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Consoles, as we know them, are dead. But core games aren't.

OPINION: As sales slump and the next-gen looms, the way we play games is set to change forever, argues PSM3's Dan Dawkins

The new issue of PSM3 is on sale now.

What do Bruce Willis, a headless chicken and console gaming have in common? None of them knew they were already dead.

As dramatic as it sounds, everything we know about the way we buy and play games is set to change forever. Scratch that. It's *changed* - but we're missing the bigger picture, or refusing to acknowledge its significance. The symptoms of a collapsing industry have shifted from whispered outliers, to a chorus of lament. Bottom line: the days of £40+ boxed games, physical shops and expensive consoles are over.

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In five years or less, it's possible Sony won't be making game consoles - and its acquisition of cloud gaming service Gaikai might be a statement of intent. Traditional AAA games like Call of Duty will be 'services', not products, in much the same way you'd subscribe to Sky Sports HD. Huge back catalogues of games will be playable via cloud streaming, akin to Spotify.

Xbox 720 might not be an entertainment device like your Sky box, it will be your Sky box. FIFA won't release yearly updates, but incremental patches, running on distant servers, completely irrespective of 'console' specs or power.

It sounds far fetched, but the console market is failing. Sales are dominated by an increasingly small number of AAA titles like Call of Duty, making original games a hugely risky gamble that could sink a publisher outright due to extortionate development and marketing costs. Bottom line: there are fewer games, less risk, and less creativity.

In 2010, publisher THQ invested heavily in Red Faction Armageddon and Homefront. In 2012, THQ stood on the brink, shedding 240 jobs, as shares fell below $1. Once powerful specialist game retailer Game entered administration (Shares peaked at 300p in mid-2008, falling to 4p by Jan 2012). After months on sale, Sega's sci-fi shooter Binary Domain sold fewer copies than an average home gate for League One's Stevenage FC - yet likely cost millions to develop.

Sony reported a record annual loss of £3.6bn (38 times more than Manchester City have spent on players and wages since 2008, or 514 Cristiano Ronaldo's). Sony's ailing TV business is largely to blame, but falling hardware and game sales are a factor. From Jan 1st to mid May in 2011, 21 AAA games had sold over 50,000 boxed copies on their opening weekend. In 2012, this total is just four.

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Ignored: Binary Domain

Falling game sales threaten the existing console model, where platform holders subsidise the hardware costs, and make the money back on 'long tail' game sales and licensing costs. If people no longer buy £40+ games in volume, that business falls down.

"It takes billions of dollars to create a console and you have to milk it for five to seven years (with game sales) to get your money back," explains free-to-play shooter Firefall creator and former World of Warcraft lead Mark Kern. Sony sold PS3's for £425 at the 2006 UK launch, but the console cost £600 to produce - so each sale *cost* Sony almost £200.

"I think the model is broken", says Kern, "You keep making these bigger and bigger bets and that forces you to play it safer. And if you play it safer with your gameplay, people will get tired of the crap you're serving. When that happens, they get bored and they'll leave. And you haven't fostered any of the middle ground innovation and new ideas that you need to tap into next. "So something has to change. Consoles, I believe, are dead."

Game sales are dominated by a handful of AAA releases and sequels. The top five PS3 and 360 games - Modern Warfare 3, FIFA 12, Skyrim, Battlefield 3 and Assassin's Creed Brotherhood - accounted for over 8 million of the 20 million PS3 / 360 games sold last year, 40% of the entire market. 'Middle-core' or AA games, like Dead Rising, Vanquish, Bayonetta, Red Faction, and Ratchet and Clank, are left scrapping for a dwindling market share - yet still cost hundreds of thousands, or more, to produce.

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