Listening to NPD on console sales is like listening to US reports on handset sales, they are interesting but they don’t tell you anything. The US is just 10% of the global handset market, and yet the biggest economy in the world makes up closer to a third of games consoles. But it is a market which is peculiarly biased.
So while US trends in handsets are almost irrelevant to global market share, in gaming they are more relevant, but still not the whole picture.
The one clear message that you can get from the recent NPD figures, which say that the US games market rose to a $21 billion market in 2008, is that the Nintendo Wii is winning. All the other facts are unclear.
NPD figures show that the Wii sold over 10 million in the US in 2008 and its DS portable sold a few thousand less, both breaking all records for devices sales, making the Wii 55% of all current generation home consoles sold in 2008, and the DS 72% of all portable gaming systems. The leadership is phenomenal and Apple-like in its dominance. These sales were led by Wii Fit, Guitar Hero, and Rock Band as games, while the top 4 US selling games over the year were: Wii Play, Mario Kart, Wii Fit and Super Smash Brothers Brawl.
Much of the increase in revenue in gaming over last year has gone to Nintendo, as the industry is up 19% with Nintendo responsible for 99% of all additional dollars, with 132 million Nintendo games sold in the US throughout 2008. It’s not that games are counter cyclical, it’s that Nintendo has discovered an entirely new market.
For years in these pages we have been a flag waver for Sony, but its repeated failure to deal with its Japanese ‘job for life’ culture, the inability of its leaders to see new markets clearly and early, and the failure of its divisions to work together or even talk to each other, have left us as disillusioned as if we were shareholders. The current recession will either cripple the CE giant forever, or it will finally get the nerve to force through the changes that it needs to be great again. Nintendo on the other hand is not great, doesn’t try to be great, it just tries to find and create markets in gaming and just gaming, which makes it focused, and it has two products which have monster appeal at least for this generation.
In the US NPD said that the Nintendo Wii accounted for 2.15 million consoles during December alone. The home grown Microsoft Xbox sold 1.44 million, although this was prompted by price cuts and excessive advertising that it will be unable to keep up going forwards, and there is no hint of just how badly the Xbox did outside the US ‘ but we’re fairly sure it was pretty badly. On the other hand that left Sony with just 726,000 US PS 3 sales in December plus the 410,000 PS2s and 1 million PSPs it sold, so just over 2 million devices, a dwindling force really.
But that all gives a false impression, as Sony has been neck and neck with Xbox throughout the year in the US and Sony loses less money on each device it sells compared to Microsoft, which is why it is content to keep its pricing above the Xbox and let Microsoft continue to lose money.
Outside of the US, PlayStation 3 dominates the Xbox, it overtook a full year’s lead by the Xbox in Europe by last Spring and the Xbox has never been popular in the Far East. Neither do well in China, at least not officially.
Also in these pages we used to be determinedly anti-Microsoft, but no more. We never understood why a company which copied an idea and design for an operating system, should be automatically given the keys to the server markets, the applications business, and worse still why the designs for handsets should be constrained by a company that has never been popular with consumers, but which has always bullied its way into markets using account control, bundling and an implied threat to hardware makers who are seen as either ‘for it or against it.’
Now that the handset business is more competitive and more ‘interesting’, with Apple changing the perception of smartphones, Google joining in, and Motorola, RIM and Palm all stumbling, and the open sourcing of Symbian, as well as the weakening of the influence of Windows Mobile, we can see that the whole world is NOT going to be forced to pay homage to an interface which is no longer revolutionary and which on a handset is a downright liability.
The same can be said for gaming, and IPTV and other entertainment options ‘ Microsoft is not about to dominate unchallenged on the back of bundling after all, so all the gains won by Microsoft from here on in are more or less because it deserves them, not just because it has the financial muscle to force its 1980s way of doing things onto the world. So we have no problem with Microsoft winning the games console war if it a) makes the best console, b) captures the imagination of the public, c) entices the best games makers to its platform, and there are those who argue that it does. But it doesn’t.
There are similar things you can say about Sony. All the PlayStation 3 games to date look like better, faster, higher resolution graphics versions of PlayStation 2 games. That’s just not good enough. And while we can’t find a single gamer that has a nice word to say about Nintendo, we can find plenty of 11 year old girls who just love their DS and whole families who have discovered gaming for the first time through the Wii. The interesting question is what happens next?
In all of the other technology markets one of three things happens, two good, one bad. Either the market retains an element of competition which keeps it inventive, imaginative, open to new entries, and this is usually achieved by the creation of standards and often by the implementation of open platforms. This is what happened in the server market, and also is now happening in mobile. Otherwise markets have a tendency to become a monopoly, this can go either way. Either it leads to a lack of innovation and stagnation because the monopoly has little interest in spending money on change, because it can’t be challenged, or it is necessary to create a single monopoly platform to make it a market worthwhile to invest in at a higher technical level. The PC market was a hybrid of this, with PC operating systems being opened to developers, but later with Microsoft able to make clandestine attempts to annex various pieces of applications until the point where most major applications platforms for PCs have been subsumed into Microsoft, except where they are enterprise, client server applications.
But the gaming console market is all back to front. Although it is shared between three players (not enough for full bloodied competition), for the most part it is only Microsoft and Sony that are going head to head and where the hard core, long term gamers finds their satisfaction. This means that Xbox and PlayStation are fighting for the hearts and minds of players who start out as gamers when they are 11, and are still playing when they are 36, devoting 25 years of purchasing to their chosen favorite. There are more games for the Sony platforms, and but the Xbox platform has more sell through per console. Some games are exclusive on the Xbox, though not many, but some of them are very good games. The PS3 has lots of exclusives and more good games, but gamers want to know they have all of the best games at their disposal and we know that a high percentage, perhaps as high as 30% of hard core gamers have both an Xbox and a PlayStation of some description.
Apart from the contractual exclusivity of the two companies, they can be thought of as a quasi open platform. There are plenty of tools for converting a game from one platform to the other and vice versa. The cost of launching on a second platform is a fraction of the price of launching on the first of either platforms. But this is not the same for any Nintendo devices, and it’s not the same for the PlayStation Portable, which is far from open.
But despite the fact that during this generation of gaming Nintendo has proved to have the most popular ideas, it does not have to innovate going forwards, or at least it does not have to continue to move gaming on to new dimensions. Neither is it guaranteed that those 11 years old girls are going to continue to buy into its next generation of devices when they are 13 or 14, nor that the family which grows up will still be interested in sitting around together playing tennis and skiing in the comfort of their living room. In other words it may have to find a new audience for each generation of devices, and its games are primarily basic generic platformers (think Super Mario), activity (think tennis and skiing) or junior SIM titles (Nintendogs etc..).
These types of games often lack depth (except the SIMs), so the next few generations of Nintendo gaming will be filling out the depth and levels on these games, a move which is likely to be attractive to new generations of the same ages it appeals to now. There is a weakness here. If Nintendo fails to grow with the new gamers it has unearthed, it gives Sony, Microsoft and others, the opportunity to right the mistakes they made in this generation and go about sharing in, or unseating, Nintendo’s leadership, in casual, whole home and portable gaming.
Nintendo has had to be so single minded in designing the devices and supporting its games designers, that it has not had time to think about the future. It remains closed, with extra function, such as a dongle for picking up Japanese Mobile TV, all being designed by Nintendo, instead of being part of an open eco-system.
By comparison Sony was too ambitious with its PS3, using an untried, monstrously powerful, but difficult to program chip, and betting the shop on the PS3 being a multi-purpose platform which would also bring Blu-ray video to the home. Microsoft picked an alternative HD DVD platform, which failed it, but got a good head start in creating an on online gaming community. Nintendo took the honors by opening gaming to a much wider community. Only the Nintendo actions are the acts of a company reliant on gaming. The other two were artificially protecting their global architectural aims, and both have paid a disastrous price.
They are all also tied to a business model which says anyone who wants to develop games for Sony, Nintendo and Microsoft gaming platforms, can only gain access to the tools to do so if they sign a distribution deal, which means that games sales subsidize the consoles.
Going forwards none of these companies can suddenly decide to move to an open eco-system, because they have already spent their console development cash on platforms designed to be supported by future games revenues. But a newcomer could upset the applecart.
And the companies most likely to try that are Apple, Nokia, which is already doing it with its N-Gage platform, or Google which could create a kind of Android for games, just so it can sell the in-game advertising for them.
Gaming is also likely to see the arrival of at least one major new Far East operation, perhaps from China or from Korea, spilling over into the West. In Korea most of the successful games are Massively Multiplayer Online Role Playing Games (MMORPG) and that is not yet an off the shelf experience which translates to consoles ‘ basically it’s a PC experience, culturally based, but that might change.
The biggest driver for casual entertainment is boredom, and lots of boredom is found on the road, when commuting or waiting for children, work colleagues etc.. So platforms which are portable ‘ handsets and netbooks are natural platforms to develop for gaming. Games targeting these sectors successfully should go a long way to the idealistic position where gaming platforms are open, not closed. The Apple App Store, the Android App store and Nokia Ovi are all the right types of platforms for delivering a new generation of gaming, and this is likely to provide a platform for undermining all three of the existing gaming leaders, given the way they are tied to their existing business models.
Each of the existing platforms have different problems. Sony has yet to get the full power out of the Cell chip, co-developed with IBM, into its games ‘ but that means that the console itself is likely to outlast both the Wii and the Xbox. The Xbox is already looking underpowered and it may need a refresh sooner rather than later. The Nintendo Wii currently only has complacency against it, and the possibility of other casual gaming platforms.
It could even be a clever move, for IBM which supplied the core processing chips in all three platforms, once it has completed its exclusivity period with Sony, to offer an open reference platform for gaming, with the Cell chip and the Power range of processors being swappable. That could lower the price of entry for new console providers and we might see new entrants and no longer be limited to a closed three player market. Perhaps it could target cable set top and PC manufacturers with such a system, but not handsets. More likely the ARM processor will develop hooks into gaming graphics and the handset market will go down that route. The Cell would eat a mobile battery in 15 minutes.
But the console market is poised and has always been poised with one dominant market leader and two rivals scrapping it out for minor honors, neither monopoly nor open platform, and it will stay this way until at least the end of this generation, which still has some 4 or 5 years to go. After which consoles could conceivably evaporate, subsumed into a software layer inside multiple devices, and handheld games could simply be a chip inside the most popular handsets. It will be interesting at that time to see who is brave enough to give that a try.