It is, for the moment, just a conspiracy theory, and it goes something like this: Microsoft wants to get out of the games console business. It’s planning to package up the Xbox part of the Devices & Studios division and separate it off from the rest of the company, so it can be sold as a going concern. Who’s buying? Amazon, which views acquiring Xbox as a step towards dominance of the living room. If there’s anything to this theory at all, the coming year or two could see the end of Microsoft Xbox and a warm welcome for Amazon Xbox.
Let’s lay all the cards on the table. The evidence is sketchy and circumstantial. We know that Microsoft is looking at some pretty major strategic changes in the wake of the appointment of new CEO Satya Nadella. Nadella’s focus throughout his career has been on the business end of Microsoft – servers, cloud services and enterprise tools – which remains in robust health compared to the troubled state of the firm’s consumer divisions. Choosing him as CEO could suggest that the company is aiming for a future focused on enterprise tools and platforms, not consumer products.
Then there’s the man who wasn’t chosen as CEO, Stephen Elop. Elop used to work at Microsoft, then became CEO of Nokia. Now that Nokia is selling its mobile phone division to Microsoft, Elop is back where he started. Moreover, he saw himself as a strong candidate for the CEO job when Steve Ballmer resigned. With Nadella in the CEO’s chair, Elop’s consolation prize is that he’s taking over as head of Devices & Studios. That’s a logical choice, since Devices & Studios will include Nokia under its umbrella, at least to some extent, so Elop will continue running his old Nokia team alongside the Xbox and Surface teams at Microsoft.
Given that, it would perhaps be more surprising if Elop wasn’t put in charge of Devices & Studios. His presence ought to ease the transition as Nokia is absorbed into Microsoft, a major acquisition that’s likely to cause some indigestion along the way. However, during the CEO selection process, while Elop was still in the running, Bloomberg reported that he had some very interesting plans for the company if he was running it. The reported plans included, notably, a willingness to sell off business units Elop viewed as distractions from Microsoft’s main goals – business units including the Bing search engine and the Xbox. As logical as his new job at Devices & Studios may seem, you can’t blame people for raising an eyebrow when a man who supposedly wanted to sell off the Xbox division is put in charge of the Xbox division.
It takes two to tango, so how about the Amazon side of the deal? Well, whispers of Amazon’s keen interest in the games market have flown around for months now, including rumours that the company has discreetly hired a number of veterans from the games industry while keeping their involvement quiet – for now. Last month, Amazon bought games studio Double Helix, fresh from working closely with Microsoft to prepare Killer Instinct as a launch title for Xbox One. Something is afoot. Occam’s Razor suggests a “Kindle” console, an Ouya-style box under the TV linked to Amazon’s digital content platform, but given the plethora of Android consoles currently underwhelming the market and failing to gain a foothold, it’s not unreasonable to suggest that Amazon would want to make a much bolder move into the console space. Plus, Amazon certainly isn’t scared of making big acquisitions when it wants to open up a new market opportunity for itself – it’s hard to conceive of a cash value for Xbox, not least given how obfuscated the financials of the console business are, but I don’t doubt that Amazon could afford it if it really wanted to.
That’s it – that’s the conspiracy theory. I don’t deny for a second that the evidence, if you can call it that, is pretty thin. Microsoft is probably going to refocus on enterprise; a guy who wanted to sell Xbox is the new boss of that division, but he’s also the most logical choice for the job. Amazon is setting itself up for a big move into the games space and may (or may not) have hired some senior games people on the down-low. That’s the sum total of the evidence, and we should all bear that in mind. Even this article exists not to promote this theory, which I view as interesting but unsupported by the available information, but rather to evaluate, hypothetically, whether there is any real possibility of an Xbox spin-off and sale. In short, there’s no real evidence that Microsoft is going to do this thing, but it’s an interesting academic exercise to evaluate whether they could do it if they wanted, and whether a motivation to do so might exist.
So how hard, in theory, would it be to spin off and sell Xbox? The answer to that depends on what exactly Microsoft is proposing to sell. Xbox, as mentioned earlier, is part of the Devices & Studios division, which also houses Surface and will shortly be joined by Nokia. Some other odd things are rolled into this division, apparently. It was claimed last year that the patents which force Android device makers to cough up a fee to Microsoft for every handset they sell are held, for financial purposes, in Devices & Studios, thus accounting for a big chunk of the division’s revenue.
If Microsoft’s new management had come to view Xbox as a distraction that doesn’t fit with their new enterprise focus, one might reasonably ask if they’ll take the same view of Surface. That product which hasn’t performed well and has reportedly soured relationships between Microsoft and other hardware vendors, who aren’t terribly happy with the company from whom they license the Windows operating system suddenly being in direct competition with them. The company wouldn’t be happy about losing the patents related to Android, not least since Windows and Windows Phone presumably use the technology described by those patents as well, so that probably wouldn’t be included in any sale, but aside from that it’s plausible that Microsoft could sell the entire Devices & Studios operation, thus putting itself out of the hardware business entirely.
Alternatively, Microsoft could decide to hold on to Surface and simply divest itself of Xbox and the various Microsoft Game Studios operations. Surface would then be joined by Nokia in the much-reduced Devices division (no more studios!), which would be entirely focused on tablets and smartphones without the “distraction” of games. Such a disentanglement wouldn’t be terribly difficult, either. Xbox is actually fairly well divorced from the rest of Microsoft’s operations. Its operating system shares a visual language with the “Metro” interface of Windows 8 and Windows Phone, while various game-related elements of Microsoft’s other operating systems have also been given the “Xbox” and “Live” monikers. Bing, of course, runs on the Xbox dashboard. By and large, though, the technology and services which drive Xbox are divorced from the rest of Microsoft – although it’s worth noting that the much-vaunted Cloud functionality of Xbox One relies in part on Azure, Microsoft’s cloud services platform. Any buyout of Xbox would include various contracts ensuring that any Microsoft technologies or services upon which the console relies would continue to be provided to the new owner, so this would not be a major stumbling block.
A bigger question might be, would Microsoft even want to do this? That really depends how seriously you take the idea of “distraction”. Xbox One has had its thunder stolen by PS4, but is still selling well – and Xbox 360 was a major success. In fact, it’s the only success Microsoft has ever had in the consumer hardware space. Xbox proved Microsoft’s ability to create a great consumer brand and sell hardware to people. It’s a real bright spot in a few tough years for the company – especially compared to everything else it has attempted in the consumer space, from Zune and Surface to its latest operating system, Windows 8.
Why would you get rid of that? Well, you probably wouldn’t – but let’s brainstorm a motive. You could argue that Xbox is a bright spot that doesn’t have any real relevance to the rest of the company. Microsoft in the early 2000s wanted to reinvent itself as a consumer-facing company, but with Xbox being the only success in a small sea of failures, Satya Nadella is likely to try to bring the firm back to focusing on the enterprise market. As the oil tanker slowly turns around to head into more corporate seas, Xbox will be more and more at odds with the culture and mission of the rest of the company. It will arguably be a distraction both internally, where it won’t fit with Microsoft’s culture, and externally, where it will detract from a brand message that promotes Microsoft as a serious, corporate, business-focused partner for enterprise (as distinct from the more consumer-led branding of rivals Apple and Google). Selling off Xbox would generate cash (not that Microsoft needs it), streamline the company and start the new CEO’s tenure with a dramatic gesture that sets out his vision more clearly than any speech or press release.
In short, Microsoft could do this and, if we assume that upper management take the notion of “distraction” seriously and are genuinely willing to abandon the firm’s ambitions in the consumer devices space, there’s a motive for doing it. How about Amazon’s side of the table? This deal would cost billions; would Amazon stand to gain enough to justify that kind of outlay? After all, aren’t consoles a dying space? Plenty of pundits seem to expect that PS4 and XB1 will be the last generation of consoles. Would a company as smart as Amazon get sucked into a market that’s about to collapse?
Amazon, like Microsoft a decade ago, has major ambitions in the consumer devices space. The company built itself on the back of selling physical goods but has neatly sidestepped the so-called “innovator’s dilemma” by being more than willing to disrupt its own business. The world’s biggest seller of physical books became the world’s biggest promoter of ebook readers. Music downloads, streaming video, cloud services; Amazon has taken an active and enthusiastic interest in every field that might disrupt its existing businesses, seeking not to shut down threats but to be the biggest player in whatever comes next. It supplemented the Kindle e-reader with Kindle tablet devices whose market performance is largely unknown, but is thought by analysts to be one of the only genuine competitors to the iPad’s sales dominance. Anyone who owns a Kindle device knows that they are designed from the ground up to be a great interface to accessing and buying content from Amazon’s ecosystem. That’s Amazon’s play; own the media ecosystem, building the devices themselves if that’s what it takes.
That ambition is a pretty solid fit for the console business. Moreover, it can’t have escaped Amazon’s notice that Steam, PlayStation Network and Xbox Live together make up a big area of digital content provision in which it has no involvement right now. Amazon will also be paying careful attention to the interest around set-top boxes (like AppleTV and Google’s TV efforts) and Smart TVs. Here there’s huge potential for consumers to be accessing media ecosystems directly from their TVs and connected devices – again, a game in which Amazon has no skin. For Amazon, the ideal would be that when you want to watch or play something on your TV, you do so through Kindle interface that links right into Amazon’s digital library, just like the Kindle tablets work. Of course, an Android microconsole would achieve that goal, but it wouldn’t be of much interest to gamers – at best, it would capture a fringe of the market who engage with Kindle tablets.
Is appealing to gamers important? This comes back to the question of whether consoles are really dying – and honestly, who knows better about that question than Amazon? Amazon is the largest retailer in many countries. Not only does it see how many consoles and console games are sold, it also sees loads of connected information which is hidden from even game publishers. It knows how high-spending gamers are in other areas – whether they’re likely to buy a lot of gadgets, a lot of books, a lot of movies or albums. It knows how much they engage with the brands they love, whether they cross-promote to friends resulting in more sales, whether they leave reviews and promote products on social media. Amazon can make an estimation of the actual value of the core gamer market more accurately than any other company.
What is that estimate looking like? I don’t know, of course, but Amazon’s actions in the coming months are going to tell us a lot about it. Regardless of whether the Xbox conspiracy theory pans out, Amazon is going to make some kind of game-related move relatively soon. It will be interesting to see how much importance and focus the company places on the games space at that time.
Until we see more evidence, though, it’s impossible to construct a fully credible argument which places the future of Xbox anywhere but Microsoft. There’s simply not enough information out there to support that kind of conclusion. That said, there is a possible motive to sell on the part of Microsoft, and a possible motive to buy for Amazon. If I had to pin my colours to a mast on this, I’d say Microsoft is probably discussing a sale with interested parties, including Amazon, but hasn’t made a final decision on whether to start sale proceedings as yet. I also wouldn’t read too much into that, given that it’s the responsibility of management to consider such possibilities as part of their duty to the shareholders. Then again, under Microsoft’s new management, perhaps such things are being considered rather more seriously than before.
In a keynote conversation with Entertainment Software Association boss Mike Gallagher at the Digital Entertainment World conference, Electronic Arts COO Peter Moore talked about industry lessons learned as the business transitions more to digital games.
For now, games remain a hybrid of physical and digital, and the quick sales of the new consoles are enabling the industry to coalesce around two great platforms that offer a tremendous competitive environment, which ultimately benefits the market. While he believes the console sector’s in great shape, Moore does see mobile gaming thriving, and digital revenues should surpass that of physical game sales in just two years, he said.
Looking back at the music industry’s transition to digital (which it still hasn’t recovered from), Moore said that the games industry must embrace “creative destruction” – there’s nothing an industry can do to stop a shift in consumer tastes and habits. The most important thing for EA – and much of the industry is headed this way with the digital transition – is that games are becoming live operations. That means they require a massive infrastructure with customer service and global billing. Moore noted that it’s a completely different industry now, with a global network running live ops, and gamers deserve their games to be always up and available, and it’s EA’s job to provide this access. Moore acknowledged that EA is still learning a lot about what that takes.
The online environment has been incredibly valuable to EA in building a direct customer relationship. Moore said that EA’s customers used to be the retailers, but now they’re the gamers. In fact, EA has tripled its customer facing support staff resources in the last five years. It’s changing how the publisher interacts with, and markets to, gamers. He eschews “marketing” and prefers “engaging”. Social media has become crucial to success, and Moore noted that on Twitter a gamer will get a response from EA within 30 minutes to resolve a problem.
On the marketing end, Moore said that EA’s TV spend is down 20 percent while the company has actually doubled its digital spend and engagement. Social media and community management are changing the rules. Don’t spend tens of millions on TV to see if it lifts sales, Moore said; instead game companies can more effectively use digital channels and focus on performance-based marketing.
“TV ads today are chum in the water. It attracts customers, then reel them in with digital media so you can engage instead of pushing a message out,” he remarked.
It’s pretty hard to figure out exactly where the new generation of consoles stand in terms of sales right now, but the general picture is clear. PS4, still supply constrained in many markets, leads Xbox One by at least a million consoles sold, possibly as much as two million – so the oft-cited ratio of 1.5:1 seems to be holding. Assuming little else changes, that ratio will tip even further in Sony’s favour in the coming weeks, with the PS4 finally launching in Japan, a market where it can expect to sell very strongly – although I wouldn’t expect to see the dominant 3DS removed from the top of the hardware charts for too many weeks. Meanwhile, Nintendo’s rather less successful console, the Wii U, continues to lose ground to both of the newcomers and will likely be surpassed in overall sales by Sony sometime this month (if it has not been so already) and by Microsoft within the next quarter.
It’s important to put this in some context – the Xbox One would look like a pretty successful console launch if it wasn’t stacked up against the PS4, but eyebrows would still be raised over the slackness in demand for what would be expected to be a fully supply constrained launch. Meanwhile, Wii U’s performance wouldn’t look great in any reality, but certainly wouldn’t be attracting the current degree of fainting and pearl-grasping were it not being compared to the extraordinary success of its own predecessor, the Wii.
“I’d argue that the real problem with these innovative pieces of kit isn’t that they’re inflating the price – the real problem is that they are, so far, utterly pointless”
The only console among them which resists any attempt at contextual negativity is the PS4, which is performing incredibly well. Hardly anyone has a bad word to say about the PS4, other than “I can’t find one to buy” – the hardware has turned out to be very solid; the online services (PS Plus in particular) are well-liked; and Sony’s approach of wooing key indie developers to the console for launch period has helped to stock the console with early adopter friendly titles which generate plenty of goodwill as the wider market waits for big AAA hits to filter through. Giving several of these games away on PS Plus, especially while new owners are in their freebie period, has also been a great move.
It’s hard to argue against a surface reading of this situation which says that Sony has executed superbly on its product while Microsoft and Nintendo have stumbled. Nintendo dropped the ball on Wii U software for its first year, arguably at least, and made a mess of marketing its new console – just as it initially did with the 3DS, which makes me wonder exactly what compromising pictures of Iwata the firm’s amazingly still-not-fired marketing bosses are keeping in a concrete bunker somewhere. Microsoft lost the trust and goodwill of a huge swathe of the early adopter audience, especially outside the USA, when it announced the Xbox One as a TV-watching box, compounded its error with a horribly anti-consumer policy on used software, then changed its mind on the latter (a good thing, but much damage was already done) and botched the execution of the former. Now it’s got a mountain to climb to restore goodwill, a console that’s $100 more expensive than its well-liked rival and a fresh salvo of unflattering technical comparisons between the systems emerging each week – a tough position, to say the least.
I think that beyond that surface reading, there’s something more fundamental at work – a level on which both Nintendo and Microsoft made the same mistake. Sony’s PS4 isn’t just superbly executed, it’s also conservative. It’s a powerful console with great engineering behind it, a great OS and network services, and a superb messaging strategy in which Mark Cerny and Shuhei Yoshida, who are actually at the coalface of developing the system and its software, have been allowed to take very public roles and to speak openly and honestly. That’s all fantastic, but PS4 is also very clearly an evolution of what came before. In architectural terms it’s vastly different from PS3, of course, but from a consumer standpoint – here’s a black box that you stick discs into and then play them with a Dual Shock pad. You can play with your friends online, and even buy games online, but arguably the only real departures from the traditional console model lie with the online services – PS Plus (which existed on PS3 as well, of course) and video streaming.
Xbox One and Wii U are less conservative, because both of them make some effort to change the interface and context of videogames. Xbox One includes a vastly updated and improved Kinect motion sensor, which shoulders the brunt of the blame for the console’s inflated price tag. The sensor, like its predecessor, is designed to map and understand the movement of human bodies around the room in front of it – unlike its predecessor, it actually appears to be capable of doing so very well. The Wii U, meanwhile, includes the GamePad, a touchscreen controller that lets you play games even while others are watching something else on TV, but more interestingly, also creates a second screen for gameplay and has potential uses in asymmetric multiplayer, wherein one player uses the screen to set up a game while others use Wii Remotes to tackle the challenges being created.
Both of these things are interesting. Both of these things, inevitably, inflate the price of the console to which they’re attached. Both Wii U and Xbox One could seriously do with being $100 cheaper than they are right now – such a price cut wouldn’t be the end of their woes, especially in the case of Wii U, but it would level the playing field and make everything much more interesting. Yet I’d argue that the real problem with these innovative pieces of kit isn’t that they’re inflating the price – the real problem is that they are, so far, utterly pointless. Not only have both Microsoft and Nintendo failed to create software that effectively capitalises on the potential of Kinect or the GamePad, both firms have also completely failed to explain the devices to consumers in a way that stands any hope of making them excited about such potential. The very fact that the first reaction of many consumers and commentators to weak sales from these consoles is “get rid of Kinect / the GamePad!” is a demonstration of just how badly communication, explanation and demonstration of these features has failed.
It could be, of course, that the features themselves just aren’t much good. I think the potential of the GamePad remains to be tapped, but have some sympathy with the argument that Kinect, even in its vastly upgraded Xbox One incarnation, is a solution for which no readily apparent problem can be found. Certainly its present function, as an utterly sub-par way of controlling the console’s menu functions and an occasional shoehorned annoyance in games, does little to explain why this expensive piece of hardware is a mandatory part of Xbox One – yet I know that there are plenty of enthusiastic and intelligent games people at Microsoft, and there must be a genuine belief that Kinect 2 can deliver unique and worthwhile experiences that won’t be possible on other consoles. The problem is that, just as with the thus-far largely meaningless GamePad, Microsoft has failed to demonstrate or articulate just what those experiences will be.
In short, I think consumers are confused about what exactly Nintendo and Microsoft want to sell them. Sony’s proposition is clear – it’s a much-upgraded and improved successor to the PS3, which was a much-upgraded and improved successor to the PS2, and so on. Nintendo and Microsoft make claim to be something more than that, then mumble incoherently when asked what exactly they mean, or what precisely they’re proposing to achieve.
It feels like both companies want to bottle some of the magic which fuelled the Wii to such great heights in the last generation, but they’ve forgotten that the real magic of the Wii wasn’t actually the Wiimote – it was Wii Sports. In one superbly crafted game, bundled free with the console in many territories, Nintendo explained exactly what the Wii was for. A few minutes with Wii Sports showed anyone and everyone what the Wiimote was designed to do and how it would change the game experience. Moreover, it set out a clear agenda for the console as a whole – a social machine, a family machine, an accessible machine. Wii Sports wasn’t just a game, it was a powerful demonstration, a mission statement and perhaps the greatest piece of marketing anyone in the games industry has ever crafted.
The Xbox One and the Wii U both have their Wiimote, but neither has their Wii Sports. One of Satoru Iwata’s big pledges in his mea culpa speech after Nintendo’s projections were downgraded was that the firm would double down on the GamePad, creating software and marketing that would explain the controller better to the public. If that means finding the Wii U’s Wii Sports, it will absolutely be a worthwhile effort – it doesn’t have to mean establishing the Wii U in the same market as the Wii, but making a clear mission statement for the console would definitely help. Microsoft, too, needs some of that focus. Right now, Kinect 2 is not differentiating Xbox One in the marketplace – it’s just hanging around the console’s neck like a deadweight. Unless Microsoft can find the software and the messaging required to make Kinect into a real system-seller, its mandatory inclusion may go down as one of the worst self-inflicted wounds of any console battle in history.
In a new Wedbush report that spans nearly 170 pages, providing a comprehensive overview of the past, present and future of the video game marketplace, the firm discusses why the next generation “will be as big as ever” and how the industry’s growth actually makes it more appealing to investors than other entertainment businesses.
While analyst Michael Pachter acknowledged that the current console transition is “one of the most difficult” for publishers, he ultimately sees the new consoles spurring big growth for the industry as software sales take off in the next several years. Combined U.S. and European software markets are forecast to grow at a 9 percent CAGR over the 2014 – 2016 period, totaling console software sales of $12 billion in 2014, growing to $14 billion in 2015 and to $15 billion in 2016. Handheld software sales (DS, 3DS and PS Vita) are expected to remain flat at approximately $1.6 billion per year over the three-year period.
The continued growth of the business is another reflection of a maturing industry and a maturing audience that’s growing older, earning more and spending more on games.
“Several demographic trends and market drivers should fuel rapid growth of interactive entertainment software sales. We believe the most compelling of these trends is the expanding age demographic of the interactive game consumer, accompanied by an increasing level of disposable income and the propensity to spend that income on entertainment,” noted Pachter.
Importantly, many of these people are choosing to spend on games above other entertainment, and that’s something investors should pay attention to. “We believe that the interactive entertainment industry offers secular dynamics that will provide extended and sustainable growth. We believe several publishers stand poised to capitalize on this growth, providing investors with an opportunity to participate,” Pachter said.
“Both Sony and Microsoft should deliver substantial profits from their gaming businesses over the next several years”
“Console, handheld and PC video games comprise a significant portion of overall entertainment industry sales, we believe comparing favorably with other mainstream entertainment products such as movies, books, and music. With comparable size and growth at a faster rate than these competing forms of entertainment, we expect the interactive entertainment software sector to present a compelling investment opportunity over the next three to five years.”
Wedbush believes interactive entertainment software sales will grow around four percent annually in the next three years, and the firm expects interactive entertainment to grow faster than other U.S. entertainment sectors over the next five years. Wedbush is modeling growth of just zero to two percent for other entertainment products sales over the same time period.
“Using our projected growth rates, we forecast that the U.S. interactive entertainment industry in 2016 will continue to be larger than books, box office and music… It is important to consider video game software purchases in the context of all entertainment spending. When books, music, movies and video games are added together, total U.S. spending on entertainment content totaled over $65 billion in 2013. The portion spent on video game software, at around 11 percent of the total, has the potential to grow at a faster rate than any of the other entertainment categories for many years to come,” Pachter explained.
For the current year, Wedbush expects PS4 to sell another 12 million units, Xbox One to sell 9 million, and Wii U to sell 3 million. More important than who “wins the console wars,” however, is which companies can maintain profitability. Pachter noted that Microsoft and Sony should do well on that front compared to a struggling Nintendo.
“Given its very slow console sales, Nintendo appears destined to see its console software sales and royalty stream markedly lower than in the last cycle, and we are skeptical that it will make a profit from its console business during the next generation,” he said. “At our projected sell-through rate, we expect both Sony and Microsoft to be very profitable in the next generation. Notwithstanding their relative projected market shares, we expect both companies’ console penetration to substantially exceed their penetration in the current generation console cycle, primarily due to market share gains from Nintendo.”
He continued, “If our estimates are close to the mark, both Sony and Microsoft will likely be profitable on each console sold, and their respective games divisions will at worst break even. More importantly, Sony and ￼￼Microsoft earn royalties on every game sold for their respective consoles; our forecast calls for 294 million cumulative PS4 software units and 227 million cumulative Xbox One software units sold by the end of 2016, with an average of $8 – 10 in profit for each unit booked by each company. Both their multiplayer networks and their royalty businesses will provide a recurring revenue stream at a very high dollar margin (the respective networks require a high level of capital and support spending, while the royalty businesses bear little cost), meaning that both Sony and Microsoft should deliver substantial profits from their gaming businesses over the next several years.”
There’s plenty more in the full report at the link above. It’s an interesting read if you have the time.
While many video game publishers are racing to embrace the mobile world – and seeing some significant earnings in the process – Take-Two Interactive Software CEO Strauss Zelnick is moving cautiously.
There’s certainly potential in the market, he concedes – but, so far, the hardware isn’t where it needs to be to be a proper showcase for the company’s games. And he’d rather wait than make compromises.
The experience Zelnick has in mind has already been showcased a few times. Older Grand Theft Auto games have been ported over – and last year, the company transferred XCOM: Enemy Unknown to the mobile world.
“As tablets become more powerful, I am of the view that they’ll be a wonderful gaming platform – but they’re not quite there yet”
XCOM was notable in that it wasn’t a drastically altered adaptation of the game, but rather a complete transfer of the PC and console experience to a mobile device. The game garnered great reviews and was able to command a premium price – and that’s what Zelnick wants to do with other titles in the company’s current catalog.
“We don’t differentiate between mobile and not mobile,” he says. “As long as we can distribute a game in a high-quality version – and as long as the consumer wants to interact – we’re happy to be there. … We’re not a platform company. We’re a content company.”
When it comes to newer platforms – specifically, the Xbox One and PlayStation 4 – Take-Two is pretty happy, though. While the company has only put out one game for the systems (NBA 2K14), sales were strong and Zelnick says he’s “thrilled with how the new consoles have sold so far”.
At present, Take-Two has more than 10 games in development for next generation systems – but it’s not saying much more than that. Evolve, WWE and the next NBA2K are announced, but otherwise, the company’s pipeline is a mystery.
That extends to its crown jewel as well. Despite plenty of speculation, Zelnick wouldn’t address whispers about a PC or next-gen version of Grand Theft Auto V. And he knows how much that agitates fans and investors.
What’s unlikely is that many – if any – of those games will make it to the Wii U. Zelnick has never been a vocal cheerleader for Nintendo, noting that the Kyoto-based company’s mission and Take-Two’s games don’t mesh well. But with the Wii U floundering in the market, there’s less incentive to consider the system.
“We haven’t talked about specific titles in development, but we’ve said our strategy is to meet consumers where they are,” he says. “If they’re buying hardware, we’ll be there with software. That said, we make these really big, AAA titles that work on some platforms, but not others.”
“Oculus Rift was a big smash and wonder at CES – and our folks were very impressed with it”
The hesitation to commit to the Wii U shouldn’t be misunderstood as a reluctance to branch into new areas. Zelnick notes that the Oculus Rift is a device the company is keeping a close eye on, even if it hasn’t made any formal announcements regarding software for the device.
While Zelnick hasn’t personally had a chance to test the hardware (something that’s not entirely surprising as he often describes himself as “a suit, not a gamer”), he’s encouraged by what he hears from Take-Two employees.
“Oculus Rift was a big smash and wonder at CES – and our folks were very impressed with it,” he says. “It remains to be seen what we can do with it, but [Oculus] has already addressed some of the big challenges (such as users getting motion sick) that it faced early on. … I’m encouraged by anything that gets people more engaged with interactive entertainment.”
While Rockstar Games’ Leslie Benzies, Dan Houser and Sam Houser will be celebrated later this month at the D.I.C.E. Summit, receiving inductions into the AIAS Hall of Fame, Take-Two suffered something of a staffing blow last month, when Rod Fergusson, who was heading up a new studio for 2K in the Bay Area, defected to Microsoft to run the Gears of War franchise.
While there has been speculation about the fate of the Bay Area studio in the wake of that departure, Zelnick says those fears are overblown.
“We think the world of Rod, but he chose to move on,” he says. “We have a big studio out there with terrific leadership. I was saddened to lose Rod, but they’re full steam ahead on their project.”
Nobody seems to be terribly happy about the new Dungeon Keeper game. That’s a sentence I hoped I’d never write, given how much I loved the original Bullfrog games – but that fact alone places me firmly within the least happy demographic of all: the original fans of the franchise. The rest of the unhappy parties can form an orderly queue behind us; that means you, game critics who think the game is terrible, mobile gamers who think it’s not nearly as good as its most obvious inspiration, Clash of Clans, F2P advocates who could do without another awful example being used to unfairly crucify the entire business model, and, well, EA themselves, I expect.
Lots has been written about Dungeon Keeper in the week since it launched, almost all of it deeply critical and a good deal of it entirely fair. Dungeon Keeper is a nicely presented but mediocre game in the mobile/F2P genre it inhabits. Within the franchise it inhabits, however, it’s a disastrous, idiotic travesty of a thing, a game whose design process wouldn’t be out of place in the imaginative dungeons of the original titles – involving, as it did, the snapping of limbs and crunching of bones in order to stuff the screaming body of a much-loved core gamer title into a box that is distinctly too small and painfully the wrong shape. It’s enough to make a Dark Mistress’ eyes water.
I like the free to play business model, in principle. More than that – I think the free to play business model, still in its infancy and thus still making countless mistakes, is actually an inevitable step for the games industry. It’s not going to replace other business models, which will continue to be a better fit for certain types of game and certain types of audience, but it’ll probably be the most important and profitable business model in future (some would argue, convincingly enough, that it already is). From the moment it became possible to distribute games for free, it was certain that someone would do that, and devise a system for making money later, once an audience had been built up. Under the circumstances, carefully considered and ethically implemented F2P is probably the best, and fairest, system possible.
So I reject the notion that Dungeon Keeper is an illustration of F2P’s intrinsic evils. It’s not, any more than any number of terrible boxed games were an illustration of intrinsic evils of the retail game business model. F2P isn’t intrinsically evil or bad, but it’s open to abuse – just like the old boxed game model was plenty open to abuse, as you’ll know if you’ve ever preordered an expensive game only to find that reviews were withheld until after launch, previews had been based on glimpses of unrepresentative sections of the game, screenshots and trailers were a cocktail of lies and the whole thing is actually a massive stinker. F2P trips up more often because it’s new and many developers are still feeling out the parameters of the business model – and moreover, because it requires developers whose core skill is designing games to also design a business model in tandem with their game, which is a new skill that doesn’t necessarily come naturally.
That means that if we’re being reasonable, rather than just howling pointlessly into the wind because it makes us feel better, we need to consider Dungeon Keeper not as an omen of doom but as a learning exercise. It’s obviously a mess. It’s disappointed lots of people and made a core group of those people – people who ought to have been its most rapt advocates – very very angry indeed. But why is it a mess? What does Dungeon Keeper actually do wrong?
You could say “microtransactions”, and you’d be right in one sense – it does microtransactions wrong, but not because microtransactions themselves are intrinsically wrong. Plenty of games handle them rather nicely and fairly. Supercell’s games are pretty good examples – Hay Day is, I think, the only F2P game I’ve bought premium currency in, and I’m perfectly happy with the few quid I spent there, as I knew perfectly well what my money was buying and what the alternative was to acquire the things I wanted in-game. I mentioned last week my Japanese friend who has spent the equivalent of $500 in Puzzle & Dragons, and doesn’t regret it in the slightest – from my own experience, P&D, the biggest-grossing F2P game in the world, is also scrupulously fair and up-front about its micro-transactions, and generous to a fault at handing out premium currency for free, thus allowing you to save up for things you want instead of feeling forced to fork out.
Those games – and Clash of Clans, the Supercell game to which Dungeon Keeper owes much of its genre heritage – get F2P microtransactions right. Even Candy Crush Saga, a game which I personally dislike quite intently (I think that describing yourself as a puzzle game and then confronting the player with randomly generated levels which are actually impossible to solve is a miserable failure of fundamental game design), is far from being abusive in its approach to microtransactions; a solid majority of players who complete all its levels do so without ever spending any money. I played Clash of Clans for months without spending, and I’m coming up on a year in Puzzle & Dragons without spending – both of which I still find fun, and both of which, I think it’s fair to say, are genuinely living up to the promise inherent in the words “free to play”. I’m quite convinced, incidentally, that they’re among the world’s most profitable games precisely because they allow most players to continue enjoying them for free, rather than in spite of that seemingly foolish generosity.
Dungeon Keeper isn’t a generous game. It’s a grasping, unpleasant game – which is a shame, because with a more likeable, generous approach to its players, it wouldn’t be a terrible game. It’s certainly among the better of the Clash of Clans clones, a multitude of which fill the App Store with game mechanics and art styles shamelessly copied from Supercell’s hit and absolutely zero effort at innovation. Dungeon Keeper – though I say it through gritted teeth, since the franchise abuse still rankles – has the guts of a decent mobile game that builds worthwhile variation onto the Clash of Clans formula. The problem is, you advance through that experience at a snail’s pace, halted every few seconds by a glowing gem icon that invites you to spend expensive premium currency to speed up your progress. That premium currency itself arrives in an absolutely miserable trickle, rendering the notion of saving up to buy things into a sad joke.
Slowing down progress to encourage players who are really engaged with the game to spend a bit of money to advance is a core tenet of F2P design. Some people hate that, which I perfectly understand, but it’s not necessarily the end of all things – it’s worth pointing out that lots of non-F2P games also stretch out tasks artificially for a variety of commercial and gameplay reasons (I’d point to World of Warcraft in the first instance and Animal Crossing in the second as good examples of this). The point is that in doing this, designers need to make sure they’re not compromising the fun of the game, and err on the side of generosity rather than grasping. Dungeon Keeper fails these tests. It starts asking for money almost straight away, long before any player has a chance to become really engaged or engrossed in the game, and continues to wheedle at players to pay up on an ongoing basis, ramping up within a couple of days to the point where it’s taking 24 hours to complete simple tasks like digging out a square of rock, and literally weeks to finish a tunnel or room unaided by a dip in your wallet. Good F2P design is about making people really love your game and then giving them opportunities to spend money on it. Dungeon Keeper is a grubby chancer who tries to steal your wallet before the main course has even arrived on your first – and last – date.
There’s an even more fundamental problem at work here, though. Making a bad, greedy F2P game with the beloved Dungeon Keeper license is inexcusable – but to be honest, making any kind of F2P game with this license was a terrible idea. Dungeon Keeper is an old franchise, one which never came to consoles – making it much loved by a significant group of gamers who are older and significantly more “core” than the primary market for mobile F2P games. If you weren’t a PC gamer in the 1990s, Dungeon Keeper has almost certainly passed you by entirely. On the other hand, if you were a PC gamer in the 1990s, I think it’s fair to generalise and say you’re probably firmly in the camp that by and large dislikes microtransactions and considers F2P in general with suspicion – suspicion which you’ll consider to be all but confirmed by Dungeon Keeper’s many transgressions.
So why did EA do this? What on earth did they believe they stood to gain from resurrecting a franchise like this in a form which would be utterly despised by the only people who recognise it, while the potential audience it might reach successfully – gamers who like mobile F2P and are looking for something different in flavour and approach to Clash of Clans – will have zero brand recognition with Dungeon Keeper, but may be dissuaded by the outpouring of one-star scores on the App Store with which gamers are registering their dislike. Note too that while it’s conventionally and reasonably held that the specialist games media has no impact on mobile game performance, the hatred for Dungeon Keeper has spilled over into the mainstream press – and while “no publicity is bad publicity”, newspaper articles accusing your game of greedy monetisation tactics aren’t the ideal way to introduce it to the public at large, while Google results populated with fiery critique and all manner of accusations don’t help much either.
Ultimately, EA could have avoided this by making essentially the same game (although doing a lot more careful consideration of monetisation tactics and trying not to destroy the game’s hopes of retaining players by being too greedy too early wouldn’t go amiss) without the Dungeon Keeper brand and the vaguely ghoulish overtones of corpse-robbing that go with Dungeon Keeper’s pilfered, ill-matched mechanisms and characters in this game. Alternatively, it could probably have made quite a decent commercial success out of a premium-priced Dungeon Keeper game carefully updating the original and launching on Steam and iPad – a game with a significant built-in audience and a huge store of goodwill, much of which has now been squandered. It could even have included some IAP further down the line for deeply devoted players, although more in the line of cosmetic items and so on than game-changing consumables. Hell, EA could have done both of those things, resuscitating a much-loved franchise and creating a brand new F2P franchise, thus ending up with two successful IPs rather than one battered, bruised and sorely abused one.
This comes back to a point I made earlier – there is an audience for F2P, a huge audience with a significant amount of spending power, but it’s not the only audience (even if it’s the biggest). There are other audiences who crave other genres, other business models, other price points. The notion that the vast expansion in the demographic reach of videogames is going to be attended by an absolute contraction of the possible business models for videogames is a transparent nonsense – F2P is an inevitable and by no means negative consequence of the reduction in distribution costs to (just about) zero, but it’s not the only business model or price point enabled by recent technological change. The first challenge for designers, producers and executives in this new era is to figure out what business model best fits the franchise, the genre and the audience for your project. EA isn’t the first company to fail that challenge, nor is Dungeon Keeper the last game which will do it – but for those of us with fond memories of Bullfrog’s glory days, this is the one that leaves the most bitter taste. The lesson, however, must not be “F2P is bad” – it must be, “Do F2P where appropriate, do it with care, and do it well”.
Nintendo has issued a detailed and far-reaching response to the pervasive concerns about its future as a business.
In a meeting with investors, Nintendo president Satoru Iwata outlined the company’s strategy in both the short-term and as far ahead as 2016. From changing the fortunes of the Wii U to evolving the way we think about game consoles as a concept, Nintendo displayed striking candour in its attempt to allay the criticisms it has received since it drastically reduced its sales forecasts earlier this month.
However, Iwata was clear about one thing from the outset: regardless of what followed, there are certain aspects of Nintendo’s business that will not change, namely the frequently proposed idea that it should take its IP stable to new platforms.
“Dedicated video game platforms which integrate hardware and software will remain our core business,” he said. “Naturally, we are moving ahead with research and development efforts for future hardware as we have done before, and we are not planning to give up our own hardware systems and shift our axis toward other platforms.
“Dedicated video game platforms which integrate hardware and software will remain our core business… We are not planning to give up our own hardware systems and shift our axis toward other platforms”
“From a medium- to long-term standpoint…we don’t believe that following trends will lead to a positive outcome for Nintendo as an entertainment company. Instead, we should continue to make our best efforts to seek a blue ocean with no rivals and create a new market with innovative offerings.”
Here are the key points from Iwata’s presentation
The Wii U is Nintendo’s top priority
It is no secret that Nintendo has struggled to repeat the success of the Wii with the Wii U, but Iwata reassured investors that it has no intention of abandoning its ailing console. The possibility of a further reduction in price was ruled out immediately, with Iwata instead emphasising the company’s ongoing failure to adequately demonstrate the value of the GamePad controller, and to distinguish the console from its hugely popular predecessor.
“By looking at the current sales situation, I am aware that this is due to our lack of effort,” he said. “Our top priority task this year is to offer software titles that are made possible because of the GamePad… We have managed to offer several of such software titles for occasions when many people gather in one place to play, but we have not been able to offer a decisive software title that enriches the user’s gameplay experience when playing alone with the GamePad. This will be one of the top priorities of Mr. Miyamoto’s software development department this year.”
Iwata offered a strong first-step by setting an official May release date for the release of Mario Kart 8, but he also indicated that Nintendo’s development teams would focus on the GamePad’s near-field communication (NFC) function – the same basic technology as that used in lucrative franchises like Skylanders and Disney Infinity. Iwata promised more details of its plans for NFC at E3 in June.
The end of “device-based relationships”
While many have cited the Wii U as evidence of Nintendo’s failure to respond to the changes in the games industry since the launch of the Wii, Iwata stated that the company has already laid the foundations for a fundamental shift in the way it thinks about its products.
Before now, Nintendo had “device-based relationships” with its customers. This was mitigated somewhat by the strength of its software IP, but fundamentally the link with any given consumer followed the lifecycle of each piece of hardware. “We became disconnected with our consumers with the launch of each new device as we could only form device-based relationships,” he said.
However, the Wii U saw the introduction of “Nintendo Network IDs,” an attempt to create “account-based” customer relationships that could continue across different hardware platforms and generations. In the future, Iwata said, “connecting with our consumers through NNIDs will precisely be our new definition of a Nintendo platform.”
With this in mind, Iwata was able to put an end to the speculation around Nintendo’s strategy for smartphones and tablets. He made it quite clear that Nintendo has no plans to release its games on smart devices, but it does intend to use them as a way to communicate and build relationships with new audiences. Iwata offered few details of how the company intends to accomplish that goal, but he indicated that it would include a mobile app that leveraged Nintendo’s existing IP to raise awareness of its hardware and software.
“I have not given any restrictions to the development team, even not ruling out the possibility of making games or using our game characters. However, if you report that we will release Mario on smart devices, it would be a completely misleading statement. It is our intention to release some application on smart devices this year that is capable of attracting consumer attention and communicating the value of our entertainment offerings.”
Flexible pricing for existing and emerging markets
The existence of NNIDs and account-based relationships will also give Nintendo the ability to alter the way its products are sold. Iwata highlighted the company’s role in establishing the model of selling a console for several hundred dollars and individual games for fifty or sixty dollars, but Nintendo now recognises that this model is no longer viable in the long-term.
The first aspect of this that Nintendo intends to challenge is the fixed price-point of software. Iwata suggested a system where the price of a games could be tailored to individual customers based on their NNIDs: someone who purchased five games in a year might pay less and less for each one, for example, or there might be incentives tied to recommending a game to a friend.
“If we can achieve such a sales mechanism, we can expect to increase the number of players per title, and the players will play our games with more friends. This can help maintain the high usage ratio of a platform… Nintendo aims to work on this brand-new sales mechanism in the medium term, but we would like to start experimenting with Wii U at an early stage.”
“While we will continue to devote our energy to dedicated video game platforms, our first step into a new business area is the theme of ‘Health’”
This flexibility will also extend to emerging markets for gaming across the world. Nintendo is a globally recognised brand, but Iwata conceded that the price of its products has put them beyond the reach of people in certain countries. While Iwata didn’t mention any specific regions, he is likely referring to countries like Brazil and India, where the interest in gaming has increased in concert with the disposable income available to the population.
“To leverage Nintendo’s strength as an integrated hardware-software business, we will not rule out the idea of offering our own hardware for new markets. But for dramatic expansion of the consumer base there, we require a product family of hardware and software with an entirely different price structure from that of the developed markets.
“We aim to connect with consumers who do not own Nintendo’s video game systems yet, which will play an important role in cultivating new markets. Once we can establish such a connection with consumers in these nations, we will be able to use smart devices to share our information as well as important content distribution infrastructure. We plan to take significant steps toward such a new market approach in the year 2015.
Going beyond games
There may be no chance of playing Super Mario World on an iPad anytime soon, Iwata did state Nintendo’s interest in making money from its IP outside of first-party video games. Nintendo has always been very cautious of damaging its iconic characters through excessive merchandising and licensing, but one need only look at Rovio’s Angry Birds to see how much profitable such deals can be. Indeed, Iwata attributed the strength of Nintendo’s IP stable to that very reluctance, but, he said, “we are going to change our policy going forward.”
“To be more precise, we will actively expand our character licensing business, including proactively finding appropriate partners. In fact, we have been actively selling character merchandise for about a year in the U.S. Also, we will be flexible about forming licensing relationships in areas we did not license in the past, such as digital fields, provided we are not in direct competition and we can form win-win relationships.
“By moving forward with such activities globally, we aim to increase consumer exposure to Nintendo characters by making them appear in places other than on video game platforms.”
Nintendo’s new business idea: Health
Iwata closed the presentation with Nintendo’s planned entry into an entirely new area of business, one that will provide the “blue ocean” the company so desperately needs.
“While we will continue to devote our energy to dedicated video game platforms, what I see as our first step into a new business area in our endeavour to improve [quality of life] is the theme of “Health.” Of course, defining a new entertainment business that seeks to improve [quality of life] creates various possibilities for the future such as “learning” and “lifestyle,” but it is our intention to take “health” as our first step.”
Again, exact details of what this focus on health will entail were not provided, but Iwata described the concept as “an integrated hardware-software platform business” that will use the company’s experience making products like Wii Fit, Brain Age and the Touch Generations series as a springboard for a more pervasive and persistent initiative.
“We will be able to provide feedback to our consumers on a continual basis, and our approach will be to redefine the notion of health-consciousness, and eventually increase the fit population… I feel that not only can this [quality of life]-improving platform utilise our know-how and experience about video game platforms, but also we can expect it to interact with games and create a synergistic effect.
“While we feel that this is going to take two to three years after its launch, we expect the [quality of life]-improving platform to provide us with new themes which we can then turn into games that operate on our future video game platforms, too. Once we have established such a cycle, we will see continuous positive interactions between the two platforms that enable us to make unique propositions.”
Iwata promised to announce more details this year, and confirmed that the new business will officially launch during the fiscal year ending March 2016.
AMD revealed Mantle to the world at its Hawaii launch event and at the time it promised support for the new API would come to Battlefield 4 sometime in December. In December, AMD said the API would show up in January.
Now though, it appears that the delay may be somewhat longer. Late yesterday Extremetech reported BF4 support would finally land in February. AMD’s Robert Hallock denied the patch is coming in February, but he didn’t say it is coming in January, either. If it is, it’s coming by Thursday. If it is not, that’s very bad news for AMD given the scale of its PR onslaught.
Back at CES the company talked up Mantle in an elaborate demonstration, featuring Oxide Games and DICE products. AMD claimed Mantle would deliver a significant performance boost over DirectX, up to 45 percent in certain scenarios. Since Mantle is not available yet, it is impossible to put these very optimistic claims to the test.
Mantle won’t be a game changer, but if it is embraced by major developers, it could give AMD a competitive edge both in discrete and integrated graphics. Intel has been making headway in the graphics department and it is closing the gap with AMD APUs with its latest Iris series GPUs.
Mantle could be AMD’s trump card, a cheap way of making its APUs more competitive without wasting silicon, but for this to happen Mantle needs to be embraced by developers. It is very promising, but at this point there are quite a few “ifs” associated with Mantle.
In case those who committed to becoming an early adopter of either the Xbox One or PlayStation 4 have not noticed, there isn’t much new content coming for your new console to play till early February. That’s right; if you get sick of playing the games that have already been released for the two consoles and the limited amount of downloadable titles, you are out of luck.
It always takes a while for developers and publishers to crank up production for the new systems, but the unprecedented lack of titles being released till February has many owners of the new consoles shaking their heads. Not that the number of games released around the launch of the two consoles was small, but December and January didn’t offer much in the way of new games to play.
When February rolls around it will see the new LEGO Movie game, Plants vs Zombies Garden Warfare, Rayman legends, and Thief all get released; as long as none of them end up being delayed. March looks much better, with release (of course) of Titanfall for the Xbox One and Xbox 360, as well as Metal Gear Solid V: Ground Zeroes and LEGO The Hobbit already slated to drop. PS4 fans can to look forward to Driveclub and iNFAMOU Second in March, as well as exclusives to that platform. We are not sure if those two titles will address the disappointment of not getting Titanfall on the PS4, but it can’t hurt.
One very interesting offering coming at the end of January is Tomb Raider – The Definitive Edition, which could end up being an excellent seller just by virtue of its release date. The Definitive Edition which will be available for both the Xbox One and PlayStation 4 is said to be re-mastered to deliver a next-generation gaming experience on both platforms. It will deliver 1080p graphics, enhanced physics, all of the previously released DLC content, as well as a number of subtle improvements over the original release. The reboot of the franchise was very good, and the re-release for the Xbox One and PlayStation 4 looks to be a worthy pickup if you didn’t play it first time around.
For those wondering what the future really holds, you are going to have to wait till E3 in June when the publishers and developers let us in on their schedule for releases for the rest of the year. While we expect the number of releases overall this year for both platforms to be rather thin, we do think that both companies have a number of surprises in the pipeline; but it is doubtful that we are going to hear much about them for a while.
After stretches in which Nintendo and Microsoft dominated the console market, Sony is in position to reclaim the sales throne in the coming years, according to Michael Pachter. Over the holiday break, the Wedbush analyst released his industry forecast for the next three years, saying, “we expect Sony’s PS4 to ‘win’ the next console generation,” while noting the PS4 and Xbox One should both thrive through the end of 2016.
Pachter projects the PS4 to post cumulative worldwide sales of 37.7 million systems by the end of 2016, 30 percent higher than his expectation of 29 million Xbox One’s sold. Bringing up the rear will be the Nintendo Wii U, for which Pachter projected worldwide sales of 20 million units through 2016. He said a “disproportionately high percentage of Nintendo customers play more casual games,” which leaves the company vulnerable to competition from mobile and tablet games.
Pachter’s projections included a few assumptions about the retail prices of the consoles, specifically that they will experience only modest cuts over the next three years. Pachter expects the Wii U to drop 50 percent to $150 by the end of 2016, but acknowledges a possibility of Nintendo discontinuing production on the console entirely if sales lag. Meanwhile, Pachter expects the PS4 to drop $100 to $299 over the next three years, with Microsoft narrowing the cost gap of the consoles by dropping the Xbox One $150 to $349 over the same period. While Pachter has the PS4 “winning” the console generation (putting quotes around all uses of the word), aggressive pricing from Microsoft could throw a wrench into that prediction.
“We think ‘winning’ is important to both companies,” Pachter said, “and it is possible that Microsoft will reduce Xbox One pricing far faster than we have forecasted. Should hardware prices come down faster than we have modeled, it is likely that hardware and software sales will grow faster.”
Regardless, Pachter paints a brighter picture of industry software sales than seen in some time. In the US and Europe, Pachter believes gaming software sales will jump 10 percent this year, 7 percent next year, and 6 percent in 2016. Microsoft and Sony platforms will account for much of that growth, with Pachter expecting the two companies’ various platforms to grow by a combined 50 percent in the next three years. As a result, the real winners may not just be Sony and Microsoft, but core gaming publishers as well. Pachter noted that the highest-rated stocks in Wedbush’s gaming coverage–Electronic Arts, Activision, Take-Two, Ubisoft, and GameStop–all focus on core gamer audiences.
What’s the most exciting thing that has happened to games during 2013? There are lots of candidates, all of them equally valid depending on your perspective and personal interests. The launch of new console hardware, perhaps; or the continuing meteoric rise of tablet and smartphone gaming. The deluge of microconsoles perhaps, none terribly successful but their very profusion pointing the way to the future ubiquity of game hardware (maybe). Oculus Rift, the really rather effective realisation of so many virtual reality fantasies; perhaps even Google Glass, which could open a doorway to new kinds of play if it doesn’t fall victim to a social backlash before it even gets off the ground.
For myself, forced to pick a single thing, I’d probably go with the bedding in of crowd funding as “part of the furniture” of the games business – indeed, of creative businesses in general. 2012 may have been the year when crowdfunding captured all the headlines, but in 2013 we started to see the wheels turning – projects completed, projects underway, projects stalled, projects failing.
After the initial hype, the reality of what it means for a wide group of interested individuals to fund a creative endeavour has bedded in. There has been disappointment, certainly, and some even bigger disappointments will probably follow down the line – but this is a learning process for creators and funders alike, and the lessons being learned are incredibly valuable. Why is crowdfunding still so exciting, despite all the hiccups? Because, quite simply, it removes one of the most infuriating and ridiculous barriers in the creative industry – the financial middlemen who must be convinced of the market value of a creative idea before they will fund it to completion.
In theory, this is not a terrible idea, even acting as a useful filter of quality in some instances – and in practice, it will continue to be how a great deal of creative work is funded. However, these gatekeepers have also slammed down the door on a vast, uncounted number of perfectly valid projects – labours of love or wonderful ideas which have been rejected because they don’t conform to a financier’s specific notion of what’s popular in the market, or because their commercial potential, while significant, is overshadowed by another more overtly commercial project.
In this way, we’ve lost not only countless games but entire genres. Adventure games are the most often lamented, having disappeared almost entirely in the 1990s, though I’d contend that the best features of the adventure genre were moulded into other game genres, survival horror being a key one, while the worst features of adventures really ought to stay dead – but I know the genre has plenty of hardcore fans who would probably do something awful to me for such blasphemy, perhaps even something as awful as making me play a load of old adventure games. Other genres, too, have declined to a huge degree, while whole swathes of game themes or approaches are simply deemed non-commercial and will never be funded by a major publisher.
Crowdfunding changes the rules, and in doing so, may help to rescue the creative and artistic continuity of the games medium. By allowing a creator to run up a flag and say “I’m going to make this; who’s up for it?”, it shares the enormous risk of creation around a vast audience, while empowering them directly to make choices about what gets made. It’s no accident that many of the most funded Kickstarter games are adventure games – after years of lamenting the lack of new titles in the genre, its fans were finally given a chance to prove the commercial viability of adventure games by putting their money where their mouths were, and they responded admirably.
As crowd funding moves into its next wave, I think that an audience of more savvy and slightly more cynical funders will interact with a group of very switched-on creators to start doing more and more interesting things. Up to now, crowd funding has been an orgy of nostalgia – long-dead genres, dusty old franchises, half-forgotten characters and worlds, all wiped down for Kickstarter in anticipation of fistfuls of dollars from men wearing the world’s rosiest spectacles. Some of the resulting games will probably be excellent (Wasteland 2 is a particular favourite at the moment) and it is certainly nice to see much-loved older genres and titles being treated with care and respect, mostly by their original creators. However, I submit that crowd funding can, and must, achieve so much more than this.
Crowd funding is about tapping into the collective power of a minority audience. The majority of the game purchasing audience don’t know or care about Double Fine, or Wasteland, or Leisure Suit Larry, or any of the other crowd funded titles to date – arguably the most “commercial” of which is the now incredibly well funded Star Citizen, and even that is a space simulation game, a genre which effectively breathed its last many years ago. These are all minority audience games, their success a testament to the fact that in the age of the internet, even the smallest niche can turn out to be a commercially viable audience. At a time when commercially backed games need to find some way to “prove” that they’ll be of interest to an audience of millions, crowd funded games need only gain the interest and affection of an audience of a few thousand to make them into viable, funded projects. So far, those minority audiences have largely been exactly what you’d expect from early adopters. They’ve been, by and large, people like me – proudly geeky guys in their thirties and forties who have some games and genres from the past they absolutely love, and who have a decent amount of disposable income in their pockets that they’re willing to delve into for the sake of nostalgia.
There’s not a damn thing wrong with that, and long may it last. However, it should be immediately apparent that there’s a much wider range of minority audiences who are deeply involved with, indeed, deeply in love with, video games. They’re largely not addressed by existing commercial games. The depiction of women in games isn’t great to begin with, but once you get into the realms of racial or sexual minorities, depictions of disability or mental illness and a whole host of other issues, games either don’t deal with them at all – or, when they do, you really, really wish they hadn’t. If you’re rolling your eyes right now, grow the hell up. Every medium invented by humanity is used by minority groups as a way of exploring and sharing their life experiences, and every medium in which this has occurred has benefited hugely from this process, the creative exploration of minorities at the margins feeding back into the mainstream and advancing the artistry and possibilities for everyone.
So here’s where I see crowd funding going in 2014 – a trend whose origins, tiny, hopeful green shoots, we can see in 2013. Crowd funding of nostalgia projects and well-loved developers breaking out of the publisher model will continue, of course. Some high profile projects will be released and people will love them. Some will be released and they’ll suck, others will fail, and there’ll be fresh bursts of enthusiasm and cynicism which will eventually start to look like a standing wave, a background pattern that’s actually stable when you look at it for long enough. Crowdfunding will be part of the furniture – and around its margins, amazing things will be occurring. Powerful voices will be tapping into the collective power of minority groups and using their input and their resources to make new kinds of games that would never, ever, in a million years, make sense to a game financier in a suit behind a boardroom table, but which engage small yet powerful niche audiences in fresh and wonderful ways.
In some regards, we can view the entire course of video game creativity over the past few years as being a process of learning how not to ask permission. It used to be that you had to ask permission from a whole lot of people before you could make a video game. Today, anyone can sit down with a copy of Unity, some time, some talent and a lot of coffee and make a video game; but of course, apart from the occasional lone genius, the investment of time and money required to make something on a large scale is still denied to those who cannot receive permission to create. Crowd funding succeeded in 2013 and will continue to succeed in the coming years because it changes the terms of that conversation. Once, creators had to find a grim-looking man with a fat wallet and say “please sir, may I be allowed to create?”; our future is a world where a creator instead stands up in a crowd and says “here’s what I’m going to create; who’s with me?”. This is no utopian vision, because the judgment of the crowd will often be as harsh and unforgiving as the besuited financier ever would be – but there are many, many crowds, and they ultimately offer a chance for a lot more voices to be heard in a medium that has all too often spoken in monotone.
With the Xbox One and PS4 fighting over the core gaming crowd this holiday season, Nintendo is targeting its Wii U marketing elsewhere. In an interview with Seattle NBC affiliate King-5, Nintendo of America president Reggie Fils-Aime said the system is enjoying strong holiday momentum, thanks in part to a renewed and refocused marketing push.
“The marketing has tremendously ramped up,” Fils-Aime said. “And really where it comes down to is being crystal clear in who’s your target. For us, this holiday with the Wii U, the target is parents and their kids. So if you’re watching primetime family entertainment, you’re seeing our marketing. If you’re a parent watching morning or daytime media, you’re seeing our content.”
Fils-Aime declined to give specifics about Nintendo’s marketing spend, but did expound on the company’s overall strategy.
“More than just the dollars, we’re putting our product where the consumer can see it, touch it, and feel it,” Fils-Aime said. “We’re in over 20 malls across the country. We’re creating an opportunity for consumers to see the product, because that, for Nintendo, is where the ‘wow’ happens. It’s not when you talk about specs or technology.”
Fils-Aime also addressed continued calls for Nintendo to begin making games for smartphones and tablets. While he stressed a corporate philosophy that Nintendo games are best played on Nintendo devices, Fils-Aime said the company has been doing “experimentation” on mobile platforms. However, he cautioned that experimentation is “largely going to be much more marketing activity oriented,” and designed to push users to experiences on the 3DS or Wii U rather than serve as stand-alone experiences in themselves.
“What drives us is creating fantastic experiences for consumers that in the end we’re able to monetize as a for-profit company,” Fils-Aime said. “The issue is that if you have games out there on all of these smart devices for very small amounts of money, it’s very difficult to monetize. And if you look at all of these companies who are trying to do it, there aren’t many that are doing it long-term, profitably.”
The Samsung Gamepad is compatible with all Android phones running Android 4.1 Jelly Bean and above, though Samsung said that it is specifically optimized for Android 4.3 Jelly Bean and above. It features an eight-way D-Pad, two analogue sticks, four action buttons, two trigger buttons, a Select button and a Play button.
The Play button is a link to the Samsung App Store selling console optimized games at “reasonable prices”. The Gamepad uses Bluetooth 3.0, but can also pair via NFC and even cast gaming onto the big screen using Samsung Allshare. Although there are a number of Chinese imports available, this is the first time a major player has brought an Android game controller to the table.
Samsung said 35 games are available through the Play button at launch with more to come in 2014. Launch titles include Need for Speed: Most Wanted, Asphalt 8, Modern Combat 4, Virtua Tennis Challenge, and Prince of Persia. These are in addition to existing games from Google Play.
Samsung is keen to tout this new device as an alternative to buying a more expensive console such as an Xbox One or Playstation 4 (PS4), and while we’re not really sure if it can match them, we can certainly see the advantages of a device like this over Android game consoles such as the Ouya or Gamestick.
The device is already available for pre-order at Expansys for $125.99. At present there is no date attached to it, and Samsung is only committing to “the coming weeks” as the time-frame for availability.
As it’s a device with a steel casing, Samsung clearly is not aiming this at the budget market, and if its functionality matches its specifications, it could be one to watch in 2014.
It is starting to look like the Wii is destined to go the way of the Dodo.
Estimated sales figures seem to indicate that 222,700 Wii U consoles were sold in the United States in November and 4.3 million Wii U consoles worldwide to date. This is not to be sneezed at, but given that Nintendo wanted to sell Nine million Wii Us worldwide during its 2014 fiscal year that is disappointing.
Nintendo flogged 160,000 systems in the first quarter and 300,000 units in the second quarter. Added to this new 222,000, this means Nintendo would need to sell an additional 8.3 million Wii Us before the end of March in order to reach its goal, or between 2.0-2.1 million consoles per month in December, January, February and March.
Analysts have already predicted that Nintendo “will likely miss” its profit goals for Wii U. Nintendo is trying to talk up the figures saying that sales of Wii U hardware increased by more than 340 percent over sales in October. Meanwhile sales of Microsoft’s and Sony’s new consoles are going through the roof.
The holiday season may have started with a lump of coal in the stockings of EA and Ubisoft. Wedbush analyst Michael Pachter sent a note to investors in advance of this week’s November NPD US retail sales announcements, saying that software sales for the month would be down 13 percent due to “far weaker-than-expected debuts” for the heavily hyped Battlefield 4 and Assassin’s Creed IV.
Those games’ troubles are the primary reasons Pachter believes console and handheld sales were down 13 percent to $1.25 billion, but they weren’t the only ones. Call of Duty: Ghosts sales were also lower than expected due to unflattering reviews, Pachter said, and the PlayStation 4 and Xbox One launches may have also put a damper on the software sales figures. Pachter reasoned that consumers either devoted their spending money to next-generation hardware launches, or decided to forgo purchasing current-gen versions of titles until they could find one of the supply constrained next-gen systems.
Speaking of the next-gen consoles, Pachter gave a considerable edge to Sony in the November sales race. He believes the PS4 sold 1.25 million units in the US during November, compared to 750,000 for the Xbox One. The PS4 launched November 15, while the Xbox One debuted November 22. The new arrivals also appear to have put a significant dent in the pre-existing competition, as Pachter predicted Wii U sales would be down 65 percent year-over-year, with Xbox 360 and PS3 sales down 44 percent and 28 percent, respectively.
The NPD Group is expected to announce its November US retail sales data this evening.