Consoleation: Microsoft--Putting the Entertainment in Electronics Entertainment Expo 2012

E3 is getting close, and GameTrailers has posted a Bonus Round talking about what to expect from Microsoft at the event. During the video, Michael Pachter says something very interesting:

They (Microsoft) told me don't expect a lot of game stuff, expect a lot of dashboard, interface, multimedia.

There has been some pretty negative reaction about the possibility that games will be taking a back seat to other content during E3, but nobody should be surprised. It's a natural progression for Microsoft, especially given current trends. Video games are now but a piece of the overall puzzle for Microsoft, and the company must find other ways to get more consumers interested in the Xbox brand. Streaming media is huge right now with consumers. Music, movies, television shows, sports, and other content are all streamed into homes across the nation and around the world, and positioning Xbox hardware as a central hub for this content is a wise move. The annual $60 subscription fee that consumers pay for access to these services makes some money for Microsoft on a regular basis.

As console video games continue their sales decline, Microsoft needs to figure out ways to attract consumers that want more than a "game machine." Securing content partners and making announcements at E3 makes sense as it provides non-gamers with more reasons to consider purchasing an Xbox device if they don't have one already. Perhaps having the hardware will entice consumers to buy a few games along the way—either on disc or digitally—and help to ease them into gaming or to even welcome them back if they'd become otherwise disinterested. The challenge is selling the hardware to those who may not necessarily want it.

We've seen this before.

Sony marketed the PlayStation outside of the core gaming consumer base, trying to appeal to an older audience. The strategy worked, as over 100 million units were shipped worldwide between 1995 and 2005 and PlayStation became a respected brand name. Expanding your consumer base is key to making more money. It's fair to say that core gaming consumers will buy hardware if the software is worthwhile, comprised of returning favorites and new IPs… but more casual consumers who only have a passing or mild interest in games need something else. We saw this during the last console generation with the ability to play DVD movies on the PlayStation 2 and the original Xbox. Casual consumers could buy consoles as DVD players that could also play games, making them multipurpose devices. Here in the United States alone, more than 46 million PlayStation 2 units have sold at retail, making it one of the most successful platforms of all time.

Console video games have had their rise, and are now seeing a gradual decline. That doesn't mean that Microsoft should abandon ship. It simply means that altered strategy is warranted to maintain strong sales of its hardware. Physical media playback isn't a feature in demand as it used to be, so touting streaming media becomes a key feature to attract buyers—and to assuage retailers who fear that video games are on the way out. Sure, Xbox hardware can play games if consumers want it to… but it can also be a one-stop source for Netflix streaming, ESPN sports on demand, YouTube, music videos, and a lot more. It becomes less of a game console and more of an entertainment device.

Entertainment Evolved. It's not just the title of Microsoft's E3 press conference… it's the company's strategy moving forward. We had better start getting used to it.

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