Before E3 2006 I had the sensation of watching an arms race fought by two heavy-weights while the real prize was quietly stolen by a featherweight. Sony and Microsoft were duking it out over the traditional territory of the geek gamer – processing power, violent games, graphics resolution. The media was in thrall, watching the big two boast about how many horses they have under their bonnets, ridiculing Nintendo’s Wii for its silly name and for being powered by a lawnmower engine.
Sony gazes lovingly at its Cell processor – with multiple cores, high definition (HD) output and Blu-ray DVD playback. But multiple cores are difficult to code for, HD output drives up content production costs dramatically, and the heavily-subsidised Blu-ray player drives up the PS3’s retail price beyond the reach of most.
So-called ‘true’ HD – 1920×1080 progressively scanned pixels – may be supported by the PlayStation 3, but developer feedback suggests that PS3 struggles to cope with the CPU/GPU load needed for fully-featured 1080p support. This gap between specifications and reality means that few developers appear to be working on games that support this high level of detail. Sony’s need to be bleeding edge – take its support for a new HDMI standard not yet found in any televisions – is beginning to look like a liability.
Microsoft isn’t far behind Sony in the arms race. With multiple cores and HD output, it too will fight through the treacle of the DVD format war. With two console manufacturers banking on HD, what are its prospects? HD should mean beautiful games and it impresses the early adopter, but it’s a barrier to entry for most people. Unlike the previous generation, mass market adoption of these consoles will be held back by necessitating consumers to upgrade their televisions. Screen Digest recently forecast that the penetration of HD-ready TVs will reach 30% in European households by 2010. Not exactly mass market…
Nintendo sidesteps this problem altogether. No HD, no future formats or standards, no online subscriptions, just a plug-and-play box with an engrossing UI and some promising accessible games. Many of its intended audience couldn’t care less about horse-power and don’t know what HD is. Nintendo’s ultimate goal is to carve out a whole new audience and its ability to attract casual gamers, older people and females to its consoles is proven.
Nintendo’s traditional malaise of indifference towards 3rd party studios has been replaced by an active recruitment campaign. Publishers are jumping onto the Wii bandwagon, in part because they have watched the effect of sales of simple, innovative games for DS on their (or their competitors’) bottom lines. Nintendo’s own Brain Age has sold a remarkable 4m units since launch, displaying completely different sales trends. Many publishers have realised (as they pour investment into lengthy, resource-intensive, next-gen games) that the Wii facilitates quicker, lighter, cheaper games production.
Since E3, it’s arguable that Nintendo has set the industry’s agenda. It has certainly dominated the charts, with the DS sprinting ahead of its rivals. More portable consoles were sold in Japan in Q1 (and the US in June) than home consoles, and Nintendo’s DS easily leads in Japan, both in hardware and software. The PSP appears stuck in the pits with too many ‘seen-it-before’ games. Some publishers, like EA, have publicly questioned their investment in the more expensive, higher-spec PSP. With 21 million units sold since launch, DS has helped to cushion our fall to the bottom of the industry cycle.
Some analysts predict a catastrophic third place for Sony in the long run. That seems unlikely. By conceding first mover advantage to Microsoft, Sony was bound to lose market share but it will eventually re-establish its lead. However its days being far out in front of competitors are past.
What’s truly exciting is that real competition between three contenders will force innovation on a risk-averse industry, which opens up new markets and new IP opportunities, particularly for independents.
Casual as you like: the impact of casual gaming on consoles
Following last month’s column about innovations in console gaming, I want to discuss the casual gaming opportunity in more detail.
Based on our current figures the casual gaming market in North America and Europe will generate just over $900m in 2006, marginally ahead of the MMOG market in these territories. Casual games downloads via console represent a miniscule fraction of this and will continue to be dwarfed by casual PC gaming for the foreseeable future.
Xbox Live Arcade and Sony’s forthcoming eDistribution system represent a simple evolution of the casual gaming model from PC to console. It’s natural for the traditional gaming industry to look on casual gaming on console as a new opportunity; the console is their territory, and in contrast to their normal multi-million dollar production budgets, knocking off a quick, cheap XBLA title looks like a quick win.
The problem is that XBLA and eDI (Sony’s new abbreviation) are already, or will quickly become, heavily congested. Although they are channels to market with theoretically infinite width, as mobile games channel operators will attest, there are practical limits to the number of games that can effectively be marketed and sold through a games deck. Indeed, the stats generated so far suggest that online sales of casual games are actually more concentrated around the top 10-20 titles than they are for retail product.
Competition for premium space (or even any space) on XBLA/eDI will therefore be fierce. There are already several hundred dedicated casual games developers out there, some of whom (e.g. PopCap, Game House) have been around for many years and have substantial, successful portfolios. Almost every publisher I have spoken to recently has also indicated that they are developing not just one or two but, in some cases, numerous titles for XBLA/eDI. Others have indicated that they actually view these channels as marketing rather than revenue opportunities and will happily offer them as a loss-leader if it means propagating brand messages and selling more console titles.
Whilst this does not rule out the best quality indie games making it to the top of the deck, it will be increasingly tempting for Microsoft and Sony to base their selection criteria on revenue and profit potential rather than gameplay quality (the two, as we all know, are not the same).
Luckily, there are other distribution opportunities. Indeed, there will be around $900m of opportunities within the PC market alone this year if you know where to look.
Download sales can be offered direct to consumers and a host of DRM companies (e.g. Macrovision) can provide assistance from technology-only to fully-managed services. Hundreds of destination sites offer premium download services (e.g. RealArcade, ShockwaveUnlimited) and the most successful games can often be found on dozens of services. Casual games can also be offered through Games-on-Demand service providers (e.g. Exent, GameTap).
However, the largest sub-sector of casual gaming remains based around advertising and this is the principal business model of many of the biggest games sites such as Zone and Yahoo! Games which attract tens of millions of players each month. A few of these services have also successfully established subscription-based adjuncts to their business models, charging monthly fees for premium casual games services.
Pay-per-play gaming (covered in an earlier GIC column) offers an additional and fast-growing distribution channel and, despite offering very similar content, is dominated by companies outside of the other casual gaming sub-sectors (e.e. Skilljam, King.com). Finally, there are casual games brokerages such as GameTrust and Arkadium that distribute titles through dozens of channels and exploit a variety of the above revenue models.
Indie developers seriously looking to take advantage of the growth of casual gaming should therefore look first to the PC market and then to the console market although they are clearly not mutually exclusive. Reliance upon the console market alone is inadvisable although any foray into the PC market should be done bearing in mind the difficulties of business development and portfolio management within a market with such fragmented distribution channels.