The PlayStation 2 was released to significant fanfare, not only because it had an in-built DVD player, but also it let players play their PS1 games. At the time, there wasn't a huge market for nostalgia like there is now, but it was a feature that was perhaps taken for granted. When the PlayStation 3 was released, there was no backward disc compatibility and the Xbox 360 had the same stance. It appeared that backward compatibility wasn't an industry standard. However, digital stores brought a ray of hope for players wanting to return to their favorite games.
The Xbox 360 and PlayStation 3 stores offered a good range of games towards the end of the last generation's run. The only real issue was re-purchasing games that players likely still owned. Yet, this problem worsened with the PlayStation 4, while the Xbox One has turned the tables of late. PlayStation Now allows players to play games from previous consoles, but the game has streamed and therefore it is more like renting a game because the available titles can be changed. Furthermore, PlayStation Now hasn't been particularly popular, partially because of a lack of exclusives upon release. As a result, Sony has invested in nostalgia sales differently, while Xbox has offered old games for a price.
There have been plenty of theories on how PS5 backward compatibility should improve over what was offered by the PS4. It seems unlikely that discs will be compatible as console games become increasingly digital for ease and profit. There could be a barcode scan of old games, so players could have their games on the new console, but this would mean that the new generation would have to have an extensive library from the beginning. The biggest factor stopping disc compatibility is keeping profit closer to the console creators, as digital downloads avoid third-party retailers. Profit is also the reason why players have to purchase games again and again.
Financial profit is a huge factor in console direction and a lack of monetary gain is part of the reason Sony isn't changing its stance on PlayStation 4 backward compatibility. Sony has claimed that backward compatibility isn't often used, despite being wanted. This is likely a calculation based against remaking previous generation games and selling them at full market price. This practice can be seen with Crash Bandicoot N Sane Trilogy, Shadow of Colossus, Final Fantasy VII and MediEvil. Using this strategy, Sony can make a larger profit by revamping an existing game, and it also ties into the companies marketing campaigns and gives the impression of plenty of new content. In this sense, backwards compatibility doesn't make sense for the company, and it is likely the reason that there have been little efforts to provide the service.
Xbox has taken a different approach, with Executive Vice President of Microsoft gaming, Phil Spencer claiming Xbox backward compatibility preserves games as an "Art Form." It is hard to argue with the importance of keeping a game intact and Xbox makes a profit through player purchasing these older games. In this sense, Xbox has maintained the model it began introducing on the 360 with success. Many still don't want to pay for games they already own, but this is not the case when the games weren't previously on the Xbox.
The original Metal Gear Solid 2 was a PlayStation exclusive, yet Xbox is making a profit from backwards compatibility. The Metal Gear franchise was once synonymous with PlayStation, yet Metal Gear Solid 2 & 3 are available on Xbox One and not PS4. In these instances, the lack of true backwards compatibility may damage future generation sales.
There are plenty of games that players want to see on the Xbox, and it will be interesting to see how Microsoft continue to pursue backward compatibility. The release of the PS5 has added to rumors of Sony providing a similar service, but it may not be as extensive as fans hope. The Nintendo Switch, on the other hand, has made it clear from the get-go that the new features in the console are designed for fresh releases. It will be interesting to see how companies overcome the financial and logistical challenges of backwards compatibility, but early signs suggest that none of these companies are in a rush to reinvent the wheel.
Sony has stated that the PS5 will have backward compatibility with the PS4 allowing players from both consoles to play together. While this doesn't take full advantage of Sony's legacy of great games, it is certainly a start. Unfortunately, remakes and remasters seem more profitable than simply having a way to download old games or use the old disc. It appears that the remaster craze is just too profitable for it to make logistical sense to change up Sony's current backward compatibility strategy and this is why digital stores haven't improved the situation.
On the other hand, Xbox Project Scarlett allows players to play games from every generation. This may give the company ample time to monopolize a history of games that aren't traditionally associated with the console. It will also please fans of Xbox franchises. While many are unhappy that they have to rebuy games, it is a more proactive approach than waiting for a remake. Unfortunately, a simple way for players to walk down memory lane will always have a toll gate, as companies maintain themselves through profiting from consumers.