Entries from September 2007 ↓
September 5th, 2007 — News analysis and background
Oh the power of these articles! A month ago we were talking about the inevitability of consolidation. Obviously somebody read the article because now it is happening.
The facts are very simple. Eidos cannot survive at their current size. They do not have the global marketing and distribution needed to bring in the earnings necessary to make competetive games.
However Eidos are very valuable to someone else. And obviously not for their marketing and distribution. Their development capacity, both internal and in relationships with externals is well worth having. But the jewel in the crown is the IP. They own a huge catalogue of IP going back to the early days of the industry with firms like Domark and US Gold. Quite frankly the current company has only been scratching the surface of the opportunities this plethora of riches presents.
There are rumoured to be two suitors. Warner and Electronic Arts. It is far more valuable to the latter than the former for the reasons outlined in the previous paragraph.
Basically Warners are an 800 pound gorilla that has seen the light. They realise that games are going to be far bigger than film and music put together so they need to be in, just to survive. They need to be one of that small handful of publishers that are still standing after the consolidation. Their problem is that they started late and are playing catch up. EIDOS to them represents some of that catch up and they already own 10.3% of it. They would probably even retain some of the EIDOS management. What they don’t need is the EIDOS IP, Warners already have vastly more IP than the whole games industry put together. And it doesn’t fit in with their plans to release the film and game of an IP simultaneously to maximise maketing synergies.
Electronics Arts are trying to solve a different problem. They are the biggest games publisher in the world but they are a castle built on sand, and they know it. Their problem is that they have built their business quickly by using other people’s IP. Mainly films, books and sports stars. So they actually own very little themselves, so their worth is just built on current earnings, not real value. To them the vast pile of EIDOS IP is like a gold mine sitting over the motherlode. With it they have more chance of surviving the consolidation.
So who is going to win. Time Warner turned over $44.6 billion in their year to 2006 so it is just petty cash to them. However they would not get anything like the value out of the aquisition that Electronic Arts would. Although EA are a $3 billion revenue midget the value they would get out of the EIDOS IP would be massive, they could easily increase the revenues of these properties tenfold in just 5 years. And they probably will.
Just as a reminder here is a list of some EIDOS titles:
So who do you think is going to go home with the goodies this time? And, more to the point, who is going to be left controlling the industry after the dust settles?
September 4th, 2007 — Opinion, The platform holders
The so called console cycle sees new generations of machines released approximately every 5 to 6 years, but having a production life of around 10 years. So the generations overlap. This enables the platform holder to have a two model range at different price points, an older, less expensive, model and a newer, more expensive, model.
Sony launched the original Playstation in December 1994 and followed it with the Playstation 2 in March 2000, yet they kept the original Playstation in production till March 2006. So for 6 years they were selling both machines. A few months after stopping production of the original Playstation they launched the Playstation 3, in November 2006, and they were back to having a two model range. The Playstation 2 is still selling massively well worldwide, and so it should, it has about 4 years of production left to run.
Now Microsoft introduced the Xbox in November 2001 and deliberately brought out their next machine, the 360, just 4 years later, in November 2005, so as to be first to market with the next generation. They kept the two models as a range for just one year, killing off the original Xbox in November 2006 when it was just 5 years old.
To me it looks like they killed off the original Xbox half way through it’s life. They could have re-engineered it to make it far cheaper to manufacture (just as Sony did with the PSOne) and kept on selling it for another 5 years as part of a two product line. They would have sold tens of millions of additional units if the continuing success of the Playstation 2 is anything to go by.
Now imagine the benefits if they has kept the original Xbox alive. It would have given them market presence in the massive developing countries of China and India were lower incomes favour a cheaper machine. It would have brought millions of new people to Xbox live, helping to lock them into buying future generations of Microsoft consoles. And it would have made enormous profits from the continuing sale of the Xbox game back catalogue.
To me it looks like a very big mistake. Obviously Microsoft are not stupid and must have their reasons, but surely the potential upside of keeping it going would have made it worthwhile to work round any problems.
So do you think this was a big mistake? Or do you have good reasons for them to kill it off so soon? Use the comments to let us know.
September 3rd, 2007 — The platform holders
I have been thinking that there is hardly an article in this. The answer is just so simple and straightforward. Nintendo is an entertainment company. In fact on one of my trips to Japan I brought back a pack of Nintendo playing cards (which they have made since 1889) as a present for Jim Darling precisely to make this point.
Over their history Nintendo have always entertained even, as it once did, owning a chain of love hotels! Hiroshi Yamauchi had his back to the wall many times as he struggled to find products that would work. But he always innovated and he always sought to entertain. Then he had the luck and skill to employ two bright innovators Gunpei Yokoi and Shigeru Miyamoto who, like Yamauchi, knew how to entertain. The rest is legend.
So Nintendo are not interested in creating global media standards (as Sony are), though interestingly they did for the Gamecube, but that was just as an anti piracy tactic. They are also not interested in creating a near monopoly software platform (as Microsoft are). In fact the technicalities of the box are unimportant to them as long as it is cheap to make and allows them to entertain.
The Nintendo philosophy is very pure. They don’t want big film licenses because it is their job to come up with innovative IP, so they don’t need anyone elses. This attitude extends to allowing external publishers onto their platform. They will let them if they must, but it is not a cornerstone of their strategy (as it is at Sony and Microsoft). Nintendo know that they will make the best games for their own platforms themselves so they hardly need the external publishers.
Also Nintendo do not subscribe to the razors and razorblade philosophy, they make a profit on everything that goes out of the door. Subsidising hardware sales with future software revenue is not a road they want to go down, their corporate culture has seen enough hard times to know to avoid this folly. So their hardware is very simple, just enough to do the job. The Wii is just a slightly upgraded and repackaged Gamecube, yet it sells in the UK for the same price as the vastly more sophisticated 360.
What is a huge and important part of Nintendo culture is innovation. They have always done this and they always will. They realise that innovation piques the human intellect and allows them to develop a constant stream of new entertainment ideas. I am a great fan of this. The controller on the Wii is a creation of genius as are the two screens of the DS and they contrast very sharply with the offerings of Sony and Microsoft which are very much “me too”.
As a great part of Nintendo’s heritage is toys they have largely made computer games for children. So a big swathe of the hardcore gaming fanboys looked down on them. What passed most people by was Nintendo’s announcement a few years ago that they were going to expand their audience to encompass everyone. This really should have worried the competition because they meant it and now we can see the results. The DS is the dominant handheld worldwide and Nintendo cannot make enough of the Wii to keep up with demand. They look set to ship more units than their competitors in this cycle. Not only that, Nintendo know how to make money, they have to because they can’t cross subsidise from different divisions. They are now making outrageous amounts of it and they will make even more as the cycle grows to it’s peak.
In the future you have to wonder if the Nintendo philosophy of just entertaining can survive against the drive for global power at Microsoft and Sony. Certainly their ability to generate so much profit will give them a lot of protection.
So now you have my little summaries for all three of the current platform holders, Sony, Microsoft and Nintendo. They have very different corporate cultures and very different objectives. What do you think? Please comment, it adds so much.
