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Overconfidence
May. 25th, 2006 11:03 amIt's been very interesting watching the news in the video game industry lately.
In the last round of the "console wars," Sony was the unquestionable winner. Sony sold 69.5 million PlayStation 2's, compared with Microsoft's 13.7 million Xboxen and Nintendo's 13.9 million GameCubes. The game title library on the PS2 is much larger, and they have all the Tier-1 Japanese developers (except for, obviously, Nintendo) -- something that killed the Xbox in Japan (where it sold only 1.4 million units.) On top of that, Sony also is still periodically selling PlayStation 1s -- it's up to 99.2 million of those in the market.
Microsoft was, of course, disappointed, but reasonably pleased with the showing, considering as they were going up against an established player (Sony) whose console shipped already able to play a huge library of legacy games. Nintendo was also pretty satisfied with their comparatively meager sales, because while Sony and Microsoft sold their consoles at a loss (expecting to make it up in game sales), Nintendo sold its console at a profit -- plus, since most of Nintendo's bestselling games are self-published, they make substantially more royalties per game sold even though their games are sometimes cheaper.
This round is appearing to be quite different. First of all, Microsoft beat Sony and Nintendo to market by months -- the Xbox 360 has been on sale for some time now, and is at this point past launch titles and introducing second-generation games. This is a big advantage for Microsoft -- they have 5 million Xbox 360s in the market before Sony or Nintendo have sold a single unit. This said, looking at the previous-generation figures, you can see that 5 million is not that big a lead, certainly not an insurmountable one. The 360 is priced at $400, or $300 for a crippled version (no hard drive, limited HDTV support.)
Nintendo is taking a totally different approach to this round -- well, totally different from Microsoft and Sony, if pretty consistent for them. Nintendo's preposterosly-named Wii uses motion-sensitive remote-control-like wireless controllers to play different types of games. It would seem daft were it not for the success of the Nintendo DS (which has sold 50 million units at this point), which had a similarly wacky "It'll never work" control scheme and has been a tremendous success. What Nintendo excels at is getting non-gamers (mainly women, children, and older adults) to play games by making games that don't fall into one of the clear gamer genres (FPS, RTS, RPG, etc.) They make electronic toys, and they're very accessible to people.
However, the Wii's wacky control scheme is actually the first one I've seen that would make first-person shooters playable on a console (I don't even own a copy of Halo for my Xbox; I really don't find an FPS without a mouse enjoyable at all.) Kind of ironic to see it on a console that won't likely have many FPS games, but it's still potential. Also, Nintendo has announced a feature called Virtual Console, in which the Wii will play all (or at least many) of the NES, SNES, Sega Genesis, and TG16 games -- a big draw for nostalgic older gamers like myself (indeed, I will probably buy a Wii for this feature alone.) The games will likely be downloadable, though I don't know if this has been announced. Hopefully they will also be cheap (as if they're not, that's the one thing that could kill this feature.) They probably will be, though, as cheap is one thing Nintendo does very well. The Wii's Japanese price is 25,000 yen, which is about $225... it'll probably sell for $200-$225 here, about half of Microsoft's price. At that rate, hardcore gamers don't choose whether to buy Nintendo's console or MS or Sony's... they choose between MS and Sony, then pick up Nintendo's console as well. And many non-gamers who would not consider $400 will consider $200.
Then we get to Sony. Sony has such a dominating lead from the previous round, the PS3 would seem to be an assured success. The problem is that Sony seems to think so, too, and thus seems to think nothing of throwing massive roadblocks in front of their own success. First and foremost, the console is priced at $600, or $500 for a crippled version (lacking some HDTV support, having a smaller hard drive, and possibly wired controllers rather than wireless.) This is really damn high. Some people have pointed out that other consoles have retailed for more, and this is true -- see this graph for inflation-adjusted comparison prices. But take a look at which consoles have sold for more -- the Sega Saturn, the 3DO, the CD-i, the Neo-Geo, the Atari 5200, the Intellivision, the Odyssey... it's like a list of the greatest console failures. This is not the company Sony wants to be in. For $600, you could buy a 360 and a Wii.
Another problem is developer support. Sony's big advantage is the large number of third-party developers that bring games like Grand Theft Auto, Soul Calibur, Final Fantasy, etc. to their console. People want to buy these games, so they need a PS2 (and, presumably, PS3 in the future.) But Sony's not doing much to help these developers. For one, the system is apparently outrageously hard to develop for, to the point that a PS3 game needs 20-30% more budget than the same game on a Wii or Xbox 360. And second, the console ships in six months and developers still don't have dev kits (i.e. test consoles to try out their code on) or even final specs for the hardware! In other words, six months from shipping, Sony hasn't told the developers what, exactly, a PS3 is yet. On top of that, Sony seems oblivious to problems -- their European CEO has been widely quoted saying, "We have built up a certain brand equity over time since the launch of PlayStation in 1995 and PS2 in 2000 that the first five million are going to buy it, whatever it is, even if it didn't have games." He'd better be sure of that, since the projected number of launch titles is down to 12 (it was 15, but three dropped out after E3, saying they can't make the launch date... probably because they don't have dev kits.) I'm sure Microsoft and Nintendo are delighted by that quote -- nothing like a competitor with contempt for his customers to brighten a businessman's day.
The latest rumor is that Sony will use a EULA to forbid resale of used games on the PS3. This is only a rumor, but it seems consistent with Sony, considering their DRM-happy past. It makes sense that Sony would hate the used-game market -- it means they don't get a cent from a large fraction of the PS2 games sold. However, if they do put some sort of registration process on games to prevent resale, they'll run into consumers' hatred of DRM, and issues like a consumer replacing a broken PS3 and finding their games don't work, etc. It'll be a customer-relations nightmare.
But that's the small problem. The much bigger problem is this -- software retailers make most of their profit off used games. Used games are to game stores what overpriced popcorn is to movie theaters -- they're the real profit center, while the "main" purpose of the store (new games and movies respectively) is really just there to draw people in. If Nintendo and Microsoft allow used games while Sony does not, the PS3 is doomed. Put yourself in a retailer's shoes -- the Xbox 360 and PS3 are comparable systems, with similar graphics and gameplay, and the same types of games. Say for the benefit of the doubt that the PS3 has substantially more games, including some of the big 3rd-party titles, though the 360 has similar games with less brand recognition. But if a customer buys a 360, they will buy many cheap used games in the future on which you'll make $20 each, while if they buy a PS3, they will buy fewer expensive new games on which you'll make only $10 each. A customer comes in and says he's trying to decide between the 360 and the PS3... what do you recommend? Even if the PS3 is definitely better, what do you think management will order the salespeople to recommend?
All this said, Sony's European CEO is right, a lot of PS3s will sell themselves by name alone. But I don't think the PS3 will sell nearly as well as the PS2, and I think the competition between Sony and Microsoft will be much closer this time. Meanwhile, Nintendo will sit out the competition and laugh all the way to the bank.
In the last round of the "console wars," Sony was the unquestionable winner. Sony sold 69.5 million PlayStation 2's, compared with Microsoft's 13.7 million Xboxen and Nintendo's 13.9 million GameCubes. The game title library on the PS2 is much larger, and they have all the Tier-1 Japanese developers (except for, obviously, Nintendo) -- something that killed the Xbox in Japan (where it sold only 1.4 million units.) On top of that, Sony also is still periodically selling PlayStation 1s -- it's up to 99.2 million of those in the market.
Microsoft was, of course, disappointed, but reasonably pleased with the showing, considering as they were going up against an established player (Sony) whose console shipped already able to play a huge library of legacy games. Nintendo was also pretty satisfied with their comparatively meager sales, because while Sony and Microsoft sold their consoles at a loss (expecting to make it up in game sales), Nintendo sold its console at a profit -- plus, since most of Nintendo's bestselling games are self-published, they make substantially more royalties per game sold even though their games are sometimes cheaper.
This round is appearing to be quite different. First of all, Microsoft beat Sony and Nintendo to market by months -- the Xbox 360 has been on sale for some time now, and is at this point past launch titles and introducing second-generation games. This is a big advantage for Microsoft -- they have 5 million Xbox 360s in the market before Sony or Nintendo have sold a single unit. This said, looking at the previous-generation figures, you can see that 5 million is not that big a lead, certainly not an insurmountable one. The 360 is priced at $400, or $300 for a crippled version (no hard drive, limited HDTV support.)
Nintendo is taking a totally different approach to this round -- well, totally different from Microsoft and Sony, if pretty consistent for them. Nintendo's preposterosly-named Wii uses motion-sensitive remote-control-like wireless controllers to play different types of games. It would seem daft were it not for the success of the Nintendo DS (which has sold 50 million units at this point), which had a similarly wacky "It'll never work" control scheme and has been a tremendous success. What Nintendo excels at is getting non-gamers (mainly women, children, and older adults) to play games by making games that don't fall into one of the clear gamer genres (FPS, RTS, RPG, etc.) They make electronic toys, and they're very accessible to people.
However, the Wii's wacky control scheme is actually the first one I've seen that would make first-person shooters playable on a console (I don't even own a copy of Halo for my Xbox; I really don't find an FPS without a mouse enjoyable at all.) Kind of ironic to see it on a console that won't likely have many FPS games, but it's still potential. Also, Nintendo has announced a feature called Virtual Console, in which the Wii will play all (or at least many) of the NES, SNES, Sega Genesis, and TG16 games -- a big draw for nostalgic older gamers like myself (indeed, I will probably buy a Wii for this feature alone.) The games will likely be downloadable, though I don't know if this has been announced. Hopefully they will also be cheap (as if they're not, that's the one thing that could kill this feature.) They probably will be, though, as cheap is one thing Nintendo does very well. The Wii's Japanese price is 25,000 yen, which is about $225... it'll probably sell for $200-$225 here, about half of Microsoft's price. At that rate, hardcore gamers don't choose whether to buy Nintendo's console or MS or Sony's... they choose between MS and Sony, then pick up Nintendo's console as well. And many non-gamers who would not consider $400 will consider $200.
Then we get to Sony. Sony has such a dominating lead from the previous round, the PS3 would seem to be an assured success. The problem is that Sony seems to think so, too, and thus seems to think nothing of throwing massive roadblocks in front of their own success. First and foremost, the console is priced at $600, or $500 for a crippled version (lacking some HDTV support, having a smaller hard drive, and possibly wired controllers rather than wireless.) This is really damn high. Some people have pointed out that other consoles have retailed for more, and this is true -- see this graph for inflation-adjusted comparison prices. But take a look at which consoles have sold for more -- the Sega Saturn, the 3DO, the CD-i, the Neo-Geo, the Atari 5200, the Intellivision, the Odyssey... it's like a list of the greatest console failures. This is not the company Sony wants to be in. For $600, you could buy a 360 and a Wii.
Another problem is developer support. Sony's big advantage is the large number of third-party developers that bring games like Grand Theft Auto, Soul Calibur, Final Fantasy, etc. to their console. People want to buy these games, so they need a PS2 (and, presumably, PS3 in the future.) But Sony's not doing much to help these developers. For one, the system is apparently outrageously hard to develop for, to the point that a PS3 game needs 20-30% more budget than the same game on a Wii or Xbox 360. And second, the console ships in six months and developers still don't have dev kits (i.e. test consoles to try out their code on) or even final specs for the hardware! In other words, six months from shipping, Sony hasn't told the developers what, exactly, a PS3 is yet. On top of that, Sony seems oblivious to problems -- their European CEO has been widely quoted saying, "We have built up a certain brand equity over time since the launch of PlayStation in 1995 and PS2 in 2000 that the first five million are going to buy it, whatever it is, even if it didn't have games." He'd better be sure of that, since the projected number of launch titles is down to 12 (it was 15, but three dropped out after E3, saying they can't make the launch date... probably because they don't have dev kits.) I'm sure Microsoft and Nintendo are delighted by that quote -- nothing like a competitor with contempt for his customers to brighten a businessman's day.
The latest rumor is that Sony will use a EULA to forbid resale of used games on the PS3. This is only a rumor, but it seems consistent with Sony, considering their DRM-happy past. It makes sense that Sony would hate the used-game market -- it means they don't get a cent from a large fraction of the PS2 games sold. However, if they do put some sort of registration process on games to prevent resale, they'll run into consumers' hatred of DRM, and issues like a consumer replacing a broken PS3 and finding their games don't work, etc. It'll be a customer-relations nightmare.
But that's the small problem. The much bigger problem is this -- software retailers make most of their profit off used games. Used games are to game stores what overpriced popcorn is to movie theaters -- they're the real profit center, while the "main" purpose of the store (new games and movies respectively) is really just there to draw people in. If Nintendo and Microsoft allow used games while Sony does not, the PS3 is doomed. Put yourself in a retailer's shoes -- the Xbox 360 and PS3 are comparable systems, with similar graphics and gameplay, and the same types of games. Say for the benefit of the doubt that the PS3 has substantially more games, including some of the big 3rd-party titles, though the 360 has similar games with less brand recognition. But if a customer buys a 360, they will buy many cheap used games in the future on which you'll make $20 each, while if they buy a PS3, they will buy fewer expensive new games on which you'll make only $10 each. A customer comes in and says he's trying to decide between the 360 and the PS3... what do you recommend? Even if the PS3 is definitely better, what do you think management will order the salespeople to recommend?
All this said, Sony's European CEO is right, a lot of PS3s will sell themselves by name alone. But I don't think the PS3 will sell nearly as well as the PS2, and I think the competition between Sony and Microsoft will be much closer this time. Meanwhile, Nintendo will sit out the competition and laugh all the way to the bank.
