Could PC gaming make a comeback?

July 5, 2012: 10:55 AM ET

The moribund PC market could use a jolt. A lull in the life-cycle of the Playstation, Xbox and Wii may do just that.

By Peter Suciu, contributor

FORTUNE -- With no replacement for Microsoft's Xbox 360 or Sony's PlayStation 3 coming this year, PC games could see a resurgence and with it demand for high-end gaming computers designed to provide the best gaming experience.

A decade ago the PC was the system of choice for many video gamers who wanted the best graphics, the most cutting-edge gaming experience and the ability to play with friends online. Before the arrival of the Xbox from Microsoft (MSFT) and the PlayStation from Sony (SNE), the PC was the dominant system for multiplayer action-based games.

Times changed. And as traditional gaming companies expanded their reach with new products from Nintendo's (NTDOY) family friendly Wii to Microsoft's Kinect motion controller, the PC was relegated to a niche mainly for the hardcore.

Times could be changing again, however. According to industry analyst NPD Group, sales of video-game hardware -- a.k.a consoles -- software and even accessories fell for a sixth consecutive month in May, tumbling 28% from a year earlier to $517 million. And with the release of Blizzard's (ATVI) Diablo III, May also saw the first time since July 2010 that the top-selling game was a PC-only title. That boosted PC video games sales up year-over-year to 230% or $80 million.

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While the top-selling games are now dominated by multi platform titles available for the consoles and PC, the shift has been increasingly away from the PC completely.

Things were not so just a decade ago. While the PlayStation 2 and original Xbox featured many significant titles -- the Xbox did launch the successful Halo franchise for one -- the PC often shot the consoles out of the water with the top-selling games, not to mention superior technology. "Historically the PC game market has taken a lead in commercial innovation compared to the console sector," said Piers Harding-Rolls, senior principal analyst and head of games for IHS Screen Digest. "This innovation has extended to business model -- the introduction of subscriptions and micro-transactions -- and across digital business." Downloads, for instance, were pioneered on the PC as were online games services.

It also spawned an industry of PC makers that responded by creating systems capable of meeting the demands of the latest games. But with the arrival of the Xbox 360 and PS3 in 2005 and 2006 respectively, and the greater availability of HDTV and broadband in most U.S. homes the PC gaming market declined.

In fact, as game development shifted to consoles, PC games actually became less cutting-edge."One issue that is the heart of the gaming industry is that the consoles aren't really that advanced," Harjit Chana, chief operation and marketing officer for Digital Storm, a company that makes gaming specific PCs. "The games haven't been as intensive because everyone is designing them for the consoles."

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Now a lull in the life-cycle of consoles is giving the PC a leg up. This spring graphics card maker Nvidia (NVDA) released a new cutting edge GTX 680 GPU that could spur a new wave of game development. "Toward the tail of the console life cycle, the gap between console and PC is just too big for developers to ignore," Nvidia spokesman Bryan Del Rizzo told Fortune.

Epic Games recently unveiled its Unreal Engine 4, the next generation version of the popular graphics engine, and to get the full experience -- at least when titles supporting this software are released likely later this year -- gamers will have to update their cards, and possibly their PCs. This could spur resurgence for those looking to purchase game-specific PC, such as those offered by companies such as Digital Storm or Dell's (DELL) Alienware division.

The issue now is whether the game developers will respond with software that takes advantage of new technology. "I don't expect there to be long-term increased demand for gaming rigs," said Harding-Rolls, "but we might see some demand follow the release of specific games with big followings -- such as Diablo 3."

He added that the ability of the PC to deliver multi-screen content consumption could also trickle down from hardcore games such as flight simulators to mainstream or more casual content and this could result in a convergence in storefronts and content across mobile devices and PCs. The result however could make any resurgence of gaming PCs short-lived.

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