Double Fine has warned indies of the dangers of devaluing their products, citing its new publishing initiative as a way of protecting against that outcome.
In an interview with USgamer, COO Justin Bailey expressed concern over the harmful side-effects of low price-points and deep discounting for indie games. By giving away too much for too little, he warned, indie developers could reach a similar situation as that found in the casual market.
“I think what indies really need to watch out for is not becoming the new casual games,” he said. “I don’t think that’s a problem from the development side. Indies are approaching it as an artform and they’re trying to be innovative, but what’s happening in the marketplace is indies are being pushed more and more to have a lower price or have a bunch of games bundled together.”
Double Fine is publishing MagicalTimeBean’s Escape Goat 2, the first occasion it has assisted another developer in that way, and it won’t be the last. According to Bailey, what seems to be a purely business decision on the surface has a strong altruistic undercurrent.
“Double Fine wants to keep indies premium. You see that in our own games and how we’re positioning them. We fight the urge to just completely drop the price. That’s one of the things we want to encourage in this program. Getting people to stick to a premium price point and to the platforms that allow you to do that.”
“We’re not looking to replace… we’re trying to augment the system,” he replies. “We’re making small strides right now. Costume Quest 2 is a high-budget game. It’s one that I thought it was best to have a publishing partner who can also spend some marketing funds around it.”
Double Fine is not the first developer to express concern over the tendency among indies to drastically lower prices.
In January, Jason Rohrer published an article imploring developers to consider the loyal fans who buy their games full-price only to see them on sale at a huge discount just a few weeks or months later. Last month, Positech Games’ Cliff Harris went further, suggesting that low price-points actually change the way players see and interact with the games they purchase.
“Grey Goo is remarkable not for what it has added to the RTS formula, but what it has stripped away,” PC Gamer wrote in its reveal of Grey Goo, a new real-time strategy game from the veterans at Petroglyph. Perhaps the same could be said of Grey Goo’s recently formed publisher Grey Box, which is seeking to strip away the more negative aspects of game publishing. Suits and creatives typically will bump heads because the two sides are looking at the creation of games from wildly different perspectives. But what if they actually had the same goals?
Ted Morris, executive producer at Petroglyph, felt an immediate kinship with the team at Grey Box. “As a small [studio] – small being 50, 60 people – we are always talking to publishers to see what deals we can put together. But with Grey Box, I think that we meshed better on a personal level with them as a company and as a group of people than we have ever meshed with another group,” he enthused to GamesIndustry International during GDC. “And we’ve worked with Sega and LucasArts – all the big guys – and certainly talked to everybody else, too – the EAs and everybody – and these guys – man, we just gelled with these guys so well.”
Morris said that Grey Box’s approach to publishing was noticeably different from the start. While other, larger publishers may immediately come up with marketing plans and sales targets, Grey Box found itself on the same page with Petroglyph: fun comes first.
“Every meeting that we have is always a sit down and then people open up financial books and they start talking about what the sales figures are going to be like, and when we sit down with [Grey Box], it’s like ‘how can we make a great game?’ We don’t even talk about money, we talk about ‘how good can we make this game?’ and ‘how successful will it be?’ You know, let the game drive the sales, don’t let the marketing drive the sales, don’t let the sales department drive the sales. It’s really about, if you make a great game, they will come,” Morris continued. “They spoke to that so often, so frequently that we thought, ‘man, these guys just want to help us focus on what’s really important.’”
One of the defining traits for publisher Grey Box is that they’re all gamers at heart, noted Josh Maida, executive producer for the publisher.
“I’m not going to pre-judge any of those other publishers – I mean, for all I know they love games as much as we do. And we do. We all love games. We all come from different areas. I lost a whole grade point in college to Street Fighter, and… we want to be fiscally mindful. You need to make money, but with the money we make, we want to make more games,” he remarked.
“So I think at the core of that is we’re not trying to take away from the industry. We want it to feed itself and go bigger. Quality over quantity is something that we’re mindful of. We also just want to make a good working relationship for our partners… everybody’s in here for fulfillment. The talent we work with, they could all be working in private industries for twice the amount they do, but they’re here because they love to make games, and so we want to be mindful of that. And when people die, they want to know they did great things and so we want to create those opportunities for people.”
Tony Medrano, creative director for Grey Box, criticized other publishers for being too quick to just follow another company’s successful formula.
“We’re not chasing a trend, we’re chasing something we believe in, we’re chasing something we like, and we’re not trying to shoehorn a formula or monetization model onto things that just don’t work because they’re popular,” he added. “I think from the get-go, it’s been all about how can we make the best game, and then everything else follows from that. I think a difference structurally [with other publishers] would be that we have a very lean and mean team. We’re not trying to build a skyscraper and have redundant folks. Everybody that’s here really cares, has some bags under their eyes from late nights… I think it is just that we look at all our partners as actual partners. We let them influence and make the product better, whether it’s the IP or the game.”
Speaking of monetization models, Maida commented that there’s no “secret agenda to Zyngafy RTS or anything.” Grey Goo is strictly being made for the PC, but the RTS genre easily lends itself to free-to-play. Upon the mere mention of free-to-play, however, you could almost feel the collective blood pressure in the room rising. It’s clearly not the type of experience that Petroglyph and Grey Box are aiming for.
For Petroglyph’s Morris, in particular, free-to-play hit a nerve. “I’m going to jump in here, sorry. I’m really annoyed!” he began. “There’s been such a gold rush for free-to-play right now that is driving publishers – I mean, there needs to be a good balance. There’s a great place for free-to-play – I play lots of free-to-play games – but it is driving developers like us to focus on money instead of making great game content. I’m not going to name any examples, but I’ve been disappointed with some of the free-to-play offerings because it’s not so much about making a great experience for the player anymore. It’s about ‘how can we squeeze them just a little bit more?’ or annoy them to the point where they just feel like they have to pay.”
Medrano added, “I get frustrated when I play free-to-play games, and if I purchase something, I feel dirty. I feel like ‘oh, I got cheated, I fell for the trap.’ Or even more modern games where they baby you through the whole thing. There’s no more of that, like, ‘this is tough, so that means if I get good at this, there’s reward – there’s something there.’”
Ultimately, while Petroglyph and Grey Box came together thanks to a shared love of the RTS genre, they feel there’s a real opportunity to bring back hardcore, intelligent games.
Andrew Zoboki, lead game designer at Petroglyph, chimed in, “It’s almost as if the industry has forgotten about the intelligent gamer. They feel like that everyone’s going to be shoehorned in there, and I would say even from a design perspective that a lot of design formulas for a lot of things, whether they be free-to-play or what the mainstream is going to, next-gen and such, that all those titles are kind of a little more cookie-cutter than they probably should be. They’ve tried to shoehorn gamers into a formula and say, ‘this is what a gamer is,’ rather than understanding that gamers are a very wide and diverse bunch of individuals, everyone from the sports jock to the highly intellectual, and they all have [different] tastes… there’s different games that will appeal to different demographics… if you make the games that players want to play, they will come.”
And that really is at the heart of it. Morris lamented how business creeps into the games creation equation far too often. “They’re trying to balance the game with Excel spreadsheets instead of sitting down and actually playing it and having focus tests and bringing people in and actually trying to iterate on the fun,” he remarked about other publishers.
For Grey Box at the moment, the focus is on making Grey Goo the best it can be, but the company does have plans for more IP. It’s all under wraps currently, however.
“We do have a roadmap, but it’s not based off of the calendar year. We do have another game in the works right now and we might announce that at E3. And we have a road map for this IP, as well,” Maida said. “Obviously we want to get it in the hands of players and fans to see what they respond to, but we’ve got capital investment in the IP with hopes to not only extend this lineage of RTS’s but possibly grow out that franchise and other genres as well.”
Grey Box plans to release Grey Goo later this year.
Microsoft is using this year’s Game Developers Conference as a platform to push ID@Xbox, with the company yesterday announcing dozens of titles headed for the console under the indie self-publishing program. Microsoft corporate vice president Phil Harrison sat down with GI discuss the reasons behind the initiative and where the company hopes to take it in the future.
“A lot of the platform decisions we made in previous generations have really been around the fact we had a predominantly retail business model,” Harrison said. “You don’t want to be pressing millions of discs only to find they don’t work. Those are expensive investments that are difficult to retract from. But in a digital world, those constraints go away. In the previous generation, all console companies had walled gardens with pretty high walls. And now we’ve got gardens with small fences around them, or maybe a hedge. The barrier to entry has definitely come down, and that is a really positive trend for gamers, but also for creating an on-ramp for developers looking to get into our industry.”
Harrison acknowledged that a platform holder could run into problems by taking that approach too far, but suggested that the ID@Xbox program isn’t in any danger of that situation just yet.
“There’s always a balance to be had, but right now our push–and we’ll continue for the foreseeable future–is to democratize access to our platform,” Harrison said. “As you know, we have an intention that every retail Xbox One can become a dev kit, and we want to open up the platform to as many people as possible.”
The company has also set up some of the Xbox One’s core feature set specifically to address some of the potential problems of being overly open, Harrison said. Social features like user recommendations and trending offerings will help, but the Twitch streaming and ability to upload screens and gameplay to video are expected to really help games attract more attention from the wider community.
“We think those platform features will help the best games connect with the biggest audience, and the biggest audience can find the best games,” Harrison said. “It’s a virtuous cycle. We’re probably just scratching the surface of what’s possible with that, but I really like where it’s headed.”
Early results from Microsoft’s indie outreach are promising. Harrison said in the ID@Xbox program’s first four months, it has already attracted 250 developers, more indies than the Xbox 360 has drawn in its eight years on sale.
Thanks to Silicon Valley, there’s no shortage of tech companies hosting meetings or conferences in the Bay Area, but when it comes specifically to the business of games, there are few conferences in San Francisco that can rival the annual Game Developers Conference. For most in the industry (or those looking to enter the industry) it’s one of the few must attend events each year. And you can bet the city of San Francisco is happy to host GDC, as the financial benefit to local businesses is substantial.
“GDC is the highlight of March for the San Francisco hospitality community – everyone knows when GDC is here judging from the packed bars, restaurants, and streets. I love that turning any given corner in or near the convention center, one will hear an international language spoken. Their current financial impact is estimated at over $46 million,” Leonie Patrick, senior director for Moscone Expansion Sales at the San Francisco Travel Association.
“Although San Francisco is fortunate to have several large conventions, the demographic of GDC is unique and high energy. GDC is a valued, annual group and we do our best to assist with their success every year. When they thrive, we thrive,” she continued.
While GDC used to take place in San Jose, the conference quite simply outgrew the city, and San Francisco became its new home, offering more convention space and hotel accommodations. The conference has been consistently growing along with the industry itself, and it’s definitely been a boon to San Francisco.
“GDC has been with us since 2005, with the exception of 2006. They have demonstrated tremendous growth. They started off with 10,000 people crammed into Moscone West, and they have more than doubled their attendance in 8 years,” Patrick said. “GDC has also had extreme room growth, starting at 1,900 on peak to almost quadrupling that number.”
While some locals have resented the impact that highly-paid tech sector employees have had on San Francisco’s cost of living, San Francisco Travel Association isn’t concerned that GDC will be affected by any of this sentiment. “We have no concerns about how the GDC attendees will be received by San Francisco. San Franciscans know that tourism is our number one industry and conventions are a different issue from residency issues. We welcome GDC happily each year,” Patrick added.
Indeed, tourism is a wonderful thing for the great city of San Francisco. From the sights and sounds to the places to eat, there’s plenty to enjoy for GDC attendees who might want to nip out of Moscone for some downtime as well.
“Many attendees have been here repeated times so they want more than the typical icons. They may want to explore the more offbeat neighborhoods like the Castro, Union & Fillmore Streets, eat a great meal in the Mission, or walk around Noe Valley. For the first and second timers, they should see the Golden Gate Bridge, Coit Tower, ride a cable car, go down Lombard Street, sit in a café in North Beach, walk along the Wharf, visit the Ferry Building, or window shop in the Haight,” Patrick recommended. “And I can’t forget about Golden Gate Park, or maybe see the Pacific Ocean if they have not before. And if they really have time visit one of the many neighboring cities. Sausalito, Tiburon, Monterey/Carmel, Lake Tahoe… the list goes on.”
And even if you don’t have a car, it’s thankfully not too difficult to get around San Francisco (unlike Los Angeles, for example).
“Luckily, San Francisco is a large city contained in a small footprint. It is an extremely easy city for walking. Despite its reputation for having many hills, which it does, take a walk along the waterfront in order to get you from the convention center to the Wharf – you will avoid them all,” Patrick noted. “We also have great public transportation that can take you to outlying areas of San Francisco as well as outlying cities very economically.”
While it’s a bit late now, her advice for future GDC attendees should definitely be heeded: “Use the hotels that the event staff at GDC recommends since they are all vetted and reviewed by the GDC staff. And try not to book your hotel too late since rates are likely to get higher closer to the event date.”
User acquisition is a big buzz word in the mobile games space nowadays. But it’s not all it’s cracked up to be. Acquiring users has gotten expensive, and it won’t matter how many you acquire if the churn is so high that they’re all leaving your game in a few days. That’s why player retention is so important and it’s how Yvolver, a new Dallas-based startup, hopes to make a difference.
CEO Steve Nix, former executive at id software and GameStop, believes that most developers should stop paying for user acquisition. It costs more than $3.00 per install to acquire customers and that’s only increasing.
“Lately the trend is that costs for paid user acquisition are increasingly prohibitive, especially for mid- and smaller-sized developers. There is a point where paid user acquisition doesn’t make good economic sense for some games anymore,” Nix told GamesIndustry International. “Hopefully developers are also going to acquire players organically through typical paths like word of mouth, social and online discovery or digital store search.
“The big difference that Yvolver brings to the table – we are much more concerned about the behaviors and value perceived by users already in the game. This makes any users acquired more likely to return to the game, more likely to make a first or second in-app purchase and much more likely to recommend the game to a friend. Every customer acquired, regardless of how they got there, will be that much more valuable to the developer. So to a large degree, we are not replacing acquisition services or methods, we are just making them much more cost effective or viable for the developer.”
Nix added that the problem for many developers is that they’ve become far too concerned with the acquisition part of the equation rather than focusing on engagement.
“Right now, many developers are focused on acquisition as the only tool in their toolbox outside of the gameplay mechanics and changes to their economies that they can directly control themselves. Gameplay mechanics may be difficult to iterate upon quickly or the developer may just not have the resources to make all of the changes that they would like. We know that these same developers are increasingly viewing their acquisition programs as dumping money into a giant leaky budget. Yvolver helps plug the leaky money bucket that acquisition dollars are being poured into by encouraging retention, engagement and in-app spend for those users once acquired,” Nix continued.
“There are also a lot of great developers out there that are fantastic at creating a fun, gorgeously crafted games, but they do not have the resources to study user engagement and spending behaviors the way that the major studios can with their dedicated teams. That is all we focus on at Yvolver, so we are excited about improving the health of the business model for developers that may not have the capabilities that our laser-focused team of veteran data science and loyalty experts can quickly bring to their games.”
The crux of Yvolver is a loyalty rewards program. In fact, Yvolver teamed with Hal Brierley, who’s serving as a key investor and providing counsel on the design of its loyalty services. Brierley is an expert when it comes to loyalty rewards, having been a pioneer in the design of major loyalty programs, including American Airlines AAdvantage, Hilton HHonors and GameStop Power-Up Rewards.
So how does it work? Essentially, Yvolver users are able to build up a monthly Yvolver Score by completing events that are set by the developer in combination with making in-game purchases. Users can then convert their monthly score into prizes – both digital in-game items or power-ups and physical real-world rewards, like electronics, clothing or other goods. The score is persistent across games/apps and different platforms.
And while you might think that a program like this would be intrusive or take away from the experience for some players, Nix insists that it’s been designed in a way that won’t push away players – besides, that goes against the very thing the company was built for.
“The core premise of Yvolver is that we only have value for developers if we are creating value for the gamers playing their games. Most of the team here came out of game development and we have been critically focused on every detail of the user experience and making sure that we only add to the enjoyment of the game,” Nix said. “We should never be throwing confusing pop-ups out, blocking the user’s progression, making them think they have somehow left the game, or all of the distracting stuff that you see in a lot of the ad and offer platforms that are integrated into so many games now. We have worked closely with our game developer partners to make sure that we are respecting their game, and the response so far has been that we are firmly on the right path.”
The supporting cast around Nix and Brierley is strong as well, coming from companies like id, GameStop, Zynga, Apple and more. Former Apple App Store games manager Cory Lewis is a co-founder and is leading biz dev, former id lead programmer Jah Raphael is a co-founder and is serving as CTO, and Matt Himelfarb, a managing partner at Dallas Venture Partners is a co-founder and acting as CFO. You can read more about the entire team here.
On the business side of things, Yvolver believes its own interests run in parallel to the developers it’s looking to help. Much like a sales associate on a commission, Yvolver only benefits when the developer starts seeing sales.
“We work with our developer partners to build loyalty-driven events and programs that add value for their users and incentivize the behaviors that are most important to the developer. When users engage with the game in these desired ways, combined with that user’s in-app spend, they will receive an Yvolver score. The more the desired behaviors and in-app spend happen, the higher the user’s score will be. Our revenue is based directly on the Yvolver scores generated in an app in a month. The beauty of this model is that we only make money if the developer is making money through these in-app purchases. We are completely aligned with our development partners, which is important to us,” explained Nix.
Yvolver has been in private testing with a number of apps so far, but the company isn’t worried about signing tons of developers right away.
“We are not concerned about integrating with two-thousand apps the first year and game count is really a meaningless metric for us… Our data science and account teams are working continuously to become more creative and efficient in the programs that we develop with our partners, and that is how we really think about our progress. We believe gamers will quickly start seeking out titles that have integrated with Yvolver, and gamers will ultimately tell us if we are successful through their behaviors,” Nix said.
To kick things off, a beta version of the Yvolver service will launch exclusively with Zombie Gunship Zero from Limbic. The game will be available for download on March 13 and the beta service will follow in the “near future.”
Limbic CEO Arash Keshmirian commented, “Running a successful independent mobile games studio has become an increasingly complex challenge during the past two years. Market competition is at an all-time high, and marketing resources are becoming increasingly scarce and expensive. We couldn’t be more excited to partner with the Yvolver team to not only help engage and retain our current fan base, but to bring those fans real, added value within the Zombie Gunship Zero experience. It’s a win-win for us.”
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.
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.”
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.
Nintendo reportedly is looking to mobile devices to save its struggling business, after it admitted last week that the Wii U isn’t selling.
On Thursday, Nintendo slashed its Wii U sales forecast, acknowledging that despite previously expecting to shift nine million units between April 2013 and March this year, it now expects sales of just 2.8 million. Nintendo’s 3DS console isn’t selling well either, leading the firm to admit that it expects to post a $240m annual loss.
These clearly are signs that Nintendo is losing its appeal in the gaming market, and although there are still many dedicated Wii U gamers out there, the firm is struggling to compete against the Sony Playstation 4 (PS4) and Microsoft Xbox One games consoles.
It seems that Nintendo is starting to realize this too, and it admitted over the weekend that it might look to mobiles and tablets to save the future of the company, following rumors that the firm may be planning its own Android tablet for educational use.
Although the company had previous said that you’re unlikely to ever see Mario Kart running on an iPhone, Nintendo president Satoru Itawa hinted that the firm’s stance on mobile devices has changed, with the company exploring the possibility of bringing its titles to smartphones and tablets.
“We are thinking about a new business structure. Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business,” Itawa said.
“The way people use their time, their lifestyles, who they are have changed. If we stay in one place, we will become outdated.”
However, Itawa admitted, “It’s not as simple as enabling Mario to move on a smartphone,” hinting that the firm will develop dedicated games for mobile devices, rather than porting those it already has.
Brendan Iribe, CEO of Oculus, notes that – as a hardware manufacturer – his business has no say in what software companies will charge for Oculus-enhanced games, but admits he would not be surprised to see them come at a premium price.
“It’s going to be up to the developers,” he says. “There will be some who make casual, simpler experiences – maybe bite sized. There are going to be Indie developers that make bigger experiences. And there are going to be bigger teams that make really big experiences. … And some that we’ve seen early prototypes of… Well, we’ve seen some that, boy, would I pay a lot to get that experience in virtual reality.”
Aaron Davies, director of developer relations at Oculus, agrees.
“In VR, suddenly objects have value – and scale and size and depth and I think there will be opportunities for developers to monetize them,” he says.
Noticeably higher retail prices for software could be one of the few things to derail current gamer excitement about VR. Consumers are still smarting from the industry’s move from $50 to $60 in 2005 – and EA incurred player wrath last February by suggesting they might jump to $70 with the launch of the Xbox One and PlayStation 4.
“They’d better deliver if they’re going to charge more than $50 or $60 for a game”
Iribe noted that pricing in the game industry tends to swing. Prices spiked with the launch of the last generation consoles, then swung to the other end of the pendulum with the rise of mobile gaming. He sees the rise of virtual reality as not an extension of PC gaming, but something different – which opens the door for them to move back in the opposite direction.
“VR is a fundamentally different experience,” he says. “This is the next generation of computing in a very big way. … This is something that’s going to change so many things.”
However, he notes, raising prices also raises risk for developers.
“They’d better deliver if they’re going to charge more than $50 or $60 for a game,” he says.
Davies notes that the higher prices – if they come at all – may not be done in a clumsy fashion, such as hiking the initial retail price. Instead, he points to the free-to-play model, where microtransactions make it less painful to pay (and the customer may not realize they’re paying more until much later).
“The whole concept of charging a premium is somewhat outdated,” he says. “It’s not to say it’s going to be upfront. It could be this is going to be an experience you get dialed into. We’ll see how it monetizes. … If you create content or an experience that someone is passionate about, you’re creating a lifestyle for them. And they’ll pay for that.”
“If people are willing to spend a lot of money on VR games, it obviously means we’re doing something right,” says Iribe.
Davies and Iribe note that they’re speaking in hypotheticals. At present, the company still isn’t even willing to talk about the Rift as a commercially available product. It’s still in the R&D phase, says Iribe, who won’t even commit to a 2014 release for the product.
The Crystal Cove prototype (which won Best in Show at this year’s CES Awards) does give a few hints as to what we can expect when this thing finally does hit its release milestone, though.
The unit being shown at this year’s CES relied on a camera attached in front of the user to work. And Iribe said barring an unforeseen technological miracle, that’s not likely to change.
“While we’re not talking about the consumer unit, if it does [require the camera], we’ll bundle that in,” he says.
To date, Oculus has shipped more than 50,000 developer kits for the Rift, says Iribe. The company has gone from 7 employees a year ago to more than 70 today. The past year has also brought about several improvements to the unit.
The Crystal Cove prototype, as has been widely reported, offers positional tracking (thanks to that camera), giving users six degrees of visual freedom. And it has significantly reduced motion blur.
Latency has been improved as well. The developer kits in people’s hands have a latency of about 50-60 milliseconds. Crystal Cove got that down to between 30-40 milliseconds. The goal for launch, says Iribe, is 20 – with the hopes of further reducing that in later models.
“We’re not going to ship until we have a version that delivers a highly immersive, comfortable experience at a low price,” says Iribe. “I don’t mean just the foam padding and things like that. The experience of virtual reality has to be comfortable. VR has never been close to comfortable. We’re confident we will deliver a very comfortable experience for version one. It’s my belief that the age of 2D monitors has run its course.”
Steve Jobs was in the habit of describing the Apple TV – the real Apple TV, that is, not the hypothetical uber-device that’s been stalking the imagination of tech pundits and the nightmares of TV manufacturers for years – as the company’s “hobby”. It sells a few million units here and there, but it’s no iPad, no iPhone, not even a Mac. It’s a casually dangled toe in the water of a new market whose primary purpose is to extend the functionality of iTunes and iOS devices, rather than being a significant product category in its own right. “Hobby” summed it up; lots of noise and light around the topic accompanied all of Jobs’ later keynote events, but really, Apple was just dabbling.
Steam Machines, then, are Valve’s hobby. Admittedly, Valve is a company with a lot of hobbies, but Steam Machines fit a similar profile to Apple TV in this regard. The rest of the world, or its more credulous denizens, are waiting with bated breath for Valve to sally forth with a device that’s going to cut a swathe through the games market – yet for all the world, everything Valve does looks like little more than casual dabbling. They’re mucking around with a custom version of Linux (saying “SteamOS” sounds really impressive until you realise that most people’s family pets have their own custom version of Linux at this stage) and experimenting with an intriguing controller design, both of which are fine hobbies – but the much vaunted Steam Machines themselves, thus far, are little more than an underwhelming branding exercise.
Of course, Valve’s not about to get into hardware manufacture any time soon. It’s not what they do and it wouldn’t make sense. However, the company has a deep interest in ensuring that the gaming PC, as a platform, is in robust health. The name “Steam Machine” is a giveaway, if one were required; Valve needs lots of machines out there for Steam to run on. It has, as I’ve argued before, become the de facto champion and caretaker of the PC gaming sector, a role long since abandoned by Microsoft. Steam itself is the biggest pillar of Valve’s support for the PC, and Steam alone has done a great deal to ensure the continued flourishing of this market. The company’s gamepad efforts are an interesting sideline, its dabbling with SteamOS little more than tinkering for now; the Steam Machines, though, we earnestly expected to take a rather more dramatic form when they emerged at CES this week.
In the end, Valve managed scarcely a handful of minutes on stage to introduce the dozen “Steam Machine” manufacturers, each of which is producing its own versions of the system. Gabe Newell deflected all questions to the device manufacturers. Despite carrying the Steam name, it’s almost like Valve isn’t entirely happy to be associated with the project right now – perhaps wincing at the heavy responsibilities which being seen as a platform holder will inevitably bring. Perhaps the Apple TV comparison isn’t fair after all; Apple TV always felt like an under performing but beloved hobby. Not much feels beloved about Steam Machines. Not yet, anyway.
It’s not hard to see why the Steam Machines might be unloved, though. They’re an ugly and rather ramshackle lot. Their prices range from a console-matching $499 up to an eye-watering $5000, while their case designs range from the functionally ugly through to the kind of howlingly awful rig that inspires mass eye-rolling even at LAN parties. The specifications of the devices, which one might have expected to conform to some kind of standard, or a number of standard “steps” at different price points, cover the whole spectrum of PC performance. This is perhaps the most disappointing aspect of the announced devices – if these were actually meant to attract less hardcore gamers (most core gamers will still build their own systems, of course), then by doing nothing to reduce the mind-numbing complexity of figuring out specifications and component codenames, they have already failed in their most basic task.
If I sound disappointed, it’s because I am. I’m disappointed on an entirely personal level, I confess. 2014 was going to be the year I got myself a gaming PC again. I’ve missed too many games and experiences through not owning one, and I’d love a reasonably small, low-profile box with enough grunt to play PC titles comfortably. I haven’t followed PC specifications and components for about a decade and I’d rather perform my own open-heart surgery than build another of the damned things myself, so a Steam Machine looked perfect; yet after this week’s CES reveal, it appears that the actual advantages of such a system in terms of reducing complexity (let alone cost, which was always unlikely to be a major factor) are negligible. I’m left wondering who exactly these boxes are for – the core audience will ignore them and build their own systems, while the more casual audience who are eager to engage with PC gaming won’t find any advantage in a “Steam Machine” that doesn’t exist at any other pre-built PC box-shifter.
Valve may have reason to wish that it was taking this hobby a bit more seriously. In spite of the robust health of the PC games market right now, there are structural issues with the PC market as a whole which present a major challenge to its continued growth and success in the coming years – structural issues which only Valve is likely to be in a position to solve, and for which a Steam Machine style venture may well be necessary. To wit, a primary advantage of the PC platform, namely its sheer ubiquity, is winding down. It used to be the case that nearly everyone owned a PC and thus, nearly everyone could play games, at least to some extent. In recent years, the PC benefitted even more as a gaming platform from the inverse of that argument. Gaming PC purchases were justified in part by the prowess of the system as a multi-function device. A gaming PC was expensive, but also served as the user’s primary computer.
Today, the desktop computer is an increasingly rare beast. A great many households only have laptops; a great many more are supplementing laptops with tablet computers that perform much of the functionality that once belonged to PCs. Laptops, too, have changed. Apple’s Macbook Air and Google’s Chromebook, followed by a steady parade of Ultrabooks and wafer-thin, solid-state imitators, have refocused the desires of buyers away from power and towards size, weight and battery life. When I bought my last laptop, the ultra-thin one with 10 hours of battery life put forward a case that simply couldn’t be answered by any hankering for a powerful gaming system. Sales figures suggest that I’m far from alone in making this choice. The resulting device can run some games (it’s fine for lots of indie stuff, and Civilization V just about works) but it’s certainly not a gaming system. I’ve never even bothered installing Steam.
I am not, in any sense, predicting the “death of the PC” – to do so would be nonsensical – but there’s no doubt that this switch away from desktops and towards tablets and Ultrabooks presents a challenge to the existing PC market. I believe that gaming PCs will increasingly have to make a case for themselves as gaming devices alone; a subtle but important change from “here’s your next PC, and it’s great at games” to “here’s your next gaming device, and it can do PC stuff too if you want, which you probably don’t”. Core gamers won’t change their outlook at all, of course, but beyond that group there’s a vast hinterland that was once the domain of PC gaming and which now risks disappearing as the technological landscape shifts.
Steam Machines ought to be at the vanguard in terms of counteracting that shift – accessible, attractive, easy to understand gateways to PC gaming designed perfectly to fit into the lives of “lapsed” PC gamers using Ultrabooks, or console gamers looking to branch out, or former core gamers who want to stay in touch but don’t have the time or money any more to be deeply involved. Valve, as the operators of essentially the only PC game software distribution platform that matters a damn, ought to be leading that movement. On the strength of this week, Valve knows it ought to be doing something, but doesn’t have the stomach for doing much of anything – while left to their own devices, it seems, PC manufacturers aren’t capable of seeing beyond their own narrow world of hilariously arcane specifications and desperately ugly boxes. There’s an enormous opportunity waiting here to be grasped; so far, Steam Machines have only fumbled.
While Westerners are shunning Nintendo as if it were a rabid dog, the console maker is hoping to make in roads into China.
China just announced that it was allowing consoles made by western companies to exist in the country for the first time in 14 years. The move could pave the way for Nintendo, Sony and Microsoft to enter the world’s third-largest video game market in terms of revenue. But it is Nintendo, which is much cheaper, which could be the winner.
The most popular video games in China are often free to play with gamers only paying for add-ons such as weapons or extra lives.
Price may also be a problem for console makers looking to expand in China. More than 70 percent of Chinese gamers earn less than $660 a month. Nintendo, being cheaper, might do better.
A beta of the title Starbound has appeared on the Steam download website and the Chucklefish developer website. It obviously has impressed gamers as one million units have moved.
The sales were revealed in a Twitter message from Chucklefish last night. It’s a pretty blank statement and we don’t know whether it reflects a combination of sales from both of the websites.
“We’ve just passed a MILLION copies sold. Keeping with the Keanu Reeves theme…,” it said, along with a picture of the actor looking surprised and, well, stupid.
The game looks like a cute affair with endless possibilities. Recently the firm announced a raft of updates that make the most of user mods and add fresh features and developer tools to them.
“In Starbound, you take on the role of a character who’s just fled from their home planet, only to crash-land on another,” goes the game’s promotional blurb. “From there you’ll embark on a quest to survive, discover, explore and fight your way across an infinite universe.”
On the Steam website the information about Starbound says that the game, which is described as “early access” and “indie”, was released on 4 December.
Chucklefish says that the game is a work in progress that will grow with its fans, adding that it is already huge.
“Starbound is already extremely playable and contains a vast amount of content, however we decided to release the game as a beta through early access to ensure the community gets a chance to help us shape the game,” it explains.
“In this first stage of the beta process you may experience some bugs, crashes or compatibility issues. Updates will come thick and fast, though, as we listen to your feedback, push fixes and add new content.”