Future Games Network -- David Cole Column #1 -- The Cole Perspective

Going Into 2001: Too Many Choices for Gamers?

Since the dawn of video games, way back in the 1970s, approximately every five years results in a major shift of the market as old hardware platforms are discarded for the latest generation of game machines. At DFC Intelligence, we specialize in tracking the trends of the interactive entertainment market and projecting forecasts for future growth. Therefore, as we go into 2001, the need to take a good look at the game market is crucial. Currently, the market is undergoing a major platform transition. Never before have we noted such a powerful lineup of new hardware systems, which results in a time of great uncertainty both for industry insiders and the average game consumer.

Past hardware transitions have been challenging for companies in the interactive entertainment industry. In both the 1984–1986 and the 1994–1996 timeframes, industry sales dropped as consumers were slow to purchase new systems. And while DFC Intelligence does not predict a major industry recession, we do think industry software sales are likely to decline over the next year because of a single fact – uncertainty.

Two years ago the game market was straightforward for a publisher – simply release a title for the PC, the PlayStation or the Nintendo 64. Whereas this 2000 holiday season offers six major platforms for interactive entertainment software: the PC, the PlayStation, the Nintendo 64, the Sega Dreamcast, the PlayStation 2 and the Game Boy Color. In addition to these platforms, by the end of 2001, there are likely to be three new systems added to this mix: the Microsoft X–Box, the Nintendo GAMECUBE and the Game Boy Advance. The result of all of this platform inundation is uncertainty – both the publishers are uncertain about what mix of platforms to support, and the consumers are uncertain about which hardware system(s) to buy.

DFC Intelligence graph
Source: DFC Intelligence estimates

At DFC Intelligence we predict that over the next three to four years consumers will buy video game hardware in record numbers. However, predicting which individual systems consumers will purchase is much more difficult. Never before has the market seen four such strong players as Microsoft, Nintendo, Sega and Sony. And, as a result of these strong players, there is a good chance that the market is headed for an unprecedented period of fragmentation among hardware platforms. Therefore, it is worth taking a look at each of the individual hardware players and where they stand, to determine if we can project who we believe will pull ahead of the pack.

Sega: It’s Now or Never

Say what you will about Sega, one thing that cannot be denied is that over the past 10 years the company has been a bold innovator and a proficient publisher of new hardware and software. Sega is known for their new game genres, marketing to older gamers, delivery of one of the first CD–based systems and a pioneer of online console gaming. Sega has never been afraid to blaze new ground. On the other hand, Sega has often been too hasty about releasing products before their time, and like many pioneers, Sega has often taken the arrows while paving the way for others to succeed. Sony owes a great deal of its success for the PlayStation from following many of Sega’s innovations, while avoiding many of Sega’s mistakes.

As a company, Sega is currently in a precarious financial situation – their future depends on the Dreamcast. Luckily, with the Dreamcast, Sega has a potential winner. The Dreamcast is half the price of a PlayStation 2, offers online games, but most importantly has the best new games of the holiday 2000 season. The software lineup for the Dreamcast includes Sega’s best games in years; Jet Grind Radio, NFL 2K1, NBA 2K1, Shenmue, Quake III Arena, Metropolis Street Racer, Virtua Tennis and Skies of Arcadia are just some of the awesome Dreamcast exclusives. Additionally, Sega’s great "older" titles such as Crazy Taxi and Sonic Adventure are now available for $19.99.

The great lineup of titles, and the shortage of PlayStation 2 units, provide a real opportunity for the Dreamcast to do well over the next several months. However, this is Sega’s last real chance. With a major price advantage, the best software lineup, and the only new system consumers can actually find in stores, it is now or never for Sega and the Dreamcast. If a large number of consumers are not convinced to buy a Dreamcast in the next few months, it is probably all over for the system. On the other hand, with solid sales this holiday, the Dreamcast could be around for quite a while.

Sony: PlayStation 2 Off to a Rocky Start, But . . .

When you are on top there is nowhere to go but down. The PlayStation 2, which was so hyped, was bound to be a disappointment to some when it was released. In fact, the industry’s reaction to the PlayStation 2 has been especially harsh, even as consumers are clamoring to get their hands on a system. Limited availability, mediocre software, high prices and potential hardware defects have plagued the PlayStation 2.

Despite all the problems, the PlayStation 2 is almost guaranteed to be a success on some level. While sales may never equal the level of the original PlayStation, consumers can be assured that if they buy a PlayStation 2 today, games will continue to be released for the system two years from now. The current PlayStation 2 lineup may pale in comparison with the Dreamcast, but the system has been out less than two months, and it does take awhile for games to come out for a new system. Certainly the PlayStation 2’s launch titles are arguably better than the Dreamcast launch titles.

The biggest concern with the PlayStation 2 has to be Sony’s limited software proficiency and lack of innovation in internal game development. With the game market, Sony has mainly been a follower, watching what other companies such as Sega and Nintendo do and then trying to improve their own efforts.

Sega’s strategy is to target young adult gamers but Sony does a better job of selling. Marketing and development is a real tug of war as Nintendo delivers an analog controller with a rumble pack, then Sony releases the Dual Shock analog controller just as Microsoft announces a hard drive for their system . . . well you get the idea. Sony has also been very dependent upon third party developers. Key PlayStation franchises such as Final Fantasy, Metal Gear Solid, Resident Evil, Tomb Raider, and even Crash Bandicoot, have come from outside Sony. Now that third party publishers have other options, one can expect that most PlayStation 2 titles will be available for other systems as well. The major advantage of purchasing a system from Sega or Nintendo has always been the great games that these two companies develop and publish solely for their systems. Outside of Gran Turismo, Sony has no true exclusives.

Even with all the problems, Sony is still our favorite to remain the market leader with the PlayStation 2, however, there is no guarantee. Although we think it is highly unlikely that the PlayStation 2 will have the huge market share that the original PlayStation enjoyed.

Microsoft: The Buzz Grows for the X–Box

A year ago the potential of Microsoft entering into the game hardware market was still a rumor and many people laughed at the idea of Microsoft getting into video games. Now we know full well that this was no rumor and, in fact, Microsoft is planning to get into the video game hardware battle in a big way. Upon closer examination, no one seems to be laughing anymore at Microsoft’s plans for the X–Box, which looks to be a very serious player.

The specs are indeed stunning and the X–Box will be the most powerful game machine on the market when it is released in late 2001. Of course, we all know that it is games, not technology, that excites most consumers, and the main concern about Microsoft is whether they can produce products that will drive consumers to buy the X–Box.

Game developers and publishers do seem to be supporting the system making X–Box a serious contender, and so far, Microsoft has done an excellent job of reaching out to the top developers. Most developers seem to appreciate both the power and ease of development the X–Box affords them.

Microsoft does not have the in–house software development skills of a Sega or Nintendo, but then on the other hand, neither does Sony. The PlayStation and PlayStation 2 rely mainly on a huge level of third party developer support to build their software library. Assuming the X–Box has an equal level of third party development support as the PlayStation 2, Microsoft could be a huge challenge to Sony. Although the PlayStation 2 has a strong brand name and a one year headstart, the X–Box could very well be the better of the two systems.

Nintendo: The Quiet Giant

For such a powerhouse, Nintendo seems to get surprisingly little attention among hardcore gamers. Nintendo is often dismissed as a company that makes games for kids. Furthermore, overall sales of PlayStation software has been about two times that of the Nintendo 64 software sales. Two possible negative elements of the upcoming Nintendo system is that not only is the system (once again) going to be the last one on the market, but the GAMECUBE name implies it’s a toy for kids. It’s no wonder many people seem to think that Nintendo has lost their touch.

However, don’t forget that Nintendo is a software powerhouse. In terms of revenue, Nintendo is far and away the leading publisher of game software that produces the blockbuster titles. Over the last three years all of the top 10 titles have been Nintendo games. Nintendo’s biggest problem with the Nintendo 64 was due mainly to high–priced software and a lack of third party support.

With the GAMECUBE, Nintendo has a chance to correct many of its mistakes. One such error was due to the fact that the Nintendo 64 was cartridge–based making it difficult for third party publishers to earn money on the N64 games. Cartridges also meant higher software prices for consumers. Now third party developers and publishers appear excited about the GAMECUBE because it will be CD–based, making it possible for Nintendo to compete with Sony’s software prices.

Imagine a game system that has almost every game that’s available for the X–Box or PlayStation 2 PLUS Nintendo’s exclusive brands such as Zelda, Mario, Donkey Kong, Pokemon and more. Then observe how Nintendo has quietly expanded into more adult content with products like Perfect Dark/Goldeneye, Jet Force Gemini, Conker’s Bad Fur Day, Excitebike 64, 1080 Snowboarding as well as a growing lineup of internal sports games. Then just imagine the cool ways that you can combine the portable Game Boy Advance with the GAMECUBE. All–in–all you have one powerful system that could appeal to gamers of all ages.

So, What Should a Consumer Buy . . . ?

All the talk of cool new game systems can be confusing, which is the point of this column. The market is in a period of uncertainty that will not likely be settled until well into 2002, and from a consumer’s perspective, deciding which system to buy is more difficult than ever. Right now the Dreamcast has the best games, but will it be around tomorrow? One element to consider is that even if Sega fails, the games out today can justify the price of a Dreamcast while, the PlayStation 2 will certainly have some staying power. However, to ensure sales consumers need to be assured that the price of the PlayStation 2 will come down and the games will get better. The other thought here is that given that the GAMECUBE and X–Box are likely to be very cool systems, consumers with a budget for only one game system may want to wait for their arrival.

In the end, although the new systems get all the press, most consumers will still stick with their old systems for awhile. Proof of this statement is if you study the latest sales charts for November you’ll see that not only are most top selling titles for the PlayStation, Nintendo 64 and Game Boy Color, BUT they are also sequels to established brands! So, while gamers look to the future, they still love the old and familiar titles and systems.

DFC Intelligence chart