out why they do that because a lot of them are incentivized to beat their initial guidance so they sandbag it so they can beat it um but Nintendo I think the last couple years has beaten their software unit sales by like 40 versus their initial guidance so like it's not even like it's not even like 10 like it's a massive beat the last few years so we got to take their Guidance with a grain of salt now as we look at ahead to the next year the release Slate's a lot lighter like yes they have Zelda but once Zelda's out like there's pretty much nothing else on the first party side so versus prior years where they had games that were coming that they were just being conservative about like even like Mario Tennis ended up being a massive seller

which probably had to do with covid to a degree but uh it's still just important to keep in mind that this is a company that historically has guided very conservatively as well and so let's move to Microsoft and for this one it's a completely different ball game uh publicly traded company obviously with a market cap of just under 2.5 trillion with a t so this is the second most valuable company on the planet uh it's about 300 to 400 billion dollars less than Apple on a given day uh so in gaming they do about 11 to 12 billion dollars of Revenue against 200 billion dollars plus for the full company so it's about five to five to six percent of the mix and maybe 75 25 software to hardware if we add Activision to the mix which is a big if we're looking to be about a 20 billion run rate and this will approach High single digits so in no realm of possibility is just a gaming pure play it is a rounding error uh what I would mention is that Microsoft became incrementally more positive and vocal about the gaming business whenever fortnite came out in 2017 because they saw a big flood of business uh coming in

from um you know people buying stuff in fortnite and having 30-ish percent of the console Market uh since that time period they've made some Acquisitions that have boosted their revenue number and overall mix but at a high level it's kind of been pushed to the sidelines in the most recent quarter hardly mentioned brought up at the end and they're just giving an indicative guidance based upon rate of change yeah I mean just from well let's let's quote our good friend Eric cross right for Microsoft gaming is mice nuts it's Xbox is very similar to Sony Xbox is really important to the gaming industry particularly the console industry again right but for Microsoft on a Consolidated basis they're the second largest cloud vendor they're the largest SAS vendor in the world they are a leader in generative Ai and that's going to be a huge business for them Dan Ives at wed Bush saying it's going to add 300 billion dollars for their market cap because of the revenue potential right so you know when you think about gaming relevant to Microsoft

it's you know Activision is going to cost 69 billion dollars that was the deal price that's less than one year of free cash flow for Microsoft they will make that money back from everything else they do in less than a year whether or not they buy Microsoft so it's we're just talking about orders of magnitudes of money that that just doesn't exist in most other companies and you know I don't have much else to add on the Microsoft side but I do think whether we talk about it now or later I I think the other thing that might be interesting to discuss is just the difference in terms of strategic approach um but you know whether we talk about that now or later up to up to you guys I think uh what we're planning on doing is taking a quick dive into uh well actually not maybe not quick but the last few generations of Hardware yeah let's do that and then uh it's it's been funny I I played a little ketchup over the past week since we've been planning to do this for a while and I wanted to draw some conclusions around what drove successful outcomes for uh Hardware console units in the past and I think what I came up with was three things and

I'd love to hear your views on it uh the first one is speed to Market in the specific generation uh the second one is differentiated features and Innovations specific to that console and then the third one is software lineup and this is in no specific order but love to hear if you guys have any different views yeah I think in particular um you know the the importance of of um exclusive content I I think uh at least for me kind of Define the initial success of those platforms I and uh it might be interesting to think about how much of an impact you guys think that has today but at least for me that's how I made my early console decisions is you know where am I going to be able to play a specific game I definitely think that first party content is the only it's the only factor that has spanned all of the most recent Generations like if we look at technology and differentiated factors like that was huge for Xbox in the beginning and Brian you've laid out some of the numbers we're gonna get into but they were the

first one to have online multiplayer and a console right that was huge Halo 2 was the first ever online multiplayer game like that was a huge selling point for Xbox at the time you know then they tried the connect and that was just a huge flop so you know it's that's been hit or miss Nintendo hit or miss right they seem to you know Tick-Tock between Generations the the Wii was a massive success with with how they structured the controller with the with the motion sensors but the Wii U was a massive flop with that weird tablet thing but then the switch was amazingly successful so you know they do seem to kind of that seems to be hit and miss depending on the time but I think it also ties back to the to the software what software takes advantage of those Technologies and I think that's why I think the first party content or even second party content when you look at Sony more recently um is more of the the thing that has the most staying power across Generations I've also heard people talk about distribution like someone was making the point that Sony has better distribution into Africa and other parts of Asia it's like yes that's true but how many ps5s

are being sold in sub-Saharan Africa like consoles are mostly a Japan Western Europe and North American Market maybe a little bit of South America maybe a little bit of Northern Africa League majority of the market is Japan Western Europe North America so like let's just you know Microsoft has distribution and two of those three very well they've always been outsold by by Sony in Japan just because Sony has that local market but you know so I I think distribution also is one that you on the margin it makes a difference but it's not the key driver yeah there's a famous quote from online a famous quote there's there's kind of a niche quote from this guy Roger mackman who's a famous investor but you know he once said that between the content and the audience everything in between is a choice and so from that perspective you know like why did I buy an Xbox I want to play Halo why you know why did I get Nintendo because of Pokemon I want to get PlayStation because of Final Fantasy so yeah definitely

um probably still relevant today so let's uh we'll hit the time machine and we're going to start at the sixth generation which is the start of the modern console war and this is a period defined from 1998 to 2013. so this is uh starting with the PlayStation 2 which was launched in March of 2000 it did about 157 spot 8 million units over the course of its lifetime and some of the best exclusive games in that platform were Final Fantasy 10 uh shadow of Colossus Devil May Cry God of War metal gear solid uh Kingdom Hearts there was a ton this was just a total uh assault on gaming everything was just Landing um success drivers for the actual Hardware so first to Market and we'll talk about the when the Xbox came out in a second uh really beefy specs the launch content was here or there but it exploded the great games that we just kind of listed out in terms of innovation it was the first to DVD it was Backward Compatible it had the dual

shock 2 with Rumble and press pressure sensitivity and an optional network adapter which came out later and then like peripherals were starting to be a thing and that was really important for Activision and rock band back in the day shifting over the GameCube that came out in September of 2001 did about 21.7 million units so that was deemed to be somewhat of a failure some of the highlights in terms of software was Metroid Prime EA Sports titles which weren't exclusive Zelda titles and Super Smash Brothers so in terms of success drivers there really wasn't one it was mostly thought of as a flop it wasn't super differentiated no online gaming or third-party support but it was very family focused uh with four controllers and it introduced the c-stick for camera rotation so I think the one thing to point out about Nintendo and if you ever want to learn more about the gaming industry I would suggest reading about the early days of Nintendo they've always learned a little bit about stuff they messed up on and they've turned that into major successes down the line

so it's a very durable enduring company and it's Innovation is really at its core it reminds me a little bit of Apple anyway shifting over to Xbox this was launched in November of 2001 and remember March 2000 was PS2 so we had a lot of lead time there this did 24.7 million units uh the major games were Halo and Halo and Halo uh it had a built-in hard drive an ethernet port which Matt already alluded to in a media center and I would say the main challenges here were the price point it was a bit more expensive than the Sony offering it was late it lacked a really intense backward compatibility although it did support it and there was some struggles with branding so how that resonates with you guys what were you doing in 1998 I was playing a lot of those PS2 games in particular right like so Final Fantasy 10 is one of my all-time favorites so I was playing the hell out of that and as well as a bunch of other titles like armored Core Bushido Blade so yeah that was like a magical gaming time for me in a one of

the platforms one of the consoles I I you know played the most of I was hard into Halo I was a big Xbox gamer Halo 2. under the radar I think one of my favorite games of all time is SSX tricky though um you know kind of like a cartoon arcade snowboarding game I just like you know he had the cheat codes you could turn on the you know unlimited alt and you could just kind of like do the crazy tricks that was that was a lot of fun we also skipped over Gen 5 which is N64 and I think to the point of Nintendo kind of being this Tick-Tock success not success N64 was one of the most successful consoles ever still is GameCube not so much then they did really well again so I mean with the Wii after that so I mean I know we're gonna go to the next one right away but you know I I sometimes it's hard to just figure out what Nintendo did wrong I think with the Wii U you can look at it and say this made no sense but when you look like the GameCube like made sense it just whatever reason didn't hit Nintendo was always super solid on those

handhelds as you guys alluded to with just uh the Pokemon and things like that but console was a hard shift for them and they didn't figure out until quite a bit later uh for me I've been a Sony Fanboy my entire life uh on a bash uh at this time though I was mainly playing PC games like uh Warcraft and uh Starcraft and things like that so I had made the full transition yet I did mess around with things like EA Sports titles and things that would be uh buying those things the year after they came out for seven dollars at GameStop and that's that's how I lived my life so let's uh let's fast forward to the Seventh Generation so that's 2005 to 2017. uh the PlayStation 3 launched in November of 2006. uh we can also take a quick step forward to Xbox 360 which launched in November 2005. so we're going to look at the impacts there of speed to Market uh for PS3 the some of the leading titles were Uncharted Last of Us God of War 3 Infamous and kill zone two in terms of innovation it was the first to Blu-ray it had full Suite of online connectivity not just an

adapter Playstation move which is kind of like the connect no one carried after a while multimedia support the one thing that I think was actually kind of cool that this generation came out with was achievements and I think that was a really important way for console companies to lock in their customers over a long period of time alongside just like gaming chat and gaming social right like this is where you started to meet your friends that you never actually meet so that's kind of a cool Innovation for the ERA this is also uh the era of the Wii which came out in November of 2006 so lockstep with PS3 and that did 101.6 million units it was a major success this was the era of Wii Sports and Mario Kart and Wii Fit Super Smash Brawl and we play and the biggest Innovation they made obviously was the Wii motion controls it was super casual focused it was a virtual console as well so had old games to download it had online connectivity at first for the Nintendo ecosystem it had the me avatars which is kind of the first step to uh

personalizing yourself inside of your games and some backward compatibility uh Xbox 360 again that was November of 2005 and that did 87 85.7 million units so this was a banner era for consoles in general like everyone succeeded in some way uh Microsoft came to Market with games like Halo 3 and Gears of War Forza Mass Effect the first one and Crackdown they also had achievements PC cross form PC cross platform compatibility the connect sensor which Matt can reminisce about a little bit Xbox Live arcade Blu-ray enhanced multimedia and the biggest notable challenge for Microsoft that became a bit of a nagging uh well actually kind of more like a heroic thing looking back over the years was the red ring of death and we also had a really good cycle for proliferation of handhelds so the DS came out in November of 2004 and that did about 154 million units over the lifetime PSP in March of 2005 uh 81

million units and um this is also the era of like Mario and Pokemon Black and White Zelda Mario Kart Animal Crossing on Nintendo handhelds and for Playstation GTA Liberty City Stories God of War Monster Hunter Final Fantasy 8 and Metal Gear Solid so this was this was a really interesting generation so what were you guys doing in 2005 yeah so of those platforms interestingly I I was probably on handheld most so playing like Pokemon Advanced Wars disgae just a bunch of games on the DS in particular but I think one thing people forget is that during that period when the Wii came out it was like a little bit of a cultural Phenomenon with like so many people playing playing Wii Sports and the word on the street at that time is based upon the success of Wii Sports that Nintendo was then really trying to

think about adapting a different kind of strategy in terms of the console platform itself as not being a gaming platform but being more of a platform for other a bunch of other stuff outside of gaming so education Sports and Fitness and they had all of these word on the street was they were investing pretty significantly into trying to make it more of a general purpose more family oriented platform I I don't think that ever I mean yeah it never took off but it was pretty interesting to remember just how big Wii Sports was and the the you know the the kind of potential that potentially could have taken off if um if if that platform actually was able to be more generalized outside of games I remember Madden on the Wii was really fun because you actually had to like throw and stuff like that was that was fun that was different I mean it wasn't like I wasn't playing that online competitively that was just fun to do with your friends like in the basement right you know but um I also had an Xbox I was playing Halo

also had a DS so I was playing Pokemon and everything I mean that was a great era for games I do think if I'm recalling correctly a lot of those like non-gaming Ambitions were killed by the financial crisis because you know this this generation did occur started in o5 this carried through the GFC you know 708 and I think a lot of companies cut a lot of non-core things at that point I think a lot of those education Fitness type things got got canned at that period it's interesting well you know as we get to the the switch right you know definitely Fitness has been something they've done a lot with they have a lot of sports games but ring fit Mario Tennis things like that are all more active so you know it is interesting how that kind of came full circle yeah this was a pretty heavy era for me too I definitely was part of the Wii uh Revolution and things like that it was still a Sony Fanboy again I played a lot of these single player games you already mentioned Uncharted God of War whatever but for me the the lasting impact from this generation was the tail end in 2014 when Bungie uh released Destiny one it

was like the first time I've really seen a shooter game where you you know meet people and team up and it's like a really cross intersection with PVP and PVE and uh you know that's that game transition to PS4 and eventually PC and got me back into that ecosystem so that was uh certainly one that I looked back on with a lot of fondness let's skip to the eighth generation so this is 2012 to 2020 and this is the PlayStation 4 which was launched in November of 2013 and that's at 117 million units let's do a quick flash down to Xbox so we can we can compare again uh Xbox came out in November 2013 as well so this was block step again uh 51.26 million units so just Quick Step Back From The Seventh Generation to the eighth generation 7th generation Sony's nervous because Microsoft is equal and share and then they got their butt kicked in in the eighth generation so why uh the games that PlayStation had um Spider-Man God of War Horizon zero Dawn Uncharted 4 The Last of Us

remastered ghost of tushima Ratchet and Clank Infamous Second Son so it was just like another again like just a barrage of amazing content that people still play today and like that they still iterate off of in current generation games uh so the Innovations it was a Powerhouse it was very strong system it double down on gaming versus owning a living room and that's kind of where Microsoft went right they wanted to be the multimedia Center of your living room exclusives were epic like we just said uh the PSN Evolution and in the Dualshock 4 which with a touchpad and motion sensing Remote Play with the veto social sharing and gameplay capture the Wii U which is another Nintendo flop November of 2012 that did 13.6 million units so it's like 10 of what they did in the last generation uh they had some Mario Kart games Super Mario 3D World Splatoon whatever um the GamePad had a controller like a built-in touch screen and so why did it

fail um the marketing was off so it wasn't a material improvement over Wii and it was kind of deemed as an accessory there was a performance gap between the other two powerhouses Microsoft and Sony the software lineup was lacking a bit the the rise of mobile gaming is also attributed here because it like they this was their first attempt at kind of like bridging that console to mobile form factor and a lot of the Innovations were happening on mobile where the distribution was way better and uh the modernization was way better frankly so I think the Silver Lining here though is that I prepared them for the switch so touching on Xbox One this did again 51.26 million units lifetime uh Halo 5 Forza Gears of War 4 Sunset Overdrive sea of Thieves so like you know decent games some of them are still around today but nothing that really shocked the world um and then this is also a decent Hardware uh handheld cycle as well so the 3DS was relevant um and this is also the arrow of fortnite which I'll touch on after the other guys go and tell us what they were

doing in 2012. yeah for me during this period I think I mean this was obviously like you know Sony really took it away uh from for me like the the previous reason for owning an Xbox was always Halo and and Halo just wasn't the same at that point and then to your point on content and the the other titles available on Xbox it just wasn't that powerful whereas you know on the PlayStation side I mean God of War by itself is worth buying a PlayStation 4 but um yeah I I would say for me I was mainly playing PS4 or at this point in my career just buying a bunch of games and watching my kids play I was an Xbox One user I I you know it's so less less good content it was a lot of sports at that time I was big into the just EA sports games in general a lot of FIFA a lot a lot of FIFA in that generation I you know they got a lot of money from me that was when ultimate

team started to really blow up and I got into that ecosystem and that's that's a drain on your wallet over time I think for me the the most important title of of this generation and maybe the generations before was fortnite coming out in 2017. um I had a really early look at that game when it was just kind of first being conceived there wasn't any building yet uh it gave me access to play a new extraction kind of like shooter shrinking world uh that was popular on PC but like not not super popular on consoles or anywhere else um so it was the first big cross-platform title and then they shifted to Mobile so quickly uh it kind of gave me the vision of like over time more games being free to play and more games being experienced on mobile as they were experienced on PC and console which was just a really novel concept at the time and it got me even more interested in the gaming industry so that was uh definitely a huge shift I would also just point out this generation you know Microsoft had Sony on the ropes

in gen 7 especially if you go X Japan they outsold them by a decent margin right and I think I think that's an important Benchmark for Microsoft because I don't think they're ever going to compete in Japan unless they really aggressively start acquiring jrpg Studios um which they really haven't and I think there's cultural reasons that they probably shouldn't but you know when you think about just where they've competed historically they they were they were beating them in Europe in in North America which which is huge for Xbox at that point and then for Sony to just come out and and just you know say we're the big we're the you know we're the 8 000 pound gorilla in the room you guys can go back in your place here's all our content you know they just dropped it on the table um like 51 million units for Microsoft isn't like if that's not mice nuts like that's that's a decent showing but being outsold by two and a half times plus or minus by Sony and the generation especially when some of the biggest games of that generation were third party whether it's the Call of Duties

whether it's GTA whether it's fortnite you know the fact that you're being outsold by that much because you couldn't you weren't prepared on the content front um that was that was interesting that was just a really great strategic play by Sony and we've seen Microsoft trying to close that Gap you know once they realized they lost the eighth generation they bought xenomax they've made a few other Acquisitions for Studios they've just been trying to beef up Activision potentially if that goes through but you know even even so some of the early content from zenimax has has not been great redfall is I think it's the worst rated zenimax game of all time on Metacritic which yeah Metacritic is always you know iffy but like that says something right like it's it's clear that they have issues internally in how they do this and and what they're trying to do and and you can't just you know maybe with all their generative AI with open AI they can fix that down the road I don't know it's stupid but you

know I I think it really does show the deficiencies and the content generation they had relative to Sony at the stage all right so all the way to the present we'll talk about the ninth generation last and then we'll go into uh throw more of a discussion phase so this is uh deemed as like 2021 uh to present day but there's a big caveat in there because Nintendo kind of went mid-cycle on everybody and took over the world um so PS5 launched in November 2020 uh 34.4 million units roughly to date Xbox x or SSX November 2020 as well so locked up again and sell through there has been about 21.7 so there's some issues here that we can talk about a little more detail about the pandemic thing that happened and everything else that caused some share shifts and things like that and also the availability of consoles actually being able to be sold during the holiday season and things like that whenever things are usually very robust um for PS5 you know the story is still being written oftentimes it takes a little while for the software to catch

up with the hardware but they've already got some great titles out there like Last of Us and Horizon forbidden West God of War Demon Souls another Ratchet and Clank and return them um they have an in in like a SSD inside uh 4K and HDR support dual entitlement and cross-platform progression uh Xbox we'll just skip to that real quick again Halo infinite which was reasonably well received uh not to Matt though Forza uh and then their Innovations here was a Game Pass which we'll probably dive into a little bit further in the discussion and cloud gaming which again is kind of becoming or was becoming ubiquitous but it's still kind of touch and go uh but let's talk about the switch because that launched in March 2017. uh they've done 125.1 million units to date roughly and just went on in on content I mean Mario Kart Animal Crossing SSB Legend of Zelda the new link Pokemon sword and shield Scarlet Violet like you name it that Mario Odyssey all these games were just

fantastic and outstripping their own internal expectations and you know it was just it's been a very good cycle for them um and again this is like they were not just like first in Market but but first to Market in a material way launched with an amazing marketing campaign every time I hear someone snap their finger as I instantly think of switch killer content again novel Joy con controllers local multiplayer seamless TV integration and then the best Indie and third-party support they've ever had and you know portable so over the years my Nintendo's had these ecosystems that kind of coexisted they would play around and console a little bit and then have a banger year or a banger cycle with the handheld but like they brought it together in just a really cohesive beautiful package so I'll just leave it there and see what you guys were doing in 2021 which was not too long ago yeah I think for me of the consoles of this generation I mean I think you have to have a switch definitely

um but you know a lot of the games that you mentioned I've I've played at least a you know fair amount and I I think that my kids play that and especially if you're a parent with kids you have to have a switch I think you have to have a PS5 because of the promise of content and existing content there I just don't see the reason why you would need to get an Xbox today I mean just the content lineup there for me isn't isn't very compelling so I don't know for me I I'm a little bit concerned about Microsoft and Xbox being a viable platform in the mid to longer term future I have all three so you know I'm uh I'm I spoiled myself but and where was I was in Hong Kong when these came out too so I had you know I was in lockdown in Hong Kong I had nothing better to do but play games I think um I think this generation is is the most interesting for me because this is where we really and we'll dive into the strategy more so but this is where

really Nintendo Sony and Microsoft really started to diverge right Sony is doing what they did best here's all of this amazing content by our box to play it and maybe at some point in the future we'll put some of it on PC now but that's like a year or two after it comes out right Microsoft is all right here's a box it's really powerful but you can also get game pass on X on PC and just sub to Game Pass I don't care where you do it use that if it's going to be Cloud streamed if it's going to be on PC or console I I mean I don't have any intimate knowledge of negotiations but I can almost 100 guarantee that if Sony would agree to it Game Pass would be on PS5 also like I think that's something that Microsoft would do in a heartbeat if Sony would allow right they they want and they've said this Satya has said this they want consumer subscriptions to match their Enterprise office subscriptions and gaming is the Forefront of that and they want to grow Game Pass to be that so Sony's focused on buy our box to play our games Microsoft is focused on subscribe to our

thing it's a great value and then you have Nintendo doing their own thing and what I think they did really successfully in this generation exactly to Brian's point is they said here's a device that's purpose built for our amazing IP and here's all of our IP in succession I also think they were aided by the pandemic and you cannot rule out the Boost because sales were were coming switch sales were already kind of peaking right before covet hit and when covet hit it was just like nope here is the next you know Giant Wave of switch sales and and content right so I it's hard to kind of you know a B test that because you can't but and don't think they would have sold 125 million units of the switch without covid like I just don't think that would have happened um but things like ring fit even selling tens of you know over 10 million units right uh you know lots of that you know if you look at the list of 10 million unit sellers in this generation it's it's it's so huge and it it just speaks to what they did really well they found a middle ground to be the secondary

console to Microsoft and Sony rather than competing with them and led with content and that was just huge for them yeah I think maybe one other thing I could jump in here with is I I think there's in this generation I think there is a little bit of a different environment in the sense that I think that it's no longer PlayStation versus switch versus Xbox I think it's PlayStation versus switch versus PC right because if you think about um historically PlayStation was always the best platform to play RPG games in narrative based you know nerd action adventure types of games right switched with Nintendo platforms you always want you know that's the place you go to for Pokemon and you know those kind of Ip titles and for an FPS it used to be Halo and and Xbox but now like you know my kids

instead of for us we we didn't get the latest Xbox instead they both got PCS and they're they're playing valorant all day long so I I do think we are probably at an inflection point for when players think about FPS they're not going to be thinking Xbox they're going to think be thinking PC and I think increasingly more people are gonna just get a PC instead of getting um an Xbox I got a few outliers here as well but the other thing worth pointing out is that this is also the era of mass consolidation in video games and let's just set aside uh mobile for now because that was where a lot of it happened uh Microsoft one of the e3s I don't remember exactly which year it was but they bought five Studios and just announced it and Phil was like look at what I did I just brought in five new Studios this is gonna proliferate we're gonna have a bunch of new first party content and then Sony responded by buying Bungie which of course was the studio that essentially made Xbox Xbox by producing Halo

um and I think that sets up an interesting juxtaposition too because for all the lip service that Microsoft's gives about open platforms and things like that uh their Bethesda acquisition which was a 10 billion dollar deal and uh subsequent Acquisitions like they are not uh open platforms even redfall for instance that you know I'm not sure why Sony players would play that but they don't have the opportunity to for a while um Starfield is coming out later this year which is a very uh Club it's a very exciting game for gamers because it's been teased forever and Bethesda is an amazing studio but that also won't be available on Sony but if you think about Sony and the Bungie acquisition Marathon which is another game that people have been in a fury about will be available cross-platform and If I had my brothers on that one I do believe that's contractual Punchy was a very attractive asset and for sure they wouldn't sell to someone that would make their game unavailable to the masses but it's an interesting juxtaposition to see like that play out because Sony has never wanted their

their greatest hits on on Microsoft console so that's an important one to look out for there's some other things like other entrants that I kind of want to get your guys view on too so we have valve in the steam deck that's done about three million units maybe a little bit more than that in 2023 do we think that is a viable candidate and let's also juxtapose that against the new Sony handheld which was introduced in May project Q which is coming out in November so how do you think those fare together very similar offerings right but uh what's up I think if you're competitive Alternatives you're always with a handheld device you're always going to be comparing against phone right and I just don't know what you know I mean well so exclusive content could be one thing but then is it dramatically better and look I'm a guy who has owned you know almost every DS I own a PSP and um I you know it's just with the phone I just think it's a very difficult challenge to

um to build and communicate a value proposition when everyone's got a phone so I don't know I I'm a little bit negative in terms of some of these handheld offerings coming up but you know I I hope I'm wrong but I'm I'm skeptical these feel like very 20 20 things where there was lots of free capital and people were just throwing stuff at r d to see what sticks because they're all coming out now I I think to JK's Point like with the Xbox today like they don't need a handheld because you can just Cloud stream to your phone like I can go sit outside in my backyard and play MLB the show or whatever game I want to play stream from my Xbox on my Wi-Fi network it's it's not going to be the you know I wouldn't play Call of Duty doing that because I'm going to have lag doing it but like to play something that's offline where I'm just it's just me like that is that's a great you know and whether it's my phone a tablet whatever device I already have like I don't need another another thing to go with that to do that uh and so I

just I just think it's it's a product that was designed with this work from home we're all going to be home forever mentality and it doesn't really fit the modern world that we're in where you know the everything changed very quickly after changing very quickly and how we live work and play and everything and you know I I think over time if Cloud really becomes competitive on a latency basis like then these things could potentially become valuable but again to you know your phone does it too so why would you spend why would you spend three four hundred hours on something that your phone can do the same it's the same argument for like VR there's not great or differentiated content yet you've already got to own a 500 PS5 and then you got to spend 500 on a headset it's like so it's a thousand dollars gating for Content that isn't great these it's the same content it's just an extra couple hundred bucks to play it on a small screen where I need to wear glasses anyways like it's it's it's a

it's not an optimal experience and and I just I I think it kind of it just misses the boat yeah it's like when the iPhone came out everyone stopped buying iPods right and now this strategy is like okay well we're gonna try to disrupt the iPhone with uh single purpose gaming device I yeah I I don't know I I just think it's going to be very challenging yeah I would say like uh a lot of this was emulating the um success of the switch which again kind of beat them to Market in this Arena um I would say Sony's got a way better chance of making it than this Market than valve um that would also say like Microsoft has said they're not interested and I continue to believe that that's true and there's companies like Logitech and others filling the Gap I think that is a huge losing proposition because if you don't own the distribution there's no reason to be in the gaming Hardware business so that would be a big loser in my opinion I guess the Sony project Q would be more successful if it wasn't tied to the PS5

right if this was a standalone device where you could buy games and play them directly on it rather than Remote Play from your PS5 that that then you're competing with the like the Nintendo DS and all the Game Boy you know you know spawns all the next Generations there right that's a different Market opportunity you're going after now you're saying I can have PlayStation IP wherever I want it that's that's a cool concept to tie it to the hardware to PS5 I just think that opportunity basically is gone and I say we got a really good look at Nintendo financials I think like in may they dropped something recent as of end of March or something like that so um we have a good backward looking View and guidance for the full year there was nothing in there about a new hardware cycle and again we're this is 2017 we're talking about it's been I've been doing math right six years since the last one and uh uh Matt I know you spend a lot of time on the semi-supply chain and specifically in Asia so I think you

mentioned you may have heard something but what are your indications there so sharp supplies the displays for the switch and they said that they had secured a contract design for the Next Generation uh console business for one of their customers we can do math right so so whether that's this year or next year there's clearly some sort of reference design being set upon where sharp now has the contract to build whatever the Next Generation uh product or the display for the Next Generation Nintendo product I think that's what that's telling us is number one it's going to be some sort of a handheld or hybrid again because they're going to have a display built into it right so that's kind of already interesting whether it's just a switch Pro and it's backwards compatible or it's a brand new thing I think we'll find out over time particularly with you know from AMD we'll see what they start saying about their semi-custom business because that's where they make uh the chips for Sony and Microsoft they didn't make the chips for the switch that's Nvidia but you know Nintendo has gone

back and forth over time so we'll listen to see what's going on in those businesses but you know just it seems like even though Nintendo is being quiet on the Next Generation the supply chain is starting to get ready for it and I think that that's what tells you that it's probably 12 to 18 months away is it this holiday season I think that's a little tight because they probably would have had to tell the market that it's coming and it would have had to be in the guidance if it was this holiday because they'd basically be announcing it now because this is you know E3 is dead but this would have been the E3 time this would have been the time for them to do a direct and announce it so I think I think we're probably looking more at sometime in calendar 24. probably the holidays but the switch was also a randomly a March Of release I mean I think that had to do more with the Wii U just being a flop than anything and they just wanted to get it out but I think I you know the supply chain is telling us they're starting to get ready and that's the indicator that something is close folks our discussion today on Console Wars has run a bit long and the second part of our discussion is fairly

different from the first half so we split it up make sure to like and follow if you want to see more of this content and stay tuned until next week when we discuss a lot of the Strategic and the pixel side of the conversation on the console Wars catch you all next time