[Ed Barton, Screen Digest]

On Microsoft: Microsoft needs to do something to drive sales. Given 2007 Q1 year-on-year sales data, there are some worrying trends for the platform at this stage of the hardware life cycle. Xbox 360 continues to generate both sales and growth in the US market, but has struggled in Japan, while a drop in sales in the PAL region -- during a period almost completely free of competition from PS3 -- is a concern.

Can Microsoft generate growth by appealing to groups outside the core gamer demographic? We believe this is currently doubtful, given the nature of the overwhelming majority of its software library and the relative weakness of the Microsoft/Xbox 360 brand to the family demographic, certainly compared with Nintendo and, to a lesser extent, Sony PlayStation.

The games which have performed strongly on the platform have tended towards the hardcore -- Gears of War --while Viva Pinata has not performed as well. Viva Pinata is indicative of Microsoft's dilemma: Despite very favorable reviews and offering an innovative and family-oriented gaming experience, the game did not sell particularly well, suggesting that even if the content is there, the family demographic isn't buying.

Presumably [Microsoft's] decision to appeal to the family demographic will coincide with an increase in content designed to appeal to this group. This could apply not just to games but also films and TV content. Microsoft has the potential to ignite growth in this group, but it depends on a significant change in focus in the content available for Xbox 360, which would require investment and, given the nature of the current user base, risk.

On Sony: It is difficult to see how the PS3 will appeal to the mass market until a significant price drop. If Sony can evolve this offering into a more generalized, media hub, perhaps more people will be able to justify the cost. Additionally, PS3 is currently one of the cheapest Blu-ray players available, potentially expanding its appeal outside of gamers.

We expect PS3 uptake to be slow. However, we also feel that the adoption curve will endure for a longer period than previously witnessed in the console industry. Sony believes the expected lifespan of the PS3 will be eight to ten years. The issue one must consider is whether it is better to have a short period of relatively low hardware investment followed by four years of growth, or a short period of losses sustained on hardware sales early in the cycle followed by eight to ten years of growth. It is arguable that Sony's strategy will garner significant, long-term publisher support.

It is interesting that SCEE is releasing a PS3 version of Singstar so early in the hardware life cycle We will be very interested in the performance of this title, which has proven hugely appealing to non-core gamer demographics in Europe. It is difficult to see how it will drive hardware sales in the short term. However, given the potential of downloadable expansion packs [and] songs, it makes sense to release it early in the hardware cycle to enable it to maximize profitability across the entirety of the hardware cycle. Perhaps uptake will be slow, but it is easy to see why Sony wants this product on the shelf for as long as possible.

On sticking with the hardcore crowd first: Consoles based on advanced technology will be relatively expensive on release, until sufficient volumes have been manufactured for economies of scale to kick in and drive component prices down. Price dictates targeting the hardcore early in the hardware cycle.

Having said that, Nintendo stepped aside from this model with the Wii being released at price points which puts it within reach of a much wider proportion of the market. Currently, this is looking to be a successful strategy, and we will be interested to see if Nintendo can sustain its current sales performance, across all major territories.