The Game Era
In this blog entry, I am going to write about the game industry, focusing on the Console-Based Games. The analysis will be broken down into 4 sections, which include:
Stage 1: Introduction to Console-Based Games
Stage 2: Players in the Console-Based Games
Stage 3: Current State of Console-Based Games
Stage 4: Business Trends of Console-Based Games
Now let the game begin...
Stage 1: Introduction to Console-Based Games
Today's game industry is becoming more mainstream than it was in the past. In the past, when you tell others you're a gamer, they will call you a loser/nerd/geek/outkast, and in the Chinese culture, parents will even call kids who like to play video games wasting time and hopeless. In fact, today's game industry is growing at a rapid rate, and people, even professionals, are spending more time and money to play video games than they do in the past. Some visionaries are even using the console-based games wisely to promote their businesses (I will tell you more about those ideas in Stage 4), and many are actually earning a lot of money working in the game industry (Read more here.). Should we still call those gamers "loser/nerd/geek/outkast"? We will see at the end.
First, what is console-based game? Console-based game means you need an electronic device that connects to the television to solely play video games, but with many other functions these days, which include online chatting, checking the weather, and watching DVDs, etc. Also, you will need controllers to play the games. Besides, console-based game usually has an upper limit of multiplayers, normally 1-4 players.
Secondly, console-based game seems to be the more family-oriented/people-oriented game compared to PC-based game and online game. As I have observed my brother and some other friends, people who play PC-based games and online games stay inside their room and physically play alone most of the time. In contrast, when they play console-based games, they will play in the living room, and maybe even with family and friends. Perhaps this is because of the additional controllers of the game consoles while not many people have additional keyboards and/or computers in the same house.
Now, Stage 1 is cleared. You should at least have a very general understanding about console-based game, and I will move on with the players in the history and today's market.
Stage 2: Players in the Console-Based Games
The first console-based game was PONG on the Magnavox Odyssey (Read more here.) released in 1972. It is a game based on the sport of table tennis. Indeed, it is very different from today's console-based games. For example, the graphics are much simpler, and it is a 2-players game only.
Today, we are already in the 7th generation of video games. There are 2 players in this sector of the game industry, which are:
Player 1: Console Manufacturers
The main consoles are released as of the following order by the respective manufacturers:
1. November 22, 2005 - Microsoft XBOX 360
2. November 11, 2006 - Sony PlayStation 3
3. November 19, 2006 - Nintendo Wii
Player 2: Game Publishers/Game Developers
The key players include Electronic Arts, Activision, Sony, and Nintendo, etc. These companies generally publish games and have smaller development companies to devleop games because they generate the major source of income from publishing games.
Before I move on to the next stage to tell you who is winning in the current console-based game industry, let me inform you some special features of the 3 game consoles below: (Please read the more detailed specs here.)
1. Microsoft XBOX 360 ($399.99 - $479.99)
--- came out 1 year earlier than its rivals
--- HD DVD format supported
--- Online Services: XBOX Live
--- allows downloading contents to the box and store media contents
2. Sony PlayStation 3 ($499.99 - $599.99)
--- Blu-Ray format supported
--- Online Services: PlayStation Network
--- advanced technology of cell microprocessor
--- better graphics
3. Nintendo Wii ($249.99)
--- motion sensing controller (i.e. Wiimote)
--- low cost strategy
--- making profit on each console
--- Online Services: Wii Channel
Stage 2 is now cleared. While I have informed you the features of each of the game consoles, I will let you know who is winning in the 7th generation game videos war in the next section.
Stage 3: Current State of Console-Based Games
According to a NPD Group research released on Jan 19, 2007, it says that the video game industry, including portable and hardware console, and accessories, generated revenues of close to $12.5 billion (Read more here.). And this number is still encountering a robust growth. It is kind of hard to estimate if these sales figures will keep on increasing or slow down as the industry meets its diminishing point.
Moreover, according to the latest report conducted by the NPD Group released on April 20, Nintendo continued to lead in the market in the 7th generation game consoles. Here are the console sales figures in March 2007:
1) Nintendo's Wii - 269,000 consoles
2) Microsoft's XBOX 360 - 199,000 consoles
3) Sony's PlayStation 3 - 130,000 consoles
(Source: http://news.yahoo.com/s/nf/20070420/bs_nf/51635)
I believe Nintendo's success is due to its business model of capturing as many non-gamers as possible. The $249.99 pricing of the console does attract casual gamers, and the new gaming experiences and new forms of interactions sound very attractive too. At least while I haven't been gaming for 5-6 years, now I am planning to get a Wii because of all those Wii Sports games that seem so fun and interesting. Moreover, it's very breakthrough to play games by sensing my motions. Also, the created simplicity to play games is getting my attention.
Currently, the revenue model of console-based games consists of revenues from games more than the revenues from consoles. As many have heard, the XBOX 360 and PlayStation 3 are losing money for every console sold, and Microsoft and Sony are trying to make money from games to offset the lost. In this war, Nintendo is a differentiator because it dropped all the advanced technology, so that it can set a lower price for the console, and this is why it is the only console that has a profit for every console sold. While I believe the XBOX 360 will work in the current revenue model, I don't think Sony can survive and eventually break-even because HD is getting more popular in the US and even in Asia countries. This gives an advantage to Microsoft.
Stage 3 is cleared. Now we should know that the game industry is growing at a rapid rate, and Nintendo's Wii is currently leading in the 7th generation game consoles war.
Stage 4: Business Trends of Console-Based Games
As XBOX 360 and PlayStation 3 release more premium versions, I am thinking maybe the 7th/8th generation game consoles war is about multi-versioning, meaning that users can choose a version of game console that best fit his/her needs. In the previous generations, game consoles usually come out with 1 version only. Hence, it lacks customization, but today, it seems that game consoles are more customer-centric in order to penetrate into the market to capture different kinds of gamers. In a contrast, it might be an experiment to test out the market for the 8th generation game consoles.
Moreover, as digital convergence takes place, even game consoles are connected to the internet, so game consoles are no longer just for games, but also watching movies, online chatting, storing music contents, etc. It is safe to believe that this is the short-term trend going on, and we can see this from the latest news that Sony is releasing an "eye" camera with voice recognition system (Read more here.). If this happens, it might eventually replace the phones, and the identification between online games and console games gets vague.
Besides digital convergence of how people use the game console for multiple functions, the future game industry seems to be growing into a global online community. Currently, the 3 main players do have their online services, such as the XBOX Live (Read more here.) and Wii Channel. As these networks become well developed, will gamers be able to download and play Super Mario Kart or NFL games on all three of the consoles some day (i.e. cross-platforms)? Will Wii users be able to communicate with XBOX 360 users? If all these happen, the future of console-based games is probably solely about branding, pricing and advertising, which I think will create an even intense competition. Moreover, game developers/publishers will be able to create games in a standard format to fit the consoles in the marketplace. I am thinking of a business model like the iTunes, but selling games instead.
Furthermore, the next generation of the game industry is becoming more potential for advertising. While movie companies are emerging into the game industry to produce story-based games, such as Final Fantasy, Spiderman, and World of the War, etc, other industries are trying to advertise in games. For example, some companies are buying AD spaces inside the game, which can probably be a car or a billboard in the game. It is forecasted that in-game ADs will keep on increasing as the game industry is becoming more mainstream, and while gamers get more diverse in age group. Additionally, the online networks can probably enhance the marketing/advertising opportunities, just like how companies use Second Life to predict market trends and advertise by allowing users to customize almost everything.
As personal trainers use Wii as workouts, cruises offer big screen TV to play Wii for relaxation, retirement community uses Wii to allow old people to exercise and play bowling, game consoles that promote new forms of interactions are opening up more business opportunities. In specific, the Nintendo Wii is encouraging people to play games and attracting more interactions because it helps to lose weight at the same time, and its controller is so down to earth and easy to use.
The following will be some suggestions for business opportunities (particularly Nintendo).
1) Use Wii to stimulate group spirit by playing training games. For example, a firefighting game can train firefighters in a fun way. At the same time, people who play this game together can learn the importance of cooperation.
2) Target the CEOs who couldn't afford time to work out to play the Wii. Hence, we are looking for games that reflect reality, such as tennis, golf, and fishing, so that CEOs can enjoy life and relax while they have a short break.
3) Simulate investments games to target financial professionals since games like Brain Age are increasing in demand. These strategic and number-related games can probably be used in schools to increase students' interests to learn complicated materials as well.
4) Nintendo should probably create a game that combines the elements of Trivia Contests (i.e. Questions that vary from sports to government issues) and sports. For example, maybe the participants need to run as fast as possible to answer a question if they know. If they get the answer wrong, they might need to do sit-up or other kinds of exercises as penalty. These games can be very attractive since they are competitive, and they allow workouts and brain-training.
5) Nintendo should produce more accessories for its Wiimote to enhance the gaming experiences, and perhaps a Wiimote that can be tied on the leg as some Wii users are suggesting. Please read the following links for some more ideas:
a. http://www.engadget.com/2007/04/05/retractable-wii-sports-cuff-enables-flinging-action/
b. http://www.engadget.com/2007/04/09/joytechs-sharp-shooter-looks-like-wii-blaster-but-isnt/
6) Businesspeople can use the Wii Sports kit to sell business as an ice-breaker. For example, while many people discuss contracts at a golf course, they can do it at client's house or office. In such case, they do not need to worry about the weather.
Afterall, should we still call those gamers "loser/nerd/geek/outkast"? No, I don't think so. Many of them are making a lot of money each year by developing games and playing games. And they are the ones who create more business opportunies for us and helping the CEOs to train employees and find a balance between work and life.
Last but not least, Special Thanks to all friends who inspired me with different ideas.