Yuanzhe (Michael) Cai, Parks Associates' director of digital media and gaming, said that companies like Sony, Microsoft and Nintendo will increasingly compete with cable providers and set-top box makers for user and advertiser dollars as they reach those projections.
"Game consoles are becoming multimedia Trojan horses," Cai said. "They're well-positioned as a platform for other types of entertainment media because they're typically in the living room, connected to that gorgeous, 42-inch plasma screen. It's setting up a serious competition between console makers, service providers and emerging set-top box providers like Vudu."
Parks Associates estimates that by the end of this year, roughly 40 million households worldwide will have a connected console. By 2013, that number will jump to 170 million, posing a serious threat to set-top box manufacturers in the short term, and "established incumbents like Comcast and DirecTV in the longer term," Cai said. The threat lies in both the sheer number of consoles and the increased consumption of non-game media by their owners.
In the U.S., well over 50% of all current-generation consoles (Xbox 360, PlayStation 3 and the Nintendo Wii) are connected to the Internet. Nearly one-third of all Xbox 360 owners and almost half of all PS3 owners watch DVDs on their consoles, while about a third of owners play music on either one. In terms of downloadable content, over a quarter of all PS3 owners download movies and TV shows, while just about 20% of Xbox 360 owners do. Cai said that the industry could expect those multimedia usage numbers to grow, particularly as console makers continue to broker content deals like the Netflix/Xbox Live partnership, which was announced over the summer.
He also highlighted Microsoft as the prime example of a company that discovered how to successfully diversify its console-based revenue model, both with the Xbox and its successor, the Xbox 360. Parks Associates estimates that the Xbox Live online service generates about $1 billion in annual revenue for Microsoft, equally split between the downloadable videos ($250 million), Xbox Live Arcade ($250 million), downloadable game content for the Xbox 360 ($240 million) and Xbox Live premium subscriptions ($260 million).
Still, Cai said the Wii would emerge as the king of connected consoles in terms of market penetration, followed by the PlayStation 3. By 2011, there will be nearly 60 million Internet-connected Wiis, according to Parks Associates' estimates. In contrast, there will be roughly 40 million and 30 million connected PS3s and Xbox 360's, respectively. "The PS3 is catching up quickly in sales and connection rate with the Xbox 360," Cai said. "So we expect it will end up in third place by the end of this cycle."