Source - Gamespot

Last week, Piper Jaffray analysts Anthony Gikas and Stephanie Wissinck released a report with some surprising forecasts for the gaming industry, not the least of which included a prediction that the Revolution's sales wouldn't live up to its name and the expectation of a new hard-drive-equipped model of the PSP to hit shelves next year.

Today, GameSpot caught up with Gikas for a bit of explanation on his analysis, starting with the forecast that the Revolution would have no significant impact (positive or negative) on Nintendo's place in the console market through 2008.

"As a starting point, that's essentially what we're looking at," Gikas said. "Nintendo will have the same 15 percent plus or minus market share."

As shocking as the Revolution controller might have been for many gamers, Gikas didn't think it would substantially affect Nintendo's fate in its first couple of years of release. "I don't think that the controller's a big enough deal that it's changing [Nintendo's] place in the market," Gikas said.

As for the hard-drive-equipped PSP, Gikas considers it a natural choice for Sony for a couple of reasons. "If it really is going to be a multidimensional entertainment device," Gikas said, "it's going to need a hard drive so you can store greater amounts of data in it."

Beyond fulfilling the company's vision for the handheld gaming gadget, a hard-drive-equipped PSP would also let Sony reprice the hardware (possibly selling the base PSP for $199 and the new model for the original price point of $250) and stem the losses that come from regular price cuts on gaming platforms. It's a tactic Gikas said he expects to see from more console makers in the future.

"They're not making much money on these hardware devices to begin with, and to the extent that [systems] go historically from $300 to $200 to $150 to $99 to $79, you're just losing more and more money as the cycle progresses," Gikas said. "I think you're going to see smaller upgrades to these hardware devices as we move into this next cycle, and that will give the hardware guys an opportunity to reprice and keep those price points higher."

While multiple hardware configurations and upgrades have failed in the past (from the Sega 32X to the PlayStation 2 hard drive), the trend of regular hardware upgrades doesn't necessarily mean developers and publishers have to worry about which particular system configurations their customers might be using.

"There are things you can do to the box along the way that don't disrupt the development process for the publishers," Gikas said. "I'm not talking about a change to the underlying technology of the box itself. There are ways to upgrade that box that really don't interfere with anything the publishers are doing."

For instance, if Microsoft were to unveil an Xbox 360 model in the future with a larger hard drive or a high-definition DVD drive, publishers wouldn't have to worry about whether gamers had a 20-gig or a 50-gig hard drive. And as for upgrades that would impact the core functionality of a system, Gikas says there's just no call for them in the first years of a system's life span.

"For this first round of games on the Xbox 360, the publishers are only going to be utilizing half of the technology of that box," Gikas said. "It takes a couple generations of these products for the publishers to really ramp up to utilize the full potential of the technology of these systems."

Finally, Gikas expounded a bit on the growth of nontraditional software markets composed of in-game advertising, direct console downloads, and mobile gaming.

"We do project that [combined] market at about $900 million in 2007, so when you add that on top of the almost 9 billion in software from console, handheld, and PC, it's a big chunk. All of a sudden it's 10 percent of the industry in 2007."

That would make those nontraditional markets bigger than PC gaming by 2007. But while Gikas fully expects that sector to experience significant growth, the markets are so new and so small as yet that he expects that individual projections for all three of them will change dramatically in coming years.

"The point is there are real dollars there, they're coming, and they're coming over the next few years," Gikas said. ...