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Xbox One, PlayStation 4 -- and Apple? -- in the Age of Convergence


Can the new gaming consoles win out over the biggest trend in consumer electronics?

I know you kids think you're too cool for school, streaming the new season of Arrested Development from Netflix (NASDAQ:NFLX) on your Apple (NASDAQ:AAPL) iPad.

But let me tell you what things were like in my day.

When I was a kid and wanted to watch a movie, my mother would drive me to the video store and she'd pay $3 so I could watch The Goonies on a VCR that probably cost more than her beat-up Oldsmobile station wagon.

And needless to say, our 19" tube TV did not have a Retina display.

How about music?

Man, you don't even want to know what used to go on, but I'm going to tell you anyway.

There was no iTunes; there was no Spotify.

If I didn't have money to buy a new cassette tape or CD, I'd use my boombox to record songs off the radio and make my own mix tapes, one song at a time.

And do I have to tell you about how much C or D batteries cost?

Listen to hip-hop legend Nas discuss the old days here:

And what about video games?

Everyone I knew had a Nintendo (OTCMKTS:NTDOY) NES, or later on, Sega Genesis or Super Nintendo, but some kids had a Game Boy too.

Want to make a home movie? You had to go buy a video camera.

Want to do whatever people on computers did back then? Buy a computer.

So what's the theme here?

Well, it's simple: In the good old days of physical media, the world of consumer electronics was dominated by single-function devices.

My family had a TV for watching TV, stereos for listening to music, a VCR for movies, a camera for photos, consoles for gaming, and so on.

The lines started blurring during the onset of the Internet boom in the late 1990s. All of a sudden, all of my friends and I were using our computers to listen to music while our Aiwa stereo systems (remember those?) collected dust. And some enterprising buddies were learning to use their computers to record and edit music, and play with digital scans of film photographs.

Then, in the early to mid-2000s, smartphones were starting to enter the convergence game, though they were still pretty lousy. I don't know if you remember those days, but they weren't pleasant. BlackBerry (NASDAQ:BBRY) was the only quality mobile email device in town, and as a whole, the product class was not multimedia or Web-friendly until 2007's groundbreaking iPhone.

Fast forward to 2013, and the changes have been staggering.

Through increasing computational horsepower and innovative app development, mobile device functionality has evolved in incredible and bizarre ways.

Forget about just watching videos -- you can now shoot, edit, and distribute them on an iPhone, no extra equipment, not even a computer, required.

With Spotify, I have instant access to virtually all music in existence, which I stream directly to a Bluetooth speaker -- no computer or stereo to get in the way.

My iPhone 4S is a much better camera than the $400 point-and-shoot camera I bought back in 2004.

And through a few clicks in an app store, a smartphone or tablet can function as everything from a guitar tuner to an unknown song identifier to a weight loss aid.

This revolution has had an enormous impact on the world of consumer electronics.

This week, IDC dramatically cut its PC industry sales forecast yet again as consumers increasingly opt for tablets, which can do enough things well to make PCs somewhat redundant. As a whole, mobile gadgets have basically destroyed the Microsoft (NASDAQ:MSFT) Windows 8 upgrade cycle.

We also saw two camera manufacturers, Olympus and Sony (NYSE:SNE) dramatically cut their digital camera sales forecast due to the smartphone invasion.

The video game industry has been in a multi-year downturn as casual gamers have completely abandoned traditional consoles and embraced mobile games. (See: Xbox One and PS4: New Consoles Are Nice, but New Gamers Would Be Even Better.)

What's happening is obvious: Mobile gadgets are now good enough at supposedly secondary functions like photography and gaming to make the average consumer forego more specialized units.

That makes 2013 an interesting time for Microsoft and Sony to bring out their new Xbox One and PlayStation 4 consoles, respectively.

Interestingly enough, Microsoft and Sony's latest console efforts have been on the receiving end of criticism unique to each device: Sony's PS4 has been knocked for being too gaming-focused, while the Xbox One is being called too consumer-focused.

That in itself is notable because it's no longer clear what a video game console needs to be to appeal to those outside the core gamer demographic.

So even aside from the more industry-centric issues I focused on last week, these new consoles are very much threatened by the big macro trend in the consumer electronics industry -- the aforementioned pesky convergence.

Furthermore, both companies need to keep their eyes on Apple.

CEO Tim Cook, in a recent interview at the D: All Things Digital Conference in California, said the company "has several more game changers" in the pipeline.

What if one of those game changers actually changes games?

Indirectly, Apple has dipped its toe into the console gaming market.

Its AirPlay streaming technology can turn an Apple TV-connected television into a display for an iPhone or iPad, which in effect, creates an Apple console, albeit a somewhat clunky one. A lot of kinks have to be worked out (like a standardized controller), but the potential is clearly there:

Twitter: @Minyanville

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