Entries from September 2008 ↓

Back in April I talked about the upcoming and inevitable Wii price cut. This is now looking a lot more likely, here’s why:

• There has been nothing AAA launched on the Wii for a very long time. And their announced upcoming game launch schedule is looking very weak. They have done all the big first party IPs for this generation. This makes the Wii a less compelling purchase compared with other consoles which have had far more powerful game launch schedules over the last six months with more of the same to come over the holiday season.
• Market price. You can now buy a far better console for a lot less money. Microsoft have gone to war here and their offering at the $199 price point is compelling. The Wii now looks like a very expensive Ford next to Microsoft’s cheaper Ferrari.
• They are losing the monopoly on the casual family gaming customer. Microsoft and Sony have woken up to the huge change in the market.   Their response is, and will be, a range of game titles aimed directly at the Wii jugular.
• Supply. Nintendo have learned the lessons of undersupply and have geared up to have enough volume to supply the market. And we all know about price elasticity of supply.
• The economic downturn. This is going to get a whole lot worse before it gets better. People will still pay for their entertainment. They just have less money to do so.
• The razor blade business model. Basically the more Wiis that are out there, the more Wii games that will be sold. And there is more money to be made selling games than there is selling consoles. So Nintendo have a strong incentive to get as many machines out there as possible regardless of price point.
• Weak online offering. As Sony roll out Home and as the Microsoft Live service undergoes a major upgrade for the better, Nintendo are being left behind in this very important part of the gaming experience. This could force them to use the price mechanism in order to compete.

Nintendo have run the last six months with the Wii on sheer impetus. You have to wonder how long this will continue with the market changing so much. A price drop is inevitable. The only question now is whether or not Nintendo can get away with delaying it until next year.

And there are still a lot of Wiis to be sold. For a keen gamer Wii ownership is essential for those amazing, classic first party games. But as a second console to have alongside the 360.

I must admit that this is one of the more unbelievable MCV headlines. Tescos, for instance, have been involved in price wars for decades and we can all see the harm it has done them!

What has happened here is that games have recently switched from being a specialist item at retail to being a commodity. And as a commodity the only thing that matters at retail is price. Obviously some industry management, rooted in the past, have not adapted to this change.

Supermarkets offer an immense advantage over specialists shops at retail. Which is why specialist shops in so many product areas have disappeared. At a supermarket the customer can just pick up a game on their weekly shop and throw it in their trolley. Often this will be an impulse purchase. Contrast this with having to make a special visit to a specialist retailer, which massively reduces the potential for impulse purchases and you can see the huge sales advantage to the games industry of being in supermarkets.

Supermarkets have always competed on price as their main marketing tool to drive traffic. Customers are not going to visit several supermarkets in a week, so once a customer is through the door you have their money. This is why loss leaders are so tempting. The customer comes to the store specifically for the one very low priced item, on which the supermarket is happy to make a loss. This is because the customer will buy a lot more stuff on the visit that is profitable enough to more than cancel the effect of the loss leader.

And video games are a perfect loss leader. They are a commodity, so are identical wherever they are bought. They are a sexy, high profile product. And most households now buy them.

The game industry benefits when games are used as loss leaders in several ways

• Simple price elasticity of demand. If a commodity is cheaper it sells more. This is a proven economic reality.
• The supermarkets need to market their loss leaders. This creates huge extra exposure for the games involved.
• People love something that appears to be a bargain, so the level of impulse purchases of games will rise massively.

So the industry should be celebrating our new status as loss leader of choice amongst the retail giants. But instead there is a lot of whingeing going on that I don’t understand. Alan Prichard, the UK MD of Sega said “Development costs are not getting cheaper so it is important for retailers to sustain full SRP points”. This is self evidently ridiculous. The price Sega sell to the supermarkets at is the same, whatever the supermarkets then choose to retail at. So how does discounting at retail have any negative effect on funding development? Surely the reverse is true, more games will be sold and Sega will have smaller losses.

Rod Cousens, CEO of Codemasters, said “Price cuts in an industry which shines above the gloom can only be the strategy of those concerned that their mode of delivery to the consumer is facing threats, and they are doing their best to accelerate their own demise.” This again is patently absurd. Yes, digital distribution is taking over from retail, but it has little to do with retail price point. In fact discounting and price wars at retail will prolong their relevance. The exact opposite of what Rod has said.

What we have here is a situation where most people win from this discounting. The retailer wins because they get more traffic. The game publisher wins because they sell more games. The customer wins because they pay less for their games. The only loser is the specialist retailer who, inevitably, loses sales. But specialist retail was always going to go the way of the Dodo because of digital distribution. All supermarket discounting does is to speed up that demise.

Microsoft, in the Xbox 360, have made the games platform for the keen gamer. It has the biggest catalogue of games this generation by some margin and Live has overwhelming superiority to any other gaming portal, and continues to get even better. The keenness of these Xbox 360 owners is reflected in the very high attach rate for 360 games. And is one reason why the Xbox division of Microsoft is now profitable.

Knowing this it perhaps should not have come as a surprise that Star Wars: The Force Unleashed is selling nearly as many (48%) on the Xbox 360 in the UK as it is on all other platforms put together. And when you consider that those other platforms are the Sony PS2, the PS3, the PSP, the Nintendo Wii and the DS that is mightily impressive.

It is this sort of selling performance that makes the Xbox 360 the favourite platform for game developers. And it is why Sony PS3 exclusives are dying out, your 360 sku of a game is going to sell a lot more than your PS3 sku. Soon only first party Sony games will be platform exclusives. And remember that not only are your Xbox 360 skus going to sell more, they are also going to be quicker, cheaper and easier to develop. The Xbox 360 has become the win win platform for game developers.

Microsoft was winning the HD platform war before the price drop. So the floodgates that have opened since this announcement are just going to put it even further ahead. And having conquered the market for keen gamers it now has its eye on the casual and family markets. With the thought and strategy and money that Microsoft are putting into this I cannot see it losing.

In the article “Some game thieves pay for their crime” I reported how Activision was taking people who stole their games to court. One of these people was Shawn Guse of Federal Way, Washington who agreed to pay Activision $100,000. As a result of the article he has now contacted me. Here is his email:

My name is Shawn Guse and you have my name posted on your web site without my permission and I want it removed or changed to “A Washington man”, and I also want the link to the settlement removed if you have one. Please don’t contribute to the crucifixion of my name. If you are so kind as to remove the whole article that would be great. I have contacted many other web sites that are posting this and they are gladly removing it due to my request.

And here is my reply to him:

Surely the publicity is part of society’s punishment of you for being a thief?

Just a few years ago I was working at a game publisher towards the end of the PS1 generation. When people like you started copying games on a massive scale we had a huge drop in the income we needed to the pay the people who made the games. About 60 people lost their jobs with massive personal trauma. The whole company suffered and we all went through terrible times. It was awful to see my friends and colleagues suffering in such a way.

So it was a great delight for me that I was able to publish the names of the thieves caught by Activision.
In your email to me you show no contrition for your actions and the effect that they had on the people who work in the industry. All you are concerned about is yourself.
The “I want” tone of your letter is, frankly, despicable.
Perhaps you should have considered the consequences of your actions more thoroughly before you started stealing games.

• Microsoft to spend massively promoting the 360. With emphasis on the family and casual gaming. This is the hammer blow. Sony cannot afford to compete with Microsoft on price and they cannot afford to compete with Microsoft on marketing. In fact Microsoft have Sony so comprehensively beaten that they are now going after Nintendo.
• Blu-Ray hits the skids. If you think about it Blu Ray video players are a bad purchasing proposition, even at $200. They don’t offer all that more than a DVD player with scaling and the amount of available content is minuscule compared with DVD and a lot more expensive. To compound the damage, legal film downloading is growing apace and offers many advantages over physical media. Could Blu-Ray become yet another failed Sony media standard?
• Xbox 360 heads for one million sales in Japan. They were already the best selling console in Japan before the price cut. Now they have a succession of titles targeted at the Japanese gamer, something Sony have been strangely lax about. The Japanese 360 turnaround is a major feather in Microsoft’s cap and has surprised most analysts and commentators.
• Phil Harrison enthuses about iPod, it is ”changing the way we consumer and interact with media.”The problem he has is the very low barriers to entry with iPod publishing and the very high online availability of pirated content. But still he is right, and he has the heritage IP to profit well.
• Warhammer off to a great start. It is selling very well and the whole MMO infrastructure is working properly. There is a lot of positive feedback. If Mythic and Electronic Arts build on this they should soon be number two to World of Warcraft, which would then put them in position to chip away at the market leader.
• Sony whinge about lack of third party development for PSP. Don’t they realise that the PSP business model has been destroyed by piracy and that valuable development staff are best allocated to more lucrative platforms?
• Microsoft cancel Halo MMO being developed by Ensemble Studios. It would be more than fascinating to know why. The brand would certainly handle being extended in this way, done correctly. And MMOs can be huge revenue generators. Something obviously wasn’t right here.
• Erotic Japanese iPhone games. These are quite funny. But beg the ongoing question of when will the mainstream game industry become less prudish and address the obvious demand for more grown up products?

When I was about 11 years old I discovered that my school took a range of daily newspapers, so I started reading them. Pretty soon I discovered that one of them, The Telegraph, had the best content. They had the most news, especially from abroad, and they kept their political commentary for the editorial sections, so the news was presented in a very factual way. And they reported sports, such as sailing, that the others neglected.

I ended up reading The Telegraph every day for most of my life. But not any more. It is not that they have done anything wrong or that there is a better newspaper now. It is because of the internet. Now I know about news as it happens and can drill down for detail and background using a range of web browsing techniques. It is very easy now to know more about a news story than the journalists on The Telegraph do.

I was very lucky to be working at Codemasters at the time when the internet was going through massive growth and was on the cusp of taking over from print. We worked hard on a whole load of areas to make the Codemasters website the best in the industry and the most popular.

I knew the CEO of Future Publishing of old and tried to explain to him about the switch in everyday information from print to online. His online offerings were, quite frankly, dire and were seen as a small adjunct to the main business of converting trees into money. He was quite brusque at my explanation and did nothing. Which is maybe a big part of why he lost his job.

And now we see that the Future share price has hit a seven year low. They may dominate video game print media in Europe but when it comes to online they got left behind. And online is completely different to print in many ways, one of which is that existing players are more entrenched than new arrivals. So the only real way forward for Future is to buy out existing online media. They have done this a bit with N4G, but still they are only a minor player online. So it is very easy to understand the low share price.

I wrote about this in August last year and things have changed little since then. What Future need to do is to see themselves as an online publisher with print as a marketing arm used to build the online. Until they make that radical shift they are going nowhere.

Over the last year Activision have been taking peer to peer torrent game thieves to court. Here are the results:

• Shawn Guse of Federal Way, Washington agreed to pay Activision $100,000.
• Chris Hyman of Abbeville, South Carolina agreed to pay Activision $25,000.
• George Laflin of New Jersey agreed to pay Activision $100,000.
• Maryanne Leach of Northome, Minnesota agreed to pay Activision $1,000.
• Kenneth Madden of York, South Carolina agreed to pay Activision $100,000.
• James R. Strickland of New York State; case is still active.

This is brilliant news. It is nice to see a game publisher with the gumption to act against people stealing from them. Let’s hope they nail a lot more of these thieves.