Entries from October 2009 ↓

Not a Brit in sight. Criteria include a survey of 900 industry professionals, review scores and company revenue:

1. Nintendo
2. Electronic Arts
3. Activision Blizzard
4. Ubisoft
5. Take-Two
6. Sony Computer Entertainment
7. Bethesda Softworks
8. THQ
9. Square Enix
10. Microsoft
11. Konami
12. Sega
13. Capcom
14. MTV Games
15. Namco Bandai Games
16. Warner Bros. Interactive
17. Disney Interactive
18. Atari
19. Atlus
20. LucasArts

There is increasing anecdotal evidence and deductions from news items indicate that there is currently a big slowdown in games under development worldwide. Development staff are being laid off in quite a few studios. Yet the industry at retail is bigger than it ever was before and is booming like crazy, so what is going on?

A lot of it has to do with the console cycle. Each console has about 5 years life as the premier platform from a manufacturer then a further 5ish years life as the second string platform to the replacement premier platform. When a console is new to the market it is sold at a premium price to early adopters. This is a good time for game publishers to experiment with new products, it is easier to get new ideas and IPs accepted early in the cycle to a more geeky customer base. The blockbuster titles are held back till there is a big enough installed base to get the volume of sales needed, so they tend to arrive around the middle of the 5 year cycle. Then when the console becomes cheap, after 3 or 4 years, we get more family and children’s titles.

So in this generation most of the blockbusters are pretty much done and dusted. And the experimentation phase is well over.

Another major factor in the market is the catalogue of titles available for each console. You only need so many racing games, so many FPSs, etc. In other words there is little point developing games when there are plenty of similar games for the same platform out there. And we have reached this stage on the current platforms.

What about the non console platforms? Well the PC, DS and PSP are ripe with piracy so most publishers tend to largely avoid them for retail games, they have broken business models. The PC is still good for casual games and MMOs, but the competition in both these areas is now extremely intense. Which brings us to the iPhone, which just has too big a catalogue now to be a sensible target platform unless you have a very strong USP and good marketing.

So what the industry needs is the next generation of console platforms. And they are due, the Microsoft Xbox 360 is coming up to four years in the market. But it will be different this time, all three new machines will almost certainly be backwards compatible with this generation, they will just be scaled Super versions of what we have now. So all the current generation games will run on them, which vastly reduces the impetus for new titles. More doom and gloom.

So what is going to get development booming again? The answer is gesture interfaces, like Microsoft’s Natal. And 3D displays. Both of these massively enhance the gaming experience, they bring new levels of immersion and new possibilities. They may well each create bigger booms than the release of the next generation platforms does because they bring so much more to the table.

Game is the biggest specialist retailer of video games in Europe, they have over 1,300 high street stores in ten countries. Their accounting year end is 31 January and for the year ending in 2008 their secondhand sales were £257 million. For the year ending in 2009 it was £353 million. And now, for the quiet first half  (the second half year is obviously a whole lot busier) of the current financial year £177 million. This means that secondhand games have grown to be a full quarter of their total revenue of £690.8 million for the first half.

Game’s management say that selling secondhand is far more profitable than selling new.

So what does this all mean?:

• Secondhand could easily grow to be the bulk of Game’s turnover. This is because many people buy their new games from supermarkets and discount online retailers who don’t do secondhand. So when these games make the secondhand market they do so at Game.
• Customers are now obviously counting in the resale value when they buy a new game. So if a game is say £40 new and they know they will get £18 back from Game, then they look upon it as a £22 purchase.
• Popular games have higher trade in values. This forces people to buy blockbusters even more because they know it will cost them less overall. Thus polarising the market into fewer and fewer big titles.
• Game developers and publishers are missing out massively on hundreds of millions of pounds of revenue. The secondhand buyer is not contributing directly towards the game being made. This will force games online and away from the plastic and cardboard high street retail business model.

The important thing here is that as the game industry moves towards an online distribution model the games should become a whole lot cheaper. We are already seeing this on the iPhone. Here’s why:

• The publisher gets income from every customer.
• No plastic and cardboard to manufacture and ship round the world.
• No high street shop expenses to pay for.
• Much more competition as the market diversifies away from blockbusters.
• Global distribution enhancing revenues.

We know that high street retail of video games is probably doomed and that this demise has been hastened by the huge success of the app store business model. But most people will win from this. There will be far more games and they will cost a lot less. The only really big losers will be the people who manufacture the cardboard and plastic, and the high street retailers, like Game.

The Apple App Store is the biggest thing to ever happen to the video game industry, so it is amazing when you realise that it is less than 15 months old. And that Apple never expected to make a profit from it, they just did it as a service.

So according to Apple’s figures there have ( as of September 28th) been 2,000,000,000 apps downloaded and that they are now hosting 85,000 separate apps. There are more than 50 million iPhones and iPod Touches in the world. And there are 125,000 developers signed up to make apps for them. Amazing figures. It is little wonder that Apple are rumoured to be working on a home console to take on Nintendo, Sony and Microsoft.

16,537 of those apps are games, a staggering number, which must surely mean that in the last year the iPhone has attracted more new games than all other platforms combined. An explosion in creativity like the industry has never seen before. But a massive marketing problem for the publishers of these games.

So what does this all mean?

• High street retail of plastic and cardboard video games is doomed. We already knew that, what the App Store has done is to bring the demise a lot sooner as the whole industry moves over to the app store model for content delivery.
• Horrendous product differentiation problems for developers. How do you make your game stand out from the 16+ thousand others?
• Globalisation now comes easy for developers. Apple publish to the whole world. No need to ship physical stock anywhere. This makes a tremendous difference.
• Apple TV is one of Apple’s lesser products, however it is a very obvious basis for a much more powerful home entertainment hub that would include video gaming. Apple must be doing this.
• The immense number of apps gives Android a very difficult moving target to catch up with. And an almost impossible target for Zune to attack.
• Apple are opening up iPhone availability to more and more air time providers, so availability (and thus sales) are going to shoot up.

This is amazing stuff and I look forward to the chapters unfolding in an ongoing tale.