E3 predictions from the pros

In the days before E3 opens its doors, it seems everybody in the game industry has an opinion to share--that is, if they're not operating within the pale of a nondisclosure agreement or under the threat of broken legs if a publisher's top secret game is spoken of.

Fortunately, there is a select group of professionals who make broadcasting their opinions a career: the industry analysts who provide commentary and insight on marketplace metrics and the financial experts who dwell on the numbers.

Are their opinions any more valid that yours or mine? Generally speaking, yes. They don't pull down the big bucks for getting it wrong. By and large, they are trained in the areas of market research or finance. And because they bury themselves in the nitty-gritty of sales figures, revenue reports, and analyst calls day in and day out, it's more than mere opinions they spout. It is informed opinions they spout.

GameSpot assembled an esteemed panel of such analysts and asked them to think about news that's likely to come from next week's Electronic Entertainment Expo.

Are you sitting down?

GameSpot: What odds do you give that we'll see the Xbox Next at the Microsoft press event? What does Microsoft need to communicate this year to strengthen its position in both the hardware and software camps?

Michael Pachter, Wedbush Morgan Securities: I'm virtually certain that Microsoft will announce that Xbox Next is coming in 2005. Not clear whether they want to do so at E3. If I were they, I'd announce then to take the wind out of Sony's sails, so my guess is that they will. The key to Microsoft's success with Xbox Next is SW support. I think that they're waaay too focused on building a box that is similar to a PC and are making the strategic decision to streamline the game development process so that PC game developers can easily port or develop in parallel for Xbox Next. While this is a good long-term idea, it kills them in the short run, since the design will be sufficiently different from the current Xbox that they will likely not be able to make the Xbox Next backward compatible. This means that it will be doomed from the start--who will buy it if they can't play their library of games? I think that Microsoft thinks the Xbox Next is similar to the migration of music from vinyl to CD; I think it's more similar to a HDTV monitor that will only play HDTV broadcasts. No one would buy such a device until all broadcasts are in HDTV, which means that the success of the Xbox Next will be even more dependent upon the availability of software. Should Microsoft make programming for Xbox Next more difficult (and costly), it may find that no one has any games available by late 2005. In that case, an announcement at E3 would be a baaaad idea.

James Lin, The Simba Group: Low odds. Ten percent. I highly doubt that Microsoft will show off Xbox Next at its press event at E3. It's early and there is always so much (dis)misinformation out there regarding the next-generation consoles. So for now, Sony, Microsoft, and Nintendo can say anything they want. It's early...Microsoft needs to communicate that third-party publishers want to work with Microsoft in a major way--and I'm not talking about porting PS2 titles to Xbox or, in the next-gen round, porting PS3 titles to Xbox Next. I'm talking about console exclusivity even if that involves merely a window of exclusivity whereby a third-party title appears on Xbox Next weeks, maybe months, before it makes its debut on PS3. I think Microsoft will continue hammering the consumer electronic/convergence box theme home again. After all, it appears that Sony is gearing up to do the same with its positioning of PS3 even if they haven't come out and addressed it specifically in this manner.

Colin Sebastian, SoundView Technology Group: I don’t think Microsoft is planning to show the next Xbox at E3 this year, but the company is likely to reveal more details on its next-generation technology, including the XNA development platform. I also think it’s a safe bet that Microsoft continues to promote Xbox Live, possibly with an announcement that Electronic Arts will support the service with several titles later this year. Microsoft could also use E3 as an opportunity to highlight a few promising Xbox titles that presumably will be unavailable on the PS2, including Doom 3 from Activision and Full Spectrum Warrior from THQ.

Schelley Olhava, IDC: I don't expect to see the next-generation Xbox at Microsoft's press event. I believe that their focus is going to be on games and Xbox Live. The biggest thing for Microsoft at E3 will be Halo 2. It was huge last year, and since then, momentum and excitement has kept on building.

P. J. McNealy, American Technology Research: Xbox Next hardware preview? Zero.

GameSpot: The PSP will obviously be the big-ticket item at Sony's presentation. What else do you think the company will announce or put on display?

Colin Sebastian: I believe a price cut on the PS2 is still a possibility at E3, particularly given the positive consumer reception to the recently reduced Xbox price and Halo bundle. In terms of future developments and next-generation platforms, I would not expect many announcements or details until next year, although Sony could always offer a few tantalizing nuggets of information on the PS3 in order to build some early buzz.

Michael Pachter: Think a price cut is coming on PS2, so PSP as centerpiece (with pricing info) plus price cut on PS2, more details on PSX will be plenty on the HW front. Doubtful that they talk about PS3. I think that PSP as entertainment device rather than as gaming device is the real story, so features and functionality are important. Don't expect any major surprises on the SW front, unless there's something announced with the Eye Toy.

P. J. McNealy: Hardware; may be unlikely other than form factor. Game demos? Absolutely.

James Lin: Probably a price cut to $149, and reemphasizing the point that PS2 is still going strong. Sony will try to show off EyeToy, maybe PSX, and move towards seeding consumers on the "digital convergence" theme.

Schelley Olhava: I expect Sony to announce a North America PS2 price cut. I give them a 50-50 chance of showing us a glimpse (but just a glimpse) of a new console.

GameSpot: What would you advise Sony to make its primary message at this year's E3?

Colin Sebastian: As the clear market leader, Sony does not have as much incentive to “rock the boat,” but the company should communicate some details of its strategy to maintain or grow its market share over the next few years, particularly with the next Xbox likely beating the PS3 to the market. Other than a competitive pricing strategy, key parts of Sony’s message could include how to leverage the unique capabilities of the PSP as well as introduce other product derivatives of the PS2.

Michael Pachter: Sony's primary message should be about the installed base and how cost effective it is for third parties to develop games for the PS2 market. EA signaled as much during its call last week, when it announced that it will focus on harvesting the PS2 market through 2010. Sony should make "harvest" their mantra. If they really want to make an impact, they should cut the manufacturer's royalty on PS2 games!

James Lin: On PS2, keep doing what they have been doing: Essentially, "We're (PS2) kicking butt." On PS3, nothing too specific. It's early. Next year's E3 will be a different story, however. On PSP, try to position it properly. One potential trapdoor that I see with the PSP is if Sony does not position it properly. Sure, it offers so many features. However, consumers get confused easily. Plus, PSP pricing will be a factor.

GameSpot: Nintendo has said it will show off the DS at their press conference. Do you anticipate it will have a positive or negative reception?

Schelley Olhava: Like everyone else, I'm waiting to see what the DS looks like. How does it play? What is the content like? What is the pricing? At this point, the degree of enthusiasm or disappointment in the DS is almost anyone's guess.

Michael Pachter: I still don't understand the DS. Can't figure out why I want two screens. Anything that they show us will be a positive, unless it is really lame.

P. J. McNealy: I think the device will be well received and will generate additional speculation of how well it could do if it still launches in North America this holiday season.

Colin Sebastian: Nintendo’s announcement of the DS was initially met with some skepticism, but it now appears the system is generating a more positive response, particularly among game publishers. In fact, Electronic Arts recently announced its intention to publish titles for the DS. While I generally expect a positive response to the DS at the show, there is also some risk that the spotlight focuses on Sony’s PSP.

James Lin: Diehard Nintendo fans will love it. The rest will be relatively ambivalent.

GameSpot: 2004 will be a critical year for Nintendo's fortunes. What agenda is the financial and analyst community looking for from them?

P. J. McNealy: We're looking for clarity about Nintendo's road map for hardware. Is it firm that the DS is shipping this holiday? What about the next GameCube?

James Lin: Nintendo needs to address the one main issue that has been snowballing over these past few years--that is, the continued premature "aging" of the 6- to 14-year-old gamer who now would prefer in many cases to play Hitman or GTA than Mario Kart. This phenomenon is not going away, in my opinion. Anyone who has young children or nephews or nieces recognizes just how the tastes of this demographic has grown "older" over the past few years. Nintendo needs to balance/diversify its product/franchise portfolio to include some that appeal to older gamers as well as the young gamer.

Colin Sebastian: While Nintendo publishes some of the industry’s top software titles, I think the company needs to clarify the value proposition of its console hardware program vis-à-vis its strong competitors. I also think there is some concern over the extent to which third-party publishers continue to support the GameCube through the console transition period--and then how much backing there will be for the next console. I also think Nintendo will need to highlight the strengths and unique aspects of the GameBoy handhelds given the onset of competition from Sony’s PSP.

Michael Pachter: I think that we'd all like to see Nintendo strengthen its product offering by including more mature titles. I think that the branding of the Final Fantasy: Crystal Chronicles game as a Nintendo game was a good idea. They may announce some partnerships with Japanese developers to strengthen the product lineup and would receive a positive response for doing so.

Schelley Olhava: 2003 was a critical year for Nintendo's fortunes too. I'm looking for a clearer strategy from Nintendo: Who are they? Where are they going? How are they going to get there? Do they have the stamina to remain long-term console players? How are they going to compete against the PSP? I'm also looking for new and appealing content.

GameSpot: Of Nintendo, Sony, and Microsoft, which company has the most to gain at E3 and why? Which company has the most to lose?

Michael Pachter: I think that Nintendo has the most to gain (nowhere to go but up), and Microsoft has the most to lose (expectations continue to be way too high). Sony will keep chugging along. I think that anything Nintendo says or does will be a positive, and anything that Microsoft says or does will merely raise further questions. There will be a ton of pressure on Microsoft to fix the lack of high-quality exclusive content--I think that they announce the acquisition of a major studio (BioWare?), but one game won't make them significantly better. They need quantity, and can't do it alone. They seem unwilling to suck up to third parties to induce them to make Xbox content, and therefore will likely disappoint at E3. The one positive announcement I expect from them is that EA Sports will support Xbox Live.

P. J. McNealy: On the console front, Nintendo is losing momentum after the price cut last year, and Microsoft has momentum after its recent price cut. Sony's PS2 hardware sales seem to be slowing in the US, making its messaging at E3 critical.

James Lin: It's a wash in my view. Microsoft and Nintendo each has its own set of near-term challenges from a positioning standpoint, as they are both continue to play catch-up to Sony. Sony is in the best position and is in little danger of having either Microsoft or Nintendo steal the show. Sony can simply "play for pars" for the rest of this cycle, while the other two console manufacturers have to try to "birdie out the rest of the holes"--nice position to be in if you're Sony.

Schelley Olhava: Each company has a unique set of challenges that it must overcome. Sony needs to get the messaging out about the PSP--tell us more details, show us the product, show us the content. Microsoft needs to continue to focus on the content message. Nintendo needs to present a clearer strategy and, hopefully, stronger content than a year ago.

Colin Sebastian: From a promotional point of view I would think Sony potentially has the most to gain at E3 given positive Xbox momentum currently in the market combined with lackluster PS2 sales. Additionally, the reception to the PSP could be very positive. On the flip side, Nintendo may be in a tougher spot if the PSP ends up stealing the show.

GameSpot: Looking at the entire field of E3 players, can you pick two publishers who need to have an exceptional, stellar E3--publishers who really need to stand and deliver? Can you explain your picks?

Colin Sebastian: In general, I believe the upcoming console transition period will prove to be quite challenging for smaller publishers that lack the broad product portfolios and financial strength of the larger players. As a result, I believe it is important for smaller publishers to show any compelling and quality content they have in the pipeline with the potential to provide sustainability over the coming few years.

James Lin: I think THQ and Eidos need to have exceptional E3s. THQ, for similar reasons to Nintendo on the software side. They need to broaden and add to the strong portfolio of kids brands with some brands/titles that appeal to an older gamer. Eidos, because I believe they are the one midsized publisher out there that has an impressive-enough portfolio of brands that can be further exploited and monetized. They just haven't fully maximized their brand assets, in my opinion.

Michael Pachter: Take-Two needs to show that they can make a game other than GTA (they won't). THQ needs to show that they can develop original content (they will).

GameSpot: Do you smell a surprise announcement in the wings? From which company?

Colin Sebastian: I don’t expect any earth-shattering announcements this year, but I hear a few companies have some surprises up their sleeves.

Michael Pachter: The "surprise" will probably be that EA and MSFT will work together and play nice on Xbox Live.

P. J. McNealy: Sure. There are surprises every year, and at a minimum, expect one from Microsoft.

James Lin: I've always thought Eidos' brands would be very complementary to those of EA's, but then again, the consolidation angle is anticipated at every E3, and we've seen very little activity in recent years. I wouldn't hold my breath.

Schelley Olhava: If I knew, I'd be placing bets in Vegas. Actually, it's hard to predict, and that's the beauty of surprise announcements: No one knows.

GameSpot: What do you sense will be the biggest news to come out of this year's E3?

Schelley Olhava: Big stories will be the PSP and any next-gen consoles announcements.

P. J. McNealy: The handheld gaming market and how great the 2004 games will look.

Colin Sebastian: I think the PSP will receive significant press coverage at the show.

Michael Pachter: Biggest news is the announcement of Xbox Next launch in 2005. Biggest news next year is that Xbox Next will be delayed till 2006!

James Lin: Console online gaming and PC online gaming. Their time is coming soon.

GameSpot: When the doors open Wednesday morning, which booth will you go to first and why?

Schelley Olhava: I think I'm going to head over to the Sony booth to check out the PSP. It's an intriguing product. Or, if Nintendo announces a new Donkey Kong, I'm heading there because I'm a sucker for platformers.

Colin Sebastian: Sony booth--to play the PSP.

James Lin: EA. It's always the best booth. Everyone wants to get a sneak peek at the upcoming Madden Football game.

Michael Pachter: I'll go to the EA booth, because I'm a lazy bastard and it's right at the front. Have to see their stuff anyway, so I might as well make it first. To be honest, I'm far more interested in the Majesco booth--want to see the TV shows on GBA cartridges, check out sound quality, etc. Am also really interested in the Infinium Labs booth--want to see how the box works.