Microsoft: The New Xbox Has The Specs, But Does It Have Game? – Seeking Alpha

Microsoft’s (NASDAQ: MSFT) Project Scorpio and Sony’s (NYSE: SNE) PS4 Pro are anomalies. Unlike the Xbox One, which succeeded the Xbox 360 and marked Microsoft’s foray into the 8th generation of consoles, Project Scorpio marks the evolution of the 8th generation; all Xbox One games will be compatible with Project Scorpio and vice-versa.

Whilst, the PS2 and Xbox One are backwards compatible, they could run PS1 and Xbox 360 games respectively, neither of their predecessors were able to run games made for them. Consequently, the PS4 Pro and Project Scorpio are best thought of as occupying the 8.5th generation whose main appeal is that they can run games at stunning 4k.

The Story so far

Source: GameSpot

Earlier this year GameSpot reported that the Xbox One has clawed itself to 26 million units in sales since launching in November of 2013. For comparison, the PS4 has sold a stellar 55 million units to date. Whilst the high-level numbers are important, third party videogame publishers are far more interested in tie rate or the number of games sold per console. The PS4 has a tie rate of 7.51 implying that a total of 401 million games have sold on the platform.

Nintendo’s (OTCPK:NTDOY) Wii, one of the most successful consoles of all time, had a tie ratio of 4.64 implying that a total of 464 million games were sold on the platform over its lifetime. The high tie rate coupled with the large installed base in part allowed Sony to score stellar third-party developed exclusives such as Persona 5 and Nioh. Both titles are serious game of the year contenders. Whilst Microsoft’s third-party developed exclusive Scale Bound has been cancelled. Microsoft needs third-party support since Microsoft let its videogame development studios wither.

Microsoft Falls From Grace As Console Exclusives In The 90+ Club Dry Up

Source: Finder.com.au

During Microsoft’s much-maligned E3 Xbox One reveal, the firm focused almost exclusively on video streaming capabilities. The shift to streaming came at the cost of homegrown exclusives as Microsoft deemphasized video games.

Finder.com.au’s analysis of 20 years of Metacritic (think rottentomatoes.com for videogames) scores lends some perspective. The data revealed that the number of 90+ console exclusives have been steadily declining since their heyday in 2001. Sony has bucked the trend thanks to homegrown favorites such as the Uncharted franchise and The Last of Us. Since 2014, Microsoft has published fewer than half the 90+ console exclusives as Sony has. The Xbox One trails the PS4 by the same margin in unit sales.

The few AAA franchises that Microsoft still publishes have lost their cachet. For example, the latest Halo game sold less than any other Halo game to date. Microsoft conceded that they will need to woo publishers back to the Xbox family to reinvigorate sales. There’s only one problem – third party publishers have taken their eye off the ball.

90+ Third Party Games Fall Off a Cliff

Source: Finder.com.au

There were two notable missteps in Sony’s otherwise stellar exclusive offerings, Capcom’s Street Fighter 5 and Hello Games’ No Mans Sky. The common denominator? Both titles were developed by third-party publishers. The aforementioned Nioh and Persona 5 are exceptions. In fact, Sony remains relatively alone in its dogmatic commitment to quality. Most developers have opted to emphasize marketing budgets over quality assurance.

The lion’s share of third-party games published today are not complete when released and require significant patching post launch to bring them up to par. Case in point, Street Fighter 5 launched without a story mode despite retailing at $59.99. BioWare’s woes are another microcosm of the industry’s reliance on patching. The latest entry out of the Mass Effect franchise has a Metacritic score of 70 compared to Mass Effect: Andromeda’s predecessor, Mass Effect 2, which stands at a commanding 94. Facial animations for characters in Andromeda were worse than its predecessors that launched during the 7th console wars.

Horizon Zero Dawn Running On PS4 Pro

Source: PlayStation Blog

Collectively, third party publishers only released eight triple A games in 2016 – Sony released six. Even though the first half of the year is a relatively quiet period for video game releases, Sony has already shipped four games that are serious game of the year contenders. The four titles includes Horizon Zero Dawn, which has sold 2.6 million units making it the most successful new IP launch in Sony’s history and Persona 5 which is currently sitting at a 94/100 on Metacritic. Placing Persona 5 in the same echelon as Super Mario 64 (94), The Last of Us (95), and Halo: Combat Evolved (97), three of the most beloved first party exclusives of all time.

Superior Tech Specifications Are Not A Panacea

Source: Eurogamer.net

When Microsoft revealed Project Scorpio’s impressive tech specs, it debuted zero games. It did, however, feature a Forza tech demo, pictured above, running at stunning 4K at 60 frames per second. Eurogamer.net reports that the demo only utilized 66.19% of the console’s GPU leaving significant headroom for additional visual improvements. Consequently, it is clear that on a purely technical basis, Project Scorpio will eat the PS4 Pro’s lunch (the technical specifications are in the table below).

Project Scorpio Vs. PS4 Tech Comparison

Source: Eurogamer.net

But here’s the rub, why would any third-party developer optimize a game for a console that has less than half the installed base of its less powerful rival? If the PS3’s tribulations are an indicator – they won’t. Despite being technically superior to the Xbox 360, games released on the PS3 either performed on par or lagged the Xbox 360. Bayonetta was a case in point.

It was a game of the year contender on the Xbox, but was critically panned on the PS3 due to a plethora of technical glitches. Sony’s stellar first party exclusives such as The Last of Us picked up the slack. Unfortunately, Microsoft’s in-house development teams are simply not in the same league as Naughty Dog.

Moreover, the most technically superior console has rarely won the console war. For example, both the PS2 and the Wii lagged their counterparts in technical prowess. However, during the 6th console war, the PS2 handily beat out the Xbox. In fact, the PS2 sold over 155+ million units globally versus her technical superior peer that racked up 24 million in sales. Similarly, the Wii trounced (102 million units) both the PS3 and Xbox, which sold ~84 million units a piece.

Finally, those specs are mighty fine, but they will undoubtedly cost a pretty penny. The sweet spot for most consoles is $299. Scorpio’s specs means that the console would cost $499 at launch. However, the PS4 Pro will have been out for a year when it launches and is currently retailing at $399, a full $100 cheaper than Scorpio’s projected launch price.

Sony has got the games and the early mover advantage. Consequently, the party for Sony is far from over. Microsoft’s game division is stuck in neutral.

Disclosure: I am/we are long SNE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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