Industry Experts Warn: Console Manufacturers Must Innovate to Avoid a $1,000 Price Tag

Gaming hardware has historically been more of a means to an end than a profit center for manufacturers, according to Peter Moore, a former president of Sega of America and ex-Microsoft gaming VP. The goal is to draw as many players as possible into a content ecosystem where they’ll spend money over time. Each new console generation involves intense discussions about pricing, potential game sales, revenue from DLC and microtransactions, advertising costs, and manufacturing expenses. All these factors converge to determine the final retail price of a console.

However, the cost of producing consoles is soaring, largely due to the surge in demand for chips driven by the AI industry. AI companies are ordering more chips than the gaming sector could ever hope to match, draining inventory and complicating pricing strategies for console makers. “Chips are now priceless,” Moore notes. “These are gems.”

In a recent conversation with Moore and former Sony Interactive Entertainment America CEO Shawn Layden, I aimed to explore the rising costs of gaming hardware. The discussion quickly expanded to cover various pressing issues in the console market, particularly the implications of increasing prices and the notion of gaming becoming a luxury hobby. While their views on specifics differed, both acknowledged the significant challenges ahead for hardware companies in convincing consumers to invest in the next generation of consoles.

“[Everyone] should be afraid of the thousand-dollar console,” Layden warned. “That’s a hefty price tag. Especially at launch, when there might only be six to twelve games available. Slapping a four-digit price on the hardware could really slow down adoption.”

Layden and Moore offered contrasting insights on what major hardware manufacturers like Sony and Xbox need to do to keep gamers engaged with pricier consoles. Yet, both emphasized the need for innovation—not just as a buzzword, but as a crucial requirement. They agreed that without significant changes, gamers might seek alternative ways to enjoy their favorite titles, potentially bypassing traditional consoles altogether.

Layden believes the shift must occur at the software level. Reflecting on the evolution of PlayStation hardware, he noted that the once-mythical $399 price point was essential for sales. “You can’t sell a game machine unless it’s $399,” he recalled, referencing the backlash Sony faced with the $600 PS3. The $399 price worked for years because it was accessible, and the advancements between generations were substantial enough to justify the cost.

Yet, as consoles become pricier, the generational leaps are shrinking. “How much more ray tracing can you really add?” he questioned. “And can my eyes even perceive 120 frames per second?”

If a hypothetical PS6 were to look and perform similarly to a PS5, what would entice buyers to invest in a costly new console? For Layden, the answer lies in software innovation. He expressed concern that the current trend in game design is limiting the industry’s reach. “Most games seem to fit into a narrow set of categories—zombie apocalypses, space marines, or fantasy warriors. While titles like Grand Theft Auto make a huge impact, many people outside the gaming community don’t care about them. We’re generating revenue from the same audience without attracting new players.”

He also pointed out that discoverability is becoming a challenge, as the experience of getting game recommendations in physical stores fades away with the decline of physical media. He reminisced about how the PS2’s DVD player feature made it more appealing to a broader audience.

Ultimately, Layden stressed that creativity is key. “If we just keep making the same shooters for our existing audience, we won’t grow. We need to create more diverse games for a wider audience, which means bringing in more developers from different backgrounds and regions.”

Moore approached the idea of innovation from a business model perspective. He suggested that bundling services could help tie users to a specific ecosystem, similar to Sega’s attempt in the late ’90s with the Dreamcast and SegaNet contracts.

While that strategy didn’t pan out back then, Moore believes advancements in technology could make it viable today. “Gamers are savvy and know how to game the system,” he said, likening it to the printer ink business model, where the initial purchase is low, but ongoing costs add up. “This razors and blades model could apply to consoles if the price becomes too high for consumers.”

Moore reflected on past experiences at Sega, where they aimed to justify console ownership by locking players into their ecosystem. “We thought we could keep players engaged for years, leading to more game purchases. It didn’t work out, but I think hardware manufacturers are currently grappling with similar challenges, especially with skyrocketing production costs and chip shortages.”

He further elaborated that hardware companies are aware they won’t profit from the consoles themselves; their revenue comes from software. If they could find a way to eliminate the need for dedicated hardware while maintaining their ecosystems, they might pursue that route.

“Every generation, we’ve asked if this is the last console generation. So far, the answer has been yes, but I believe we’ll eventually see a chip in TVs that allows for a Netflix-style gaming experience, where players can easily access games without needing a console. The lag and latency would be minimal, and off you’d go.”

However, if hardware companies can’t adapt quickly enough, Moore warns that gamers might simply abandon consoles altogether. “This is a real test for the viability of video game consoles,” he said. “Either technology will solve the problem, or gamers will find alternatives, like playing on PCs and streaming to their TVs. If PlayStation and Xbox can’t keep up, gaming will continue—just without them.”