‘The games industry lost its way’ wrap-up
Wednesday, June 6th, 2007 at 10:26am by Jack
Infendo regular Invisibleman lays out a pretty solid explainer to complement our recent articles on the video games industry losing its way:
I think Jack missed the biggest problem the whole entertainment industry faces today, not just video games but also TV, music, and film: the combination of higher production costs, the limit on how much they can charge for their products, and the fact that consumer’s leisure time is not increasing. This is a lethal combination that the business won’t be able to sustain…
Nintendo had the insight to expand the market, thus temporarily increasing their consumer base, while keeping production costs of their products to a level that they can still profit from them. But that business model only works while you don’t have significant competition (the so-called “blue ocean”), and will again break down as soon as everyone jumps into the band wagon, which is precisely what I feel Jack is advocating in these posts!
True, true, and true. I did miss it, and it’s a worthy point that also needs to be made (in addition to the original commentary and all of the great comments that Infendo readers have piled on since then).
This little tirade of mine has never been about “just Nintendo.” That may have gotten lost in my stream of consciousness, and for that I apologize. What Invis said above, and which with I agree with, is that Nintendo is now forcibly expanding the market. Judging from the recent string of apologies directed at Nintendo in recent weeks, I’d argue that this expansion has been almost violent in nature. Developers outside of the Big N almost seem lost at times. That’s a good thing. It shows disruption. Disruption is a great thing for this industry.
There’s a reason for that, as I tried to outline in a comment I posted yesterday. What Nintendo will inadvertently do with its Blue Ocean strategy (besides make boatloads of cash) is force people to look 50 yards down field when they’ve been perfectly content looking 10. By going so far ahead, Nintendo will, hopefully, make people now at least look 20 or 30 yards, when they otherwise would not have before. Expanding the boundaries doesn;t necessarily mean people will go right up to the edge, but it does mean they’re going to go places they would not have known about before.
But back to the point about the constraints of the industry: there just aren’t enough hours in the day or dollars in the wallet to do what companies like Sony and MS are asking gamers to do with their consoles today. If things were to continue as is for the next five years, then we could expect to see 2-4 $80-$100 “big name” games per year from the major publishers. Actually now that I think about it, minus the price, isn’t it that way already? Unfortunately for some publishers, they still believe that the “brand” will carry their IP through this current storm and out the other side. I don’t believe that to be the case; not with what we’ve seen happen over the past year anyway.
Nintendo reinvented how things work with the DS and (more so) the Wii. What I’m hoping is that Nintendo’s runaway success will translate into better games and experiences across the board. It has to. I’m not about to start paying $80 for a game like I did when Final Fantasy 2 came out for the SNES :-). The world is not ready (or willing to play in) another Killer Instinct FX chip era. Nor is it willing to play hardcore fare all year. Many would rather just stop playing. Many did. Now they’re coming back.
June 6th, 2007 at 12:12 pm
Good final point! (And thanks for the credit!)
I will add, if I may, an example of the problem facing the industry from my own experience: since I’m a Halo freak, I’m of course going to buy Halo 3 and a 360 just for to play this single game! If MicroSoft’s production costs for the 360 are still the way they were last year, this means that MS will have to cover about $150 in loss on my purchase of the console. This only makes sense in their calculations because they expect that I will buy at least four $60 games per year, thus covering the loss on the hardware and making a little profit. But guess what? Because I own and enjoy also a Wii and a DS, I only have time to play that one game on their system. Thus, in my case, MS will lose about $100 on my purchase! (OK, $50 if you throw Xbox LIVE in…) I’m betting that the majority of consumers today, not all, will be in the same boat as I am, so MS is probably going to lose that bet.
And let’s not even bring up Sony’s bet… they are covering more than $200 loss on each sale of the PS3. They will stay afloat only because I’m NOT buying a PS3 any time soon! Sony has put itself in a weird position right now where it is actually good for them financially this year that not many people are buying their new console.
So, what is wrong with this picture? That all game console manufacturers, studio movie producers, portable media vendors, etc. are betting that their product is going to be the sole source of entertainment for all consumers, and that these consumers will magically increase their leisure hours AND their disposable cash!
It looks like Nintendo is the only company that made the safe bet: don’t gamble! Make your hardware cheap enough so you can make a profit and more consumers can buy it, make more “pick up and play” type of games available for people who don’t have the time to grind through a dungeon for 40+ hours but make also the more dedicated kind of games for people who do have the time to play them. That IS a sustainable business model!
June 6th, 2007 at 12:16 pm
Oh, and no, Jack and I are NOT married, in case you were wondering…
June 6th, 2007 at 5:40 pm
Nintendo should make the next gameboy a cellphone. That would be good business.
June 6th, 2007 at 7:22 pm
Check gamasutra.com NOW. Interesting tid-bit about some serious restructuring…..
June 6th, 2007 at 10:14 pm
GameBoy phone vs. iPhone in the near future?
June 7th, 2007 at 4:50 am
Inspired by InvisibleMan’s remark on high production costs and so on, I thought of one more thing–and a way how Nintendo can really “save” the industry. And it’s not my idea either; I’m pretty sure it came up on Infendo Radio a good while ago. So anyway, with game production costs being so high these days, Nintendo platforms allow developers more freedom, since they are considerably cheaper to develop for. And obviously more freedom means more than just the sure-fire titles which, as Jack rightly observes, companies nowadays rely on to keep them afloat.
June 7th, 2007 at 6:13 am
Ughhhh… enough with these posts, we get it.
Also,
*Sigh* It’s a lot easier for Nintendo to appeal to the ‘blue ocean’ due to the design of their interface, branding and price point.
Every publisher lusts to reach this huge market but it’s far from as simple as, “Oh, let’s make casual games”.
And Negrin, yup the Gamecube architecture is easily one of Wii’s smartest design choices. Cheap to buy and easy to develop for.
I’m not so sure about meaning more sure-fire titles though (there’s more involved than just that).
June 7th, 2007 at 6:29 am
@Déjà Vu
“I’m not so sure about meaning more sure-fire titles though (there’s more involved than just that).”
That’s not exactly what I said. I didn’t mean that the easy-to-develop-for architecture will mean more sure-fire hits. Quite the opposite in a way: I meant that if developers don’t have to shell out huge amounts of money to make a game and can instead make a game for less, they could (at least in theory) be more inclined to make more “risky” games. That’s what I had in mind.
June 7th, 2007 at 7:49 am
I was including low price in ‘easy to develop for’ as well, but it’s a point that needs to be emphasized.
(As long as it doesn’t encourage too many cheap and dirty ports or throwaway titles. Although EA seems to be on the ball with their latest announcement).
Here’s hoping for more ‘risky’ games, they can only be a good thing…
June 7th, 2007 at 7:42 pm
@ Invisibleman:
Good point, but 4 60 bucks games are not going to cover the $100 lost in manufacturing. A great deal of that money goes to the developer studio and the company that reserves the games’ rights.
Although surely not the point, and im pretty sure you knew that, just wanted to clarify that four $60 games will likely not cover MS’s lost.
June 8th, 2007 at 4:43 pm
Thanks for the heads-up, droop4!
Yes, I knew that, but I didn’t want to get too deep into that. As a matter of fact, here’s an article that tells you exactly how much money a developer AND a publisher get out from that $60 sale of a single game:
http://www.forbes.com/2006/12/19/ps3-xbox360-costs-tech-cx_rr_game06_1219expensivegames.html
To make a long story short, it calculates that each get $1 out of the $60 of the sale! Yep. And the article is from Forbes, so they are not fooling around!
How the heck to game developers and publishers make any money is beyond me!
June 8th, 2007 at 4:48 pm
Oh, and the console owner makes about $7 out of the sale… so that is a total of $8 for MicroSoft out of my $60 purchase of Halo 3, which of course falls sorely short of covering the $120 they gave me to buy their console…
Maybe I’ll buy the Legendary edition so they don’t go broke before the game hits the shelves!
June 9th, 2007 at 1:45 pm
Blu-ish Ocean
* Personal note: Blue ocean, I can’t hear it anymore, although disrupting the market is really cool and from time to time it needs to be done. The natural disruption point is when a new generation of console launches (ca. every 5 to 6 years).
* Price: You’re spot-on: People aren’t willing to shell out money over a certain “sweet spot”, which is currently around maximum 300 bucks. I don’t like to admit it because it hurts, but Nintendo does the right thing from a investor’s perspective. They don’t allow free markets to work, you won’t find a Nintendo first party title discounted 6 months after sales start. People (like me) who buy a lot of games after a certain time when the price is right sometimes wait extremely long for a Nintendo title because it remains at 50+ bucks. I’m not willing to pay that much for a game, but I’ll buy two for 60 bucks. Strange logic but that’s how I tick.
Nintendo does away with this devilish circle of ever cheaper games every few months. So I buy only a few games from Nintendo and probably screen them better for value, but ultimatively that’s not good for third party publishers who live from the “impulse buy”, Nintendo raises the bar in all things quality yet new Wii titles don’t excite me that much, I can see that Wario Ware is nothing more than a “flash-based game” and also games like Brain Age should never be full price (I think they’re a little less expensive at launch) still, Nintendo has to think a lot about pricing their games and they also have to be careful because lots of people think “cheaper price = cheaper quality”. Yet, as a gamer who likes to buy more games for less money-per-unit Nintendo-Land is not a fun place to be right now.