This month DFC Intelligence released its latest forecasts for the video game and interactive entertainment industry. No surprise, we forecasted strong growth for most major segments of the market. However, large numbers are meaningless unless you understand the reasoning and implications behind those numbers. The question we get asked most often is without a doubt, "so which console will win?" Of course, no one is really satisfied when the answer comes out: none.

In the video game business there has usually been one very clear cut winner. In the last generation it was the PlayStation 2. During the height of the PlayStation 2 era, around 2004, packaged retail software for the PS2 accounted for about 30% of all interactive entertainment revenue, including hardware, portable systems, PC games and online games. For the new generation of systems (the Wii, Xbox 360, PlayStation 3), DFC forecasts that in the 2010 to 2012 period, software from even the most successful platform will only account for about 10-15% of total industry revenue.

Depending on how much gas is left in the PlayStation 2 tank, the last generation of game systems will have sold around 170 million units worldwide. The three new game systems are forecasted to have similar sales over the next five years. However, it appears no one system will have the 70+% installed base market share of the PS2. In addition the game market is spreading beyond the console systems.

One of the fastest growing segments of the interactive entertainment market is actually PC games. The PC game business is expected to grow over 80% over the next five years. PCs are becoming a fixture in households around the world and they make a natural platform for playing games. The PC is also a platform to experiment with emerging game genres and business models. As more companies look to expand their business beyond console games for Sony platforms, the PC is a natural place to look. Of course, as publishers and developers once again turn their attention to the PC as a game platform this will be a further spur for growth.

The portable game market is already a major segment. In fiscal 2007, Nintendo alone made $2.4 billion just from portable software. Compare this with market leading publisher Electronic Arts whose entire revenue from fiscal 2007 was $3.1 billion. The Game Boy Advance built an installed base of nearly 80 million units. The Nintendo DS looks to surpass that mark. The Sony PSP is unlikely to reach the same level, but it is carving out its own base. There is clearly room in the portable segment for multiple systems and more players than just Nintendo.

Of course none of this answers the key question: which console system will win? DFC Intelligence publishes its forecast in multiple scenarios and looks at the best and worst case for each console system. Here are some brief highlights from our latest forecasts for the console system.

1. DFC forecasts that the Wii will sell the most hardware units in Japan and could be the overall worldwide winner. However, the PlayStation 3 could be a strong second. Furthermore, by 2012 the PlayStation 3 may actually lead in software revenue even though the Wii has sold more units.

2. Under DFC's best case scenario for the Xbox 360, the system is in a virtual tie with both the Wii and the PlayStation 3. However, unless the Xbox 360 can kick it into gear in the fourth quarter and through 2008, the system will probably finish in a fairly distant third. A big challenge for the Xbox 360 is building a base outside North America.

3. The PlayStation 3 is looking to make a strong play for 2009 and beyond. For software revenue, the PlayStation 3 looks to be a solid platform for the 2009-2012 time period.

Courtesy of DFC Intelligence (www.dfcint.com). DFC Intelligence's research services provide detailed strategic analysis of the interactive entertainment industry.