Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE) have engaged in a heated console war dating back to the first Xbox released in 2001, but both companies also face competition from PCs and they may finally be taking significant steps to address that.
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Ahead of the 2016 launch of Sony's Playstation 4 (PS4) Pro console, the head of Sony Interactive Entertainment told The Guardian that the PC was considered PS4's main competition after data suggested players migrate over to PC from console during the middle part of a console cycle, which is happening now. Said Andrew House at the time:
The backward compatibility problem
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There has always been a large gap between the graphics performance of a console and a top-of-the-line gaming PC, rigged with the most expensive graphics card. The PS4 Pro, which was released in fall 2016, and Microsoft's Scorpio, expected later in 2017, are the first major steps toward bridging the PC/console performance gap.
But there's also a deeper issue at play, here, that is influencing a new approach to console design. The problem for console buyers has been the lack of support for older games that were made for previous consoles. PC gamers don't have this problem since you can play a game from 20 years ago on the latest PC hardware. However, the PS4 will not play older game discs built for the PS2 or PS3. Sony offers a subscription service called Playstation Now, which streams games from a cloud server for gamers who want to play older games, but this isn't the most gamer-friendly option since it just adds more expense to playing video games -- games that the player may have already purchased in years past but gave up in order to buy a new console.
The backward compatibility issue is an obstacle for not only the gamer, but also game publishers. In the past, whenever a new console was announced, demand for new games dropped, as gamers needed time to save money to buy a new $400 console. And there's no point in buying new games if you know the new console you're going to buy is not going to support those games. This creates a cyclical effect on revenue for game publishers about every five to seven years, when new consoles are announced.
Consoles are becoming more like PCs
With the PS4 Pro and the upcoming Scorpio console, Sony and Microsoft are breaking from past ways of launching new consoles by releasing what are essentially next-generation consoles mid-cycle andmandating all new games must work on both the new consoles -- PS4 Pro and Scorpio -- as well as the original PS4 and Xbox One. Gamers still won't be able to play a PS3 game disc on a PS4, but this move signals a major shift in how Sony and Microsoft will approach console design going forward. Games are being designed more and more to take advantage of add-on content and e-sports, which is causing gamers to stick with certain games longer. This trend necessitates that gamers be allowed to play older games on new console hardware going forward.
It's highly unusual to see new console upgrades of this magnitude less than five years into a console cycle. Although neither Sony nor Microsoft may label the new PS4 Pro and Scorpio as "next-generation," these new consoles definitely perform like next-generation hardware when looking at the technological improvements over the launch version of PS4 and Xbox One.
In an interview with Gamasutra, Xbox head Phil Spencer explained the strategy behind the design of Scorpio:
The bottom line
If the strategy behind console design continues to follow this course in the coming years, it will be a win-win for everyone: console manufactures, the companies that make games, including Activision Blizzard, Electronic Arts, and Take-Two Interactive, and most importantly, gamers. Sony's PS4 Pro and Microsoft's Scorpio could mark a turning point in the video game industry and finally bring an end to the cyclicality in video game sales, once and for all.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.