Posted this in System Wars as well, but thought I'd post it here too 1) because many people don't frequent SW, and 2) to keep a record of my thoughts and see if they play out as predicted.

The prediction: Playstation 3 will win, followed by Xbox 360, followed by Nintendo Wii.

It may be surprising to some of you that I would make a prediction like this, especially with the onslaught of bad news and negative media toward the PS3. But bear with me and allow me to explain my reasoning. The following post is a submission of my predictions and analyses, and is by no means an assertion of infallibility.

(Please note that some of the things I will say about certain consoles will be straight-forward and seemingly harsh. I do not intend to "bash" any console--just to present the situation as I see it.)

Of the three consoles, the Playstation 3 will have the slowest starting period, due to its high price and lack of compelling software. However, it also has the greatest potential to win this generation.

The first reason is that Blu-ray will win the format war. The Playstation 3's fate is in large part tied to Blu-ray. And Blu-ray is poised to win. "At this time, only one studio--Universal--hasn't committed to the Blu-ray format, while HD-DVD has yet to attract Fox, Disney, MGM, Sony, and Lionsgate" (EGM, Feb. 2007). With such overwhelming support, Michael Pachter of Wedbush Morgan Securities predicts a landslide victory for the Sony-led format.

When Blu-ray wins by the end of 2007/ early 2008, sales of software will drive sales of the Playstation 3, which will in turn drive sales of the software (already evident by the 700% increase in Blu-ray software sales since the launch of the PS3). Blu-ray software and Playstation 3 hardware exist in a symbiotic relationship that will prove highly profitable for both.

Microsoft will be unable to adopt the format, because development and ownership of the format is spearheaded by Sony, who sits on the Blu-ray Association Board of Directors. For future versions of the Xbox 360 to contain Blu-ray, Microsoft would have to seek Sony's permission--and there is strong economic disincentive for Sony to grant it.

The second reason for Playstation 3's future success is that its portfolio will eventually accumulate and diversify. It will take advantage of the support of Japanese developers, and build up its first-party lineup. Sony will continue to purchase studios and invest in exclusive games. Microsoft will take the same strategy, and the end result will be that both consoles will have highly compelling game lineups, with Microsoft depending more on Western games and Sony depending on a mix of Western and Japanese games.

Furthermore, Sony will eventually lower the price of the console to a range suitable for mass market adoption, though it will remain at least $100 more expensive than the 360 over the course of its lifetime. The Blu-ray drive in the PS3 will more than justify the price difference in the eyes of consumers as the format becomes the de facto standard.

Initially, the Wii will surpass both the 360 and the PS3 in sales, but the fast rate of adoption will decrease significantly over the course of several years. The excitement generated by the innovation of the Wii controller will wear off, and the diminishing returns in graphical performance caused by its hardware limitations will enhance its visual disparity vis-a-vis the Xbox 360 and Playstation 3 over time. Moreover, third-party support will not surpass that of the Gamecube, due to the difficulty of porting games from the higher-horsepower consoles and developing for the simplified control mechanisms of the Wiimote. However, first-party support for the console will remain strong, and serve as the primary buttress for the Wii after its initial sales surge.

Microsoft will gain the most of all three companies in relation to its last generation performance. The Xbox 360 will prove a formidable opponent for the PS3 as Microsoft continues to purchase studios, steal more exclusives from Sony, and invest in strong new IP's as well as sequels to existing ones. However, Microsoft will remain unable to capture market share in Japan, and as a result, the full support of Japanese developers. It will, however, win in North America, though it will lose to Sony by a marginal percentage in Europe.

In the end, the victor of this console war will be much less pronounced as that of the previous generation. Instead of ~60% Sony, 20% MS, and 20% Nintendo, the market distribution in the final measurement will much more resemble an even distribution of shares, though specific percentages at this stage would be shots in the dark.

Thus, while Sony will win this generation by a marginal amount, it will have lost the most out of the three companies in relation to their performances last gen.

That's my prediction. Feel free to give me feedback and criticisms, or express your own predictions.