Halo 3 Will Be Profitable For Microsoft, But Not Transformational

I was recently interviewed on Reuters TV concerning a topic I love: gaming, and specifically the release of the new game Halo 3 for Microsoft's (MSFT) Xbox 360. What about the game? Is this just the ticket to help the Xbox 360 cross over into the mass market?

And what about the Xbox 360 media center strategy anyway? Does it have legs? These were some of the questions posed to me by Jeanne Yurman of Reuters. Though I have provided a link to the clip, the two key points I made during the interview are:

1. Halo 3, while likely a very successful game that will be sold into the existing installed base of mature, hard-core Xbox 360 gamers, is not going to help Microsoft cross the chasm into the mass market. First of all, the game is an M game. A mature game, a violent game. This is most decidedly not a game for the whole family.

Contrast this with Nintendo (NTDOY.PK), where most of the games are rated either E or T and with much broader appeal. Further, unlike its predecessor Halo 2, the Halo 3 game is not backward-compatible, only being able to be played on the Xbox 360 console. This limits its initial target audience to around 10 million Xbox 360 console owners, versus the 30 million that are available to Halo 2. Neither of these are helpful facts if "mass market" is truly the objective. And I certainly don't buy the argument that the Halo 3 game itself will drive new console sales.

The game has gotten OK reviews and I am confident it will sell well to existing Xbox 360 loyalists, but beyond that, I am neither a dreamer nor a believer.

2. The Xbox 360 media center strategy has been discussed ad nauseum on this blog and others. And there are certainly differences of opinion on the likely success of this strategy. My position remains: the mass market will not be willing to pay for an all-in-one home entertainment solution, and certainly not one which is first and foremost a gaming console. They will buy consoles to play games at home, play games with others and maybe a little game-related social networking on the side.

Might I be wrong? Of course. But this is one hell of an expensive bet to make, and one that has some ugly historical precedence in the form of the Sony PSX.

Comments

[Tom B]

I concur with your sentiments. I doubt Halo 3 will push the failing XBox unit into profitability.

[Doctor_Hyde21]

I don't think that you examined how many consoles were sold in proximity to the release of Halo's 1 and 2. because Halo 3 will be on an entirely new console I believe that many diehard fans are waiting for this title's availability to purchase a 360 console.

One element to examine when Halo 3 is relased will be how many consoles are sold on or around the relase of this title. It's pretty much a fact that; for every original xbox that was sold thre is a copy of Halo, and or Halo 2 in the consumers library of games.

So in contrary to your statement I believe that console sales will be driven upward in light of this game's release. I know for a fact that many dedicated fans are intentionally holding back on their purchase of a 360 until Halo 3's release, as I constantly blog and discuss bungie and Halo related topics on Bungie.net.

Also, your reasoning in reference to the games "M" rating: You'd be surprised to know how many minors play Halo 2 online every day, and now also the beta for Halo 3. Just because the ESRB put a rating on a game, does not in any way mean that a parent pays attention to it. A family friend of mine has a 4 year old that plays Grand Theft Auto, reputably one of the most violent games ever.

[Tom B]

You are discounting the fact that a very large fraction of the XBox's that have already been "sold" are residing in inventory in the box stores. Thus; Halo 3 might not produce much of a spike of "new" sales.

We'll have to see.

[AnonymousIdentity]

I'd like to point out that there is nowhere (officially) stating that Halo 3 is rated as M. I'm highly doubting it would be otherwise, though.

[Jeff K]

Dreamer: No. Believer: No. Uninformed: Most Affirmative.

[narcogen]

A couple of things worth noting: this is in response to the question of whether or not Halo 3 will promote the Xbox 360 to the "mainstream" or the "mass market", sometimes referred to as "casual gamers".

How in the world a line of products that together have sold around 40 million units isn't "mass market" I honestly don't know, but nevermind. Analysts are obsessed with the idea of the market for games actually growing by inventing new segments instead of just having 3-4 players fight over the same pie every 3-4 years. The unexpectedly quick sales of the Wii are fueliing this speculation, although I think that is frankly more explainable by pent-up demand and price than anything else. If the console stalls around ten million units worldwide because of a lack of compelling first-party titles that make truly innovative use of the motion sensing controller, and a paucity of multiplatform titles because the capabilities of the PS3 and the 360 are more equivalent and thus more conducive to ports, then we may hear a different tune.

Where I do think he has it wrong is in saying that Halo 3 will not be a system seller. In fact, a serious criticism leveled against the Xbox as a platform has been that it has but one system-selling franchise, and that is Halo. Halo 2's first-day sales are of course impressive, but the original game's sales are, in retrospect, more impressive because it was a launch title. Halo 1 was the must-have game that made people buy an Xbox.

Halo 2 was successful because of the first game's reputation, massive promotion, and an active community of fans who reinforced the popularity of the game through online play. Halo 3 is getting the best of both worlds: it gets to launch for a console that's already had a year to build installed base, plus it has the benefit of the franchise's reputation and the fans who have been eagerly awaiting the conclusion to the series.

To discount the fact that many Halo fans have had no need of an Xbox 360 up until this point, and have put off the purchase until it is absolutely necessary is to miss a crucial piece of the puzzle here. Look at the worldwide sales of both Halo games, as well as the installed bases of the two consoles and you're left with one inescapable conclusion: there are as many or more Halo fans than there are 360 owners, and about half of all Xbox owners play Halo (if not more).

That adds up to new console sales in conjunction with Halo 3. The only question is how many. The 360's sales since the launch of its two competitors have not been fantastic but they have been steady. The Wii has been outselling it since it launched, but the 360 has a year's head start and has not really had a system-selling title since last year's Gears of War. The 360 has been outselling the PS3; unless something changes drastically for Sony, it will never catch up to either Microsoft or Nintendo.

In short, I don't think the author is wrong or uninformed in saying that Halo 3 is not going to drastically alter the demographics of the 360's target market. That's rather a pointless question, though, as I cannot imagine why anyone would think that it would, or believe that MIcrosoft intends or believes that it would. Halo fans will buy Halo 3, and if they don't already have a 360, they'll likely buy one so they can play it. The numbers would indicate that there are a few million such people. That's where he's wrong, since he doesn't believe there are.