SLUGFEST IS NO GAME
Copyright 2001 www.yahoo.com
[ December 15th 2001 ]
is getting a PlayStation2 for Christmas. It will
be his first game console, and he can't wait.
Over the past few months, Ayers has been wowed
by the sophistication of graphics in games such
as Tony Hawk Pro Skater and Grand Theft Auto III.
the exclusive realm of pimply teenage boys, video
games have gone mainstream. According to the Interactive
Digital Software Assn, an industry trade group
based in Washington, D.C., about 60% of Americans
- or 145 million people - now play computer or
video games. The average player's age is 28, and
43% are women.
are such an attractive demographic, in fact, that
traditional media companies are starting to compete
for their attention. Last year, Hollywood turned
out two shoot-'em-up action films based on popular
games: Tomb Raider, with a busty Angelina Jolie
playing heroine Lara Croft, and the animated Final
Fantasy: The Spirits Within. Next spring, cable
company Comcast will launch something called G4,
a 24-hour TV network that provides news and information
for the video-game set - a sort of E! Entertainment
Network for gamers.
about it - interactive games have attained that
exalted status known as big business. Research
firm IDC reported that total domestic hardware
and software sales for interactive games totaled
$8.2 billion in 2000 - vs. just $7.75 billion
in U.S. movie box-office receipts. In fact, IDC
expects sales of game hardware and software to
hit $11.4 billion this year - thanks in large
part to torrid holiday sales.
IDC doesn't break out revenues by category, the
IDSA estimates that sales of game software alone
totaled $6 billion in 2000 - making it about 75%
of the total games market. "This is our moment,"
enthuses Douglas Lowenstein, the IDSA's president.
"At best, interactive games are poised to become
the dominant form of entertainment. At worst,
we'll be as important as any other form."
has been well received by analysts and hard-core
gamers It's a good thing the pie is growing so
fast, because the competition is, too. In November,
Microsoft launched Xbox, its first foray into
the video-game hardware market and a head-butt
challenger to the console leader, Sony's PlayStation2.
Microsoft's $299 console, which includes an Ethernet
connection for when online games become available
as well as a DVD player [as does PlayStation2],
has been well received both by analysts and hard-core
gaming enthusiasts. Gates & Co. expect to sell
all the hardware it can produce this year - about
1.5 million consoles.
one of the original video-game companies, also
has just launched a new console - the GameCube.
At $199, with no DVD player, Nintendo GameCube
targets a younger audience. It, too, expects to
sell out, with 1.3 million GameCubes gracing holiday
Microsoft and Nintendo are generating most of
the buzz, the market still belongs to Sony. PlayStation2
has been around since October, 2000, and Sony
says it already has an installed base of 6 million
Playstation2 systems in the U.S and expects to
have an additional 1 million in American homes
by yearend - 2.5 times the anticipated sales of
Microsoft's and Nintendo's new platforms combined.
Nintendo expects to have 20 or so games for its
console by yearend and Microsoft plans close to
40, PlayStation2 has 280 designed especially for
it. "The noise is around Xbox and GameCube, but
the big money in holiday 2001 is going to be made
on PlayStation," predicts Edward Williams, an
interactive entertainment analyst with New York
investment firm Gerard Klauer Mattison. In fact,
Williams says the hype surrounding the Microsoft
and Nintendo launches could boost also Sony, which
isn't constrained by a limited amount of hardware.
Sony says it expects to have more than 10 million
PlayStation2 consoles shipped to retailyers by
Microsoft and Nintendo keep their consoles as
hot sellers into 2002? In fact, whether Microsoft
and Nintendo can catch Sony may not even be an
issue until Christmas, 2002, when all three consoles
will finally be stores in unlimited quantity -
and probably at lower prices. By then, in a market
that has never supported three hardware makers,
the game of the year could become survival. In
2000, Sega stopped making video-game hardware
after 11 years in the business - and just a year
after the launch of its last console, Dreamcast.
the test for Microsoft and Nintendo will be whether
their units continue to fly off the shelves after
the holiday season, when more than 60% of video
games hardware and software are sold. If Xbox
and GameCube continue to wow consumers, game publishers
will develop new, hit titles for those platforms.
"The key to success is having the best games,"
says Joe Fielder, editorial director of GameSpot,
a Web site that offers news and reviews of video
and PC games. "That's what will make someone spend
$300 on a console."
observers, particularly gaming enthusiasts, initially
dismissed Microsoft's foray into the market. How
could the king of PC software understand what
gamers want? It now appears that even the hardest-core
gamers are welcoming Xbox. Its flagship game,
Halo, where players battle alien invaders, is
already a must-have for many serious gamers, according
to GameSpot's Fielder.
Microsoft's general manager for the Xbox platform,
says Redmond's initial strategy was to create
a portfolio that would appeal to hard-core gamers:
"That sets the tone for younger gamers who aspire
to be like their older siblings and older gamers
who want to know what's cool and hip." But to
really succeed, Microsoft knows it must also appeal
to a broad selection of gamers - including women
and casual players. Allard, who says he has been
playing video games for more than 25 years, acknowledges
that tech-savvy youngsters have dominated gaming
until now. But going forward, he says, "we want
to be what Disney is to theme parks. There has
to be a spectrum of thrills - an opportunity for
the horsepower standpoint, Microsoft has the platform
to beat. Xbox has a 733-MHz Pentium III processor,
an NVidia graphics chip, 64MB of memory, a built-in
hard drive, and an integrated broadband connection
that next year will allow players to compete over
the Internet. Sony's PlayStation2, by contrast,
doesn't include a hard drive and requires $40
add-on to make it Internet-ready. Allard says
the Internet is central to Microsoft's strategy:
"What was exciting in the last generation of hardware
was the advance to 3D [graphics]. The revolution
this cycle is online play."
can underdog Microsoft [imagine that] beat out
Sony? Microsoft points out that in 1995, Sony
itself was new to the console business and faced
two entrenched competitors, Nintendo and Sega.
By the end of 2000, Sony had gained a dominant
market position, relegating Nintendo to No. 2
and driving Sega out of the hardware business.
move to disk-based games scored with developers
who like their lower cost. Sony's success, however,
had more to do with the economic incentives its
platform offered to game publishers than with
the PlayStation's feature set. Unlike Nintendo
and Sega, which required game publishers to produce
expensive cartridges that snapped into the game
console, Sony offered a disk-based system. Brian
Farrell, CEO of game publisher THQ says manufacturing
a disk-based game costs from $3 to $6, vs. $20
to $25 for cartridges. Sony also offered a friendlier
royalty structure to its partners than Sega or
Nintendo did at the time, which encouraged publishers
to develop games for PlayStation.
Microsoft nor Nintendo has a similar trick up
its sleeve this time - though both companies are
rumored to be wooing publishers with co-marketing
deals that help limit game publishers' risk. Instead,
Microsoft and Nintendo must rely on brisk sales
of their consoles to persuade publishers that
it's worth their while to develop for the new
platforms. If sales drop off, game publishers
could abandon the loser. Just as in the software
business, game "publishers are incentivized by
where they get the biggest return," says THQ's
Farrell. "The obvious answer is the largest installed
Sega's experience after Dreamcast's launch in
the autumn of 1999. Holiday sales were phenomenal:
Sega sold 1.5 million consoles over the period.
But in 2000, sales slowed sharply. According to
IDC, Sega sold just 1.6 million more consoles.
In January, 2001, the company exited the hardware
market entirely - in large part because game publishers
abandoned the platform.
and Nintendo succeed where Sega failed, Gerard
Klauer Mattison expects that Nintendo's GameCube
will hold 30% to 40% of the market by 2004. At
the end of 2000, Nintendo's previous console,
N64, had 42%. Microsoft in turn will nab 10% to
20%, with Sony continuing to hold 50% market share.
can drive millions of gamers to buy new hardware
Whether those predictions come true depends largely
on the third-party game publishers who, for now,
are the industry's kingmakers, since they can
pick and choose which console-maker they want
to deal with. "The last six years belonged to
Sony. Now, with Microsoft in the game, publishers
can play console makers against one another to
extract better deals," says James Lin, an interactive
entertainment analyst at Jeffries & Co.
leverage: A hit can drive millions of gamers to
buy new hardware. Analysts attribute much of the
success Sony will see this Christmas has to do
with the release of Metal Gear Solid 2: Sons of
Liberty for the PlayStation2. The $49.99 title,
released in mid-November, had more than 2 million
can also spread their risk by developing for all
three platforms. Electronic Arts' popular Madden
NFL 2002, Activision's Tony Hawk Pro Skater series,
and THQ's WWF Wrestling titles are available for
PlayStation2, GameCube, and the Xbox - meaning
that millions of copies should be sold. Such scale
gives publishers more muscle in negotiating with
retailers for shelf space - at least for a game's
first eight weeks on the market, when as many
as 80% of sales happen.
also allows game publishers to rack up big profits,
even in a slowing economy. On Dec. 11, Activision
raised its guidance for net earnings and revenue
in fiscal 2002 - and 2003. For the year ending
Mar. 31, 2002, the Santa Monica [Calif.] game
publisher raised its earnings estimate to 73 cents
a share, on revenue of $725 million, from 67 cents
a share on $620 million for fiscal 2001. Activision
CEO Bobby Kotick attributed the better-than-expected
projections to a 44% increase in sales during
Thanksgiving week vs. the year-ago period.
expect Electronic Arts to report 68 cents a share
for 2002, up from just 4 cents a share in 2001.
THQ is expected to bring in $1.47 a share for
2002, up from $1.28 a year earlier.
now, PlayStation2 has the best games, and Microsoft
and Nintendo are battling for second place, according
to GameSpot's Fielder. Just who will have the
next "killer" game isn't yet clear. The best games
usually aren't available until the platform has
been on the market for at least six months because
it takes time for developers to become comfortable
with the console's architecture and learn how
to best exploit it.
challengers are off to a good start, though. Next
year, Nintendo plans to release sequels to its
popular Pokemon, Legend of Zelda, and Mario Bros.
titles, all of which have at one time or another
topped the best-seller list. Microsoft is hoping
that its exclusive deal with game publisher Interplay
for a game based on the sci-fi movie hit The Matrix
will lure gamers to Xbox.
years ago, a hit game could cost $1 million to
develop. Today, it's 10 times that "MORE ROOM."
Predicting the winner is no easy feat - especially
because, with the cost of developing high-quality
hits on the rise - publishers can afford to bet
only on a console that's a winner. Five years
ago, limited processing power meant that it took
only three or four developers six months to build
a hit game, at a cost of around $1 million. Today,
development teams are often 20 to 30 people strong,
including top sound engineers and Hollywood animators.
A single game can take more than two years to
develop and cost more than $10 million. In such
an environment, Nintendo and Sony, which both
have a history of successfully developing their
own games, could have a leg up over Microsoft.
there's always a chance that the market could
accommodate all three. While the Nasdaq has fallen
27% this year, Gerard Klauer Mattison's Interactive
Entertainment index of 10 stocks is up 94%. "I'm
not sure there's room for all three of us," says
Perrin Kaplan, Nintendo's vice-president for corporate
communications. "But with the pie growing, there's
more room than ever before." And there's nothing
like a multibillion dollar payoff to get more
competitors into the game.