Videogaming

Is 2013 The Year Of Android-Based Game Consoles?

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Along with the Bluetooth forks, waterproof mobile phones, and massive TVs, one unexpected announcement for a product that might actually be useful was Nvidia’s out-of-the-blue Project Shield game console. Looking a bit like a Bluetooth controller accessories strapped to the bottom of a 5-inch touchscreen, it has impressive specs and is designed both as an Android gaming device and for streaming your PC games to an attached TV. Pundits have already started to weigh in on whether this will succeed and completely wreck the traditional game console market or just fizzle out; more interestingly, from a trending perspective, it adds to a number of other devices trying to bring Android gaming to console/portable console platforms. Four other notable examples are:

1)      The OUYO console. The OUYO is a very cute 10-c.m. cube. This $99 box was funded through Kickstarter in August 2012, and development kits are already in developers’ hands, with final units hitting the market in March 2013.

2)      The GameStick. Another Kickstarter project that has just hit its funding goal, this Android console takes a form similar to those “Android on a USB stick”-type devices seen here. It also slots away when not in use into its own retro-style controller — and it’s even cheaper than the OUYO at $79. The Kickstarter campaign doesn’t finish until the end of January, and first-run devices are promised in April 2013.

3)      The Archos GamePad. Surfing another trend — game-centric tablets — the Archos GamePad is a 7-inch Android tablet with additional controls for games. Coming in at $169.99 and available pretty much now, its spec is underwhelming and suffers from several of the usual Archos flaws — looks that only a mother could love and poor displays.

4)      The Wikipad. The Wikipad is a 10-inch Android tablet with gaming controls — like a bigger, less ugly Archos GamePad. Although it was due in October 2012, it was “slightly delayed” and still hasn’t seen the light of day. At $499, it is more similar in price to Project Shield or the even more expensive Razor Project Fiona rather than the cheap and cheerful Kickstarter consoles.

Of course, using an open source OS in a game console device isn’t new; the portable Pandora was announced back in 2009 and runs Linux. In those pre-Kickstater days, however, production was hampered by a bare bones “preorder” crowdsourcing model, which has led to ongoing issues with contract manufacturers. Some units (including a spruced up 1 Ghz model) have shipped, but it has been slow progress; mine has been on order since July 2010!

A more recently announced Linux game platform is the still-mysterious Valve Steam Box console, which is bound to attract a lot of attention as more details emerge.

Why Android?

Why is Android suddenly a go-to option for those looking to get into the (massively loss-generating) console hardware business?

  • It is free to use with a ready library of tools and functionality. Small startups don’t have the time, money, or expertise to build an OS from the ground up. Android is there for the taking and has already proven capable of simple smartphone games given adequate hardware.
  • It benefits from the Google Play and multidevice synergy. Similarly. Google Play offers a mature and varied marketplace for apps for Android devices (usually…see the downside below). If you are a game developer, the ability to target the OUYO, GameStick, GamePad, and Project Shield as well as all the non-game-focused Android tablets and phones via one store and one build is a big incentive. You also don’t need to jump through the fiscal and judgemental hoops that Apple, Sony, and Microsoft impose before getting on to their platforms — though this often leads to the Google store feeling more like the Wild West!
  • It’s optimized for ARM architectures. A key consideration for new hardware builders is how cheaply you can source decently performing components. The high volume of ARM CPUs shipping for tablets and phones — along with firms like Nvidia and Qualcomm continually pushing the price/performance envelope —means it is an obvious choice. Once you have ARM chips, what are you going to run on them? Well, it isn’t going to be Windows RT!
  • It has XBMC compatibility out of the box. XBMC is pretty much established as the media player solution across most platforms, particularly open source ones. It gives the user access to a host of media playback options along with network awareness — a nice extra to add to games on Android platforms.

There are downsides, too, of course. We already have a massively fragmented Android phone market; different OS versions, OEM tweaks, and varying hardware specs make development and deployment of game applications much more tricky than for the carefully controlled iOS ecosystem, for example. This could potentially undo all the synergy that being able to sell to multiple device owners can bring.

What does it mean for the wider videogaming market?

  • It puts price/functionality pressure on next-generation consoles. Sony and Microsoft are expected to announce their new home consoles this year, probably at E3 in June. These will doubtless offer more power and additional network capabilities, but what else — and at what price? Traditional console launch prices have been going up since the original PlayStation landed in 1994 for $299. Increased functionality, networking, and hard disk storage have created bloated devices more akin to a PC, with only Nintendo sometimes bucking this trend (see this great analysis by Gamasutra). It’s reasonable to assume that new consoles will be at least $400 to $500. Does that still stack up compared with an $80 Android console?
  • It furthers the cause of the free-to-play (F2P) market. Game developers have learnt from the Apple App Store and Facebook game development that giving your game away and charging for add-ons can be a great strategy when gamers are looking for entertainment for $0.99 or less. However, this can also go staggeringly wrong: see Punch Quest) as an example. Android consoles and Google Play will form a natural console home for F2P and casual games. Will Sony and Microsoft aim to compete in this space? We’ll see.
  • Sony has a stealth “in” here but doesn’t seem to care yet. Interestingly, Sony already has half a foot in this camp. Its PlayStation Mobile Android app supports a range of simple twitch and puzzle games, and it even used to have older original PlayStation games like Crash Bandicoot until Sony inexplicably dropped these last August. While graphically rudimentary, it may still offer better game play than Google Play shovel-ware clones. Better ARM processing power may also mean that PlayStation2 classics could appear on the platform — but only if Sony gets its act together and increases its support for more complex PlayStation mobile games. Surely these aren’t seen as being in competition with the (failing) Vita?

Five Consumer Technology Trends To Watch In 2013

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2013 will undoubtedly be an “interesting” year for consumer technology. While devices like tablets and smartphones go from strength to strength, PC makers and traditional CE makers in TV, audio, and cameras continue to struggle to turn a profit . . . and that’s before you factor in high-street retail woes and no end in sight to recession-driven belt-tightening. Aside from ongoing evolutionary trends, what will really break through in 2013?

  1. Kickstarter-funded projects need to deliver. One of the breakout successes of 2012 was Kickstarter. Although started in 2009, it was only in 2012 that high-profile projects started to appear and get funded. The downside of this popularity is that more and more projects from inexperienced business startups are appearing. This has led to some high-profile disasters, such as the Code Hero debacle, and a number of projects (particularly games) being abandoned following funding success. Delays are even more endemic: CNN Money compiled a excellent list of the top 50 projects, and just eight shipped on time. In 2013, some of the larger projects, such as the Pebble Watch or Oculus Rift system, need to reach consumers if Kickstarter is to maintain its reputation; the increasing recognition that giving money doesn’t entitle the donor to much if a project goes pear-shaped doesn’t help here.
  2. Tablets will really take off, with multiscreen becoming a focus. After a slow start at the beginning of 2012, tablets from Apple, Amazon, as well as Google and partners were flying off the shelves by year end; this was less true for RIM and Windows RT devices. Predicting that this category will grow in 2013 is like predicting that gravity will keep working at this stage. But what other trends will the success of tablets lead to? Probably the most important is the rise of multiscreen behavior  particularly when looking at consumer media. Techies have been networking and syncing devices for years, if not decades, but it’s only with the rise of the iPad, Nexus 7, Surface RT, and Amazon Fire HD that normal folks have a device that is seamlessly synced to their media libraries, browsing history, and AV equipment. This allows new behaviors  such as a) two-screen movie/TV viewing (see Microsoft’s Smart Glass); and b) bookmark portability — both for browser bookmarks and eBooks — meaning that you’re always able to pick up where you left off.
  3. Cloud services and streaming will improve. While enterprise cloud investment continues to be the “next big thing” (as per IDC, Gartner et al), consumer cloud services are going from strength to strength. Apple, Google, and Amazon will now store nearly your whole media library in the cloud, facilitating even more of the multiscreen behavior described above; and Dropbox, SkyDrive, and Google Drive make sharing files between devices and friends easier than ever. Streaming services like Spotify, Pandora, and Deezer are gaining momentum as broadband connectivity becomes more reliable and usage caps get higher.
  4. Gaming will reach a crossroads. 2012 was not a good year for videogaming; a number of developers and publishers closed, and retail was hit hard. Aside from the obvious reasons for this (recession spending reductions and home consoles getting long in the tooth), the rise of both tablets and free-to-play (F2P) games has changed the gaming landscape enormously. 2013 will see the release of new consoles from both Microsoft and Sony, but those publishers that fail to adapt to the new realities of the marketplace may well follow THQ into bankruptcy.
  5. Smartphone proliferation will put new functionality in consumers’ hands. As with tablets, it’s pointless to cite a trend of greater smartphone adoption. It’s far more interesting to look at what new functionality will reach critical mass because of the rapid life cycle of phone development, fuelled by rabid consumer demand. 2013 will see:
    1. NFC and mobile payments reach early-stage critical mass. Whether you’re looking at embedded NFC applications or add-on dongle payment services (like Square , Bank of America , or ROAM), the rapid adoption of new smartphones means many consumers will have access to mobile payment technology sooner rather than later; of course, whether they then feel comfortable making payments this way is a more complex question.
    2. Wireless charging. While 2009’s Palm Pre was one of the first consumer smartphones to offer built-in wireless charging, that device sank along with the rest of Palm (thanks HP!). Now, though, devices from Nokia, Google, Motorola, HTC, and Samsung allow for wireless charging; some, like Nokia’s Lumia 920 and Google’s Nexus 4, include the phone end of the technology by default. Even better news is that most of the devices use the Wireless Power Consortium’s Qi standard, so one charging mat should serve for multiple devices.
    3. The return of Bluetooth for non-headset devices. After a huge explosion in the availability and usage of Bluetooth headsets and hands-free speakers back in the mid-noughties, it seemed that Bluetooth had pretty much had its day; Wi-Fi and high-bandwidth communication protocols like WHDI seemed like the way forward. However, newer versions of Bluetooth (v4) offer better data rates and lower power usage. More importantly, as tablets have grown in popularity, a swath of new accessories has emerged: game pads, keyboards, and portable speakers all trade high data rates (or sound quality) for ease of use. 2013 will see even more of these accessories combined with new usage models — just look at a bunch of those popular Kickstarter projects. In many cases, they pair up nicely with wireless charging — see JBL’s Wireless Charger Speaker for the Nokia Lumia.

Bubbling under

These technologies will make an impact in 2013 but won’t reach critical mass:

  1. 3D printing. Consumer 3D printers are a tremendously exciting field for tinkerers and hobbyists; the ability to print small but complex objects in a variety of materials has the potential to revolutionize many aspects of our lives (distribution, repairs, art, etc.). But it’s all just “potential” at the moment: Consumer 3D printers are messy, are difficult to set up, and struggle with certain shapes (depending on the technology used). Expect lots of stories in 2013 about 3D printing (3D print shops, IP theft, etc.) and significant advances in the quality versus cost of devices from Makerbot, Ultimaker, and Fab@home, along with better software tools . . . but don’t expect to see millions of these devices in consumers’ homes. The 3D print bureau service (like Staples or 3Dprintuk) seems more likely to grow in the short term, in the same way that Kinko’s provided printing and duplicating services for consumers before cheap multifunction printers arrived.
  2. Augmented reality and 3D headsets. High-profile announcements from Google and the increasing power of smartphone and tablet platforms have reignited interest in augmented reality. Similarly, Kickstarter Oculus Rift has created buzz around 3D headsets. Both of these technologies will offer more immersive experiences, better UIs, and more natural engagement with technology in the future, but component costs, portability, and limited processing power mean that 2013 will not be the year of “X reality” — be it augmented or virtual.
  3. Streaming video to smart TVs and the death of traditional ‘broadcast’. It seems strange that when we’re talking about multiscreen viewing and cloud services taking of we are still some way off of Smart TVs and TV-based internet video services becoming successful. 2013 will see this space ramp up significantly – with potentially Apple, Sony and Intel getting in to the space (news from CES may offer some insight) – but rights issues, complexity, long replacement cycles and mainstream consumer apathy means it will be some time before traditional sources for TV content (ie pay TV providers) see significant threats emerge. The exception to this rule may be emerging markets where broadcasters don’t yet have sports and movie rights tied up and lack a critical mass of signed-up consumer households – Smart TV video services could make real inroads here – but hardware prices will stymie much of this.

Extending PlayStation Plus To PlayStation Vita Could Give Sony A Much-Needed Holiday Boost

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While Sony has been running the PlayStation Plus (PS+) subscription service since June 2010, it has become a lot more interesting during 2012: first, we saw the introduction of the ”instant game collection” for PS3, and this week saw the addition (at no extra cost) of PlayStation Vita games (and online save backup).

 

Effectively, Sony is turning PS+ into a high-value subscription service to exploit an extensive back catalogue of game titles by distributing them electronically at virtually no cost. This has advantages, such as a predictable revenue stream and the generation of usage data. Obviously, the downsides are that revenue from traditional sales of a game title are lost, and the rate of remuneration for third-party publishers including games has to be carefully balanced. It contrasts with Microsoft’s Xbox Live Gold service — which is basically a souped-up version of the free Xbox Live service — Sony has always given more away for free in its network

In what promises to be a tough Q4 for all videogame markets, Sony’s move could significantly boost its hardware sales and PS+ subscriptions. In terms of consumers, it’s clear that this announcement affects three key groups:

  1. Existing PlayStation 3 (PS3) and Vita owners without PS+ subscriptions. This group is probably the least affected; these early adopters probably have most titles included in PS+ for the PS3 and Vita. They may be potentially slightly miffed that so many games for which they paid full price are being given away. They are unlikely to sign up for PS+ in the near term, but they could be a medium-term opportunity if Sony adds newer titles and other benefits.
  2. PS3 PS+ subscribers without a Vita. This is the most obvious target group; effectively, Sony has cut $80 off of the cost of a Vita by bundling two of the best-known first-party titles — Uncharted: Golden Abyss and Gravity Rush. While (unlike Sony) we don’t have subscriber device profiles for PS+ users, I’d guess that 80% or so still haven’t invested in a Vita, though some of these gamers will also have legacy PSP digital downloads in their account. Conservatively, this offer could convert 10% to 20% of these owners into Vita owners in the next three to six months — especially as the third-party AAA Vita titles start to arrive at the same time.
  3. New consumers. The Vita addition makes an all-in PS3/Vita/PS+ bundle much more attractive, but it will still be a significant outlay for those who have resisted investing in the Sony ecosystem for 5+ years. While there may be some upside here, it will be fairly limited.

What else could Sony do? A couple of things may help even more:

  •  Discount coupons for larger-format memory cards. The price of memory cards for the Vita is still one of the most common complaints in user forums. Any mechanism that allows PS+ subscribers to get a 10% to 15% discount voucher for memory cards would help here. Making this a limited-time offer may also spur the buying decision. This could even tap into the first group mentioned above and help them justify the PS+ sign-up; they could save 6GBP on a 32 Gb card and still get the one or two games they haven’t already bought for the Vita. Of course, this opens up a world of hurt in terms of dealing with merchants and making sure that discount codes aren’t reused, but it could potentially boost hardware and PS+ adoption in the short term.
  • Get those physical PSP games onto the Vita. The obvious benefit that would also play to our first group is a version the “disk à digital” program (similar to the UMD passport program launched in Japan when the Vita came out) for UMD-based PSP titles: let new PS+ subscribers pick two or three of their legacy PSP games for conversion to a Vita digital copy. Again, there is probably quite a lot of work here in terms of authentication, validating the title list, etc., but if many of these titles are already available in the store, there is little downside. This could also strengthen the case for buying a Vita for our second group as well, but to be fair, the case is already pretty strong for them.
  • Offer discounted DLC for Assassin’s Creed and Black Ops via PS+ as soon as possible for both the PS3 and Vita. Looking beyond the groups mentioned above, aggressively priced hardware bundles and the new AAA third-party titles should sell some additional Vita hardware to the more casual FPS gamer, even if they’re reviewing badly, such as Black Ops on Vita. Assuming many of those buyers have a PS3 but don’t have PS+, adding discounted DLC to PS+ could push them over the edge to subscribing — particularly as those titles are unlikely to be included in the subscription any time soon.
  • Market the “great value” PlayStation message. There seems to be a definite anti-Sony feeling this holiday season: the Wii U is offering new hardware; Xbox is becoming (seemingly) the other major supported format, particularly at supermarkets / non-dedicated retail; while there’s criticism directed at Sony that the new PS3 design didn’t come with a price cut and the Vita is too expensive. Without getting into negative messaging, the value of PS+ (even with just a PS3) is probably Sony’s trump card. Spinning this with a message of “But wait! There’s more! Free quality Vita games!” could at the very least drive PS+ sign-up and probably get that Vita PS+ message out there.

The 2012 holiday season will be the final push for Xbox 360 and PlayStation 3 before new consoles are released next year. Given how radically the gaming landscape has changed over the past two years, it will be interesting to see how successful these final quarters are. It’s even more critical that the Vita makes an impression after a lacklustre launch and increasing competition from smartphones and tablets.

Wii U: Can Nintendo Win Through With Its (Probably) Final Home Console?

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At various points during the past 24 hours, Nintendo has revealed the release dates and prices of the Wii U console in different geographic markets. Two versions will ship: a basic/White Wii U (Japan: ¥26,250; US: $299; UK/EU: around £200 or €250) and a Premium Black Wii U (Japan: ¥31,500; US: $349; UK/ EU: around £250 or €310). For the extra $50, aside from a more traditional console colour, you get four times more Flash memory (32 GB), charging stands for the tablet controller and console, a bundled NintendoLand mini-game collection, and a three-month pass for the “Nintendo Network Premium” online service. Initially, the games won’t support a second tablet controller (which, when purchased separately, will cost a whooping ¥13,440 in Japan — the only market where they are available separately at launch), but this will come over time. The good news is that almost all the Wii controllers, balance boards, and other random bits of plastic you’ve invested in should work with the new console.

Some initial thoughts:

  • Is the pricing right? Putting aside regional variations — Japan has always paid more for its consoles, and Europe has variable value-added tax — the price of the new console isn’t too bad. Sure, it’s higher than traditional Nintendo launch prices, but this was partly forced on the company by the competition. It’s certainly cheaper than the last-generation launch prices from Microsoft and Sony. A more interesting question is whether consumers are still prepared to pony up $350 for a new console when they have other compelling options like tablets, smartphones, and social gaming in which to invest. Incidentally, Gamesutra has a very nice comparison of historic console launch prices, even adjusting for inflation, here.
  • The tablet controller offers some interesting “second screen” game-play opportunities. Many game publishers already complement console/PC releases with companion iPad games or apps (e.g., Mass Effect 3 Infiltrator and Datapad Apps). Nintendo and Sony have also offered console connectivity for their portable consoles in the past. But this is the first time that the second display can be taken as a given for the entire console-owning base. Naturally, the first opportunity is to use the controller screen in a similar fashion to the lower touchscreen on a Nintendo DS. Over and above that, though, developers are pushing the boundaries with asymmetric multiplayer gaming as a real differentiator — i.e., up to 4 ”players” use traditional controllers to interact with the game on the TV, while another player assumes a “God” (or spectator) role with the tablet controller, looking on and driving the overall experience. This effectively takes role-playing gaming right the way back to the original Gary Gygax Dungeons and Dragons tabletop game. Penny Arcade sees some cynical, but probably true downsides to this!
  • This brings second screen TV entertainment to the rest of us. The Wii U TVii functions look nice, allowing social discussion, deeper program engagement (maybe with advertising?), and a more intuitive program guide integrated with multiple providers . . . all for free out of the box in North America. Not that you couldn’t already do this with an iPad (costing from $399) or with an Xbox 360 and “Project Glass” (provided you have Xbox Live Gold for $60 a year and a compatible tablet costing . . . well who knows!) if you were a geek with money to burn. So it’s a much cheaper solution for what looks like a nice experience. All the major US/Canadian networks are on board, along with Netflix, Amazon, Hulu, etc. It’s not yet clear how much extra effort these content and distribution firms will invest in generating the required metadata, but at least many of the sports stats, trivia and social connections are pretty much already there to be tapped into.
  • Why is this likely to be Nintendo’s last home console? Even though we’ve watched OnLive crash and burn and Gaikai be absorbed by Sony, this doesn’t mean game streaming is dead — the days of dedicated game consoles are still drawing to an inevitable close. Why? For the same reason that dedicated cable boxes or video-streaming boxes like Boxee will disappear. The technology will be incorporated into other devices; it could be the TV, a wirelessly connected tablet, or eventually a proper functional cloud streaming service. Incidently, Microsoft and Sony also have just one more console in them; by the end of that generation (in five years’ time, perhaps), I’d expect expensive, dedicated console hardware to have run its course.
  • It has the field to itself for a year. Speaking of the competition, it’s clear that we won’t see new consoles from Sony and Microsoft for at least a year, maybe longer. Nintendo will have the ”next generation” to itself — although Sony and Microsoft will argue, with some validity, that the Wii U is only really comparable with their current generation. Another factor that may help Nintendo in the closing months of 2012 is the delay of several key titles (such as Bioshock Infinite, Tomb Raider, Alien: Colonial Marines, DmC, etc.) to early 2013, leaving core gamers with extra money to spend; some of that may well head Nintendo’s way.

So, can the Wii U succeed? It’s by no means a slam-dunk for Nintendo. Many dedicated gamers — Nintendo’s old core audience — felt let down by the “casual” games that proliferated on the Wii (ironically, the same games that made the console a mainstream success), along with too many Mario ports (no sign of that changing) and mainstream consumers have long since boxed up their Wiis. Add in the rise of social gaming on PCs and tablets, and the appeal of a dedicated console that doesn’t even play DVDs, let alone Blu-ray discs and with just one (albeit innovative) controller seems tough. But Nintendo needs this to work. Unlike Sony and Microsoft, it doesn’t have a fall-back business model or ”multidevice living-room strategy” from which to recoup its investment. And the additional pressures in the portable gaming space from smartphones and tablets mean that Nintendo really has a battle for survival on its hands.

My take: At this stage, I’m prepared to give Nintendo the benefit of the doubt. The hardware looks good; it has strong support from publishers and TV content/distribution owners in North America; and backward compatibility with Wii titles means that there is an extensive collection of games out there in addition to the launch window titles. By the end of Q1 2013, we’ll have a better idea of whether Nintendo will survive as a home console platform owner or follow Atari and Sega down the software-only route.

 

Sony Buys Gaikai: A Solid Investment In Future Services

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This week Sony, or more specifically Sony Computer Entertainment, bought Gaikai — the streaming game service. Rumours of a tie-up had been circulating prior to E3, and Gaikai had made no secret that it was on the market for around $500 million. The $380 million Sony paid is well under that, but even so it must have been a difficult decision given the Sony group’s current performance.

What does the purchase mean for Sony and the wider gaming market?

  • Sony is buying networking and service platform expertise . . .  Sony has struggled long and hard with online services and software: its PlayStation network is now robust but suffered an embarrassing hack attack last year, while its PC and phone software (Media Go, PlayStation certification for phones) seems to lag a generation behind folks like Apple or even Microsoft. Gaikai’s core networking and service delivery expertise can fix many of these issues in a relatively short time (months rather than years).
  • . . . as well as console backward-compatibility. Despite consistently offering by far the best access to and support for older titles of today’s three platforms, Sony has long been the recipient of gamer complaints about the removal of backward-compatibility as it has released new hardware iterations of the PS3. Streaming potentially allows both backward-compatibility for today’s PS3 and, potentially more intriguingly, for the future PS4 — allowing it to run today’s PS3 games without additional hardware.
  • Non-console devices can join the game. While not explicitly stated as an aim for Sony Computer Entertainment, its rich gaming back catalogue, along with Sony’s engineering expertise in PCs, TVs, tablets, and phones, means that PlayStation games could now come to all of these platforms. This would provide a USP (if kept exclusively to Sony hardware) and an additional revenue stream for games with little additional investment.
  • Where does this leave Microsoft? Microsoft is already working with OnLive, the rival (and arguably more well-known) game streaming service. However, the relationship has been rocky at times (see this). Does Sony’s news justify Microsoft engaging more here — or even considering an acquisition? Probably not, if Microsoft (along with investors like HTC) can get ready access to the technology as ‘partners’ – Microsoft is already much more competent at online execution in gaming.
  • Connectivity will need to take the strain. One thing is for sure, users will need solid, fast, low-lag broadband connections (and in-home wiring/wireless) to make any of these streaming services work consistently. Netflix and Hulu sometimes struggle with one-way traffic when streaming video into the home; gaming services need to do this as well as upload user actions and act on them at the server end. Let’s also not forget that consumers surrender some of their control with these services — starkly illustrated by the storms last week that took chunks out of the Amazon cloud. This is slightly inconvenient if you want to post your latest wedding dress photo to Pinterest; it’s disastrous if you are 3 to 4 hours into a streamed gaming session without a local save!

E3 2012: A Quiet Year For Videogaming

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E3 took place in LA last week, perhaps for the last time, but it failed to really hit the headlines in the way it usually does. Why? Well, as expected, it was a very quiet year for announcements, with most firms recognizing that now is not a great time to heavily invest in the industry (see the recent game retail crisis, etc.). It was common knowledge that Sony and Microsoft were unlikely to announce new consoles, but even Nintendo failed to excite, despite the Wii U coming out later this year. However, there was some interesting news aside from the inevitable announcements of game title sequels.

  • Microsoft focused on the “home entertainment” angle. The Xbox has always been a potential Trojan horse to get Microsoft into consumers’ living rooms — and it demonstrated this strategy at this year’s E3: new music services, deals on video streaming, and, most interestingly, SmartGlass technology to link various Microsoft-based platforms.
  • Sony played it straight. Along with some new game announcements (mainly sequels, of course), it announced a revamp of PlayStation Plus — adding more free full games to make the service even better value. Sony’s interesting new product was Wonderbook: Book of Spells, an augmented reality (AR) book tied to the Harry Potter franchise that works with the Move peripherals. Sadly, while Sony has years of interesting AR/video products (dating all the way back to EyeToy in 2003 and EyeToy:Chat in 2005), these never seem to draw in consumers in sufficient numbers.
  • Nintendo snatched defeat from the jaws of victory. It should have walked away with the conference, but instead it failed to impress — failing to confirm pricing or launch details for the Wii U. Still, we got Pikmin 3 — finally! Luckily for Nintendo, at least some of the third-party publishers announced some interesting Wii U titles.

Elsewhere, the show highlighted a slew of sequels from the major publishers and the continuing resurgence of the indie developer sector. Most interestingly, Peter Molyneux’s new firm 22Cans announced Curiosity; it’s not really a game but more of a social media experiment. Elder Scrolls Online also got its first real showing. Whether the franchise can reverse the ongoing trend toward free-to-play (F2P) MMOs remains to be seen; it’s a strong brand but, arguably, not Star Wars strong and The Old Republic is losing subscribers.

What is E3 good for?

Slow years like this inevitably lead to questions about whether E3 is as relevant as it once was. After all, many of the new game announcements were trailed or leaked prior to the show; with so many online sources (Eurogamer, Joystiq, Kontaku, Spong) covering gaming every day of the year, E3’s no longer a great way of getting that big-hit mainstream press coverage. However, E3 is:

  • Great for doing proper business. While the gaming media (and gamers) bemoaned the move to a much smaller show in Santa Monica in 2007 as lacking in glamour, you can bet just as much useful business was done between distributors, retailers, developers, and publishers.
  •  A useful date in the diary for an industry temperature check. E3’s June date puts it right at the point when vital Q4 titles and hardware have been finalized — meaning distributors, developers, and the media get hands-on with near-final game builds or hardware. Admittedly, given that some titles have already slipped to 2013, the usefulness of the timing has been somewhat diminished this year.
  • A great venue for the whole gaming ecosystem to have a meeting of minds (hopefully). E3 was born in the PC gaming age, just as consoles were enjoying their second coming (e.g., original PlayStation, Sega Saturn). It has continued to be dominated by these platforms — mostly the consoles and their portable stable mates. While recent years have seen some embracing of mobile gaming, the booming casual/social game market hasn’t been particularly well represented. This is changing: Zynga was at the show this year for the first time — albeit on more of a recruitment drive rather than to demonstrate its wares — and the pace of change should accelerate, turning E3 into a truly platform-agnostic forum for the industry.

What It Means: The Failure Of Game Retail For Publishers And Platform Owners

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As discussed in previous posts, game retailers have to radically change their strategy if they are to survive on the high street, but what does this major shift in consumer buying habits and, potentially, retailers’ strategy mean for the titans of the videogame world: publishers and platform holders?

The good news:

  • More direct digital sales. A decrease in the physical availability of the product is bound to spur the (already growing) trend in digital downloads — particularly for more obscure titles or add-ons that are unlikely to be stocked/discounted by non-dedicated game retailers. The boom in indie PC games is a clear example of this already happening; boxed PC games have been a highly fragmented market prone to piracy for years, and systems like Steam have enabled otherwise unlikely titles to make it big via secure digital distribution.
  • The long-term decline of the secondhand market. As previously discussed, publishers have long considered secondhand games a thorn in their side, diverting sales from new titles — or so the theory goes. While an online secondhand market will continue to grow, the disappearance of high-street stores with lots of available secondhand titles (often shelved next to the same title, new) reduces impulse-buying opportunities.
  • A smoother supply chain. Obviously, digital sales don’t require holding inventory; in addition, much of the complexity of distribution, credit facilities, and returns will disappear if physical boxed games end up being distributed mostly via two or three massive online stores and major chains/supermarkets. However, there are significant downsides to dealing with only a few firms like WalMart, Tesco, or Amazon — see below.
  • Direct engagement with customers (or at least better information via partners). What do you, as a publisher, know about your end customer — or how many units were bought in a particular state? Perhaps a buyer is tied into your loyalty program or online service — but that doesn’t tell you where they bought from. By simplifying the supply chain and even selling digital goods directly, you gain insight into the buying behaviour of your customers and should be able to respond more quickly and effectively to their needs. Whether the big retailers like Amazon will share this information (even for a fee) is trickier; it depends whether they view the data as a revenue opportunity or a strategic advantage.

The bad news:

  • Supermarkets and multi-category retailers become the primary physical retail outlets. You may have simplified your supply chain, but when Wal-Mart becomes responsible for 50% of your title sales, you become overly reliant on its largesse. And firms like Wal-Mart and Tesco negotiate hard for discounts. A secondary consideration is that, like books, videogames will become a loss leader for multi-category stores: pull punters in with $10 off Mass Effect 3 and then sell them $200 of groceries. As a publisher, you still get your revenue, but this exerts downward pressure on price points and devalues games.
  • Online retail is still a mixed blessing. The gold rush in online shopping is largely over for most categories, including videogames. A few, well-behaved retailers dominate in multiple geographic markets; they don’t tend to discount massively and do now take part in pre-order and limited-edition promotions. But their long-term strategy isn’t necessarily obvious. Could Amazon become a leading competitive digital game distribution service? Will eCommerce (and rent-by-post) players jump into the gap left by high-street stores for secondhand games? The answer to both of these questions is probably ‘yes’.
  • A short-term spike in the secondhand market. A key strategy (as I see it) for those struggling physical stores is to up their game in secondhand and trade-in games. While long-term publishers and platform holders may be able to cut off the air supply to this market with digital downloads and a reduction in the number of physical game disks/cards, that is going to take some time. Be prepared for struggling chains to keep pushing the boundaries in terms of what they see as their right to exploit this (more) profitable segment.
  • The high-street showcase disappears. Often overlooked — especially by people who see GAME and GameStop stores as somewhat grubby holes (guilty as charged!) — is the showcase that these venues provide for new titles and new game systems — however seemingly badly organized to an outsider. 3D-based systems are the clearest example here: you can’t demonstrate a 3DS on TV or YouTube; you actually have to play with one in-person. Ultimately, this also means that videogames cease to hold a special place in consumers’ minds (just like books and music) — dedicated stores where you can browse and be immersed in your hobby/obsession, rather than just picking up the latest Call of Duty while you do the weekly food shop.

Today’s videogame market is such that both publishers and platform owners will probably benefit most from a slow, graceful decline in high-street videogame stores rather than catastrophic collapses — even if the threat of the latter accelerates plans around disintermediation.

How To Keep Videogame Retail Relevant

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Globally, store-based videogame retail is suffering. In addition to the ongoing collapse of GAME Group in the UK (which is half-saved for now — sort of), NPD recently reported a decline of 34% year-on-year for store-bought games in January 2012 in the US, while hardware declined slightly more (38%). Admittedly, January can be a flaky month for retail, but the overall trend for physical software sales is down.

Why? Some of this is down to a struggling economy and cautious consumers, but it’s also a natural side effect of the trends outlined in the previous post:

  • Hardware revenues are declining. No new consoles for some months to come (aside from the PlayStation Vita) means reduced hardware sales; it’s pretty much just accessories and add-ons like Kinect and Move.
  • Digital distribution cuts out retail. Digital distribution means money flows directly to publishers (often via platform owners like Sony, Microsoft, and Valve). Even for shop-bought titles, downloadable content can extend play lifetime and put off the next boxed product sale. NPD also recently worked out that $3.3 billion was spent in the US and Europe on digital downloads in Q4 2011. Physical retailers would have seen virtually none of this (aside from selling gift cards).
  • Non-gamers don’t see game retail as a desirable shopping “experience”. Most worryingly for game retailing, market growth is almost all in social or mobile gaming. Even if there was a physical product, would mainstream consumers go to GameStop for these?

So what can retailers do? They need to change people’s perceptions of why a store is better than an online portal, otherwise they will follow music and book retailers into obscurity. While GAME group has had a stay of execution, it will need to do something different to secure its long-term future. Four foundations spring to mind (along with the current but declining day-to-day business of software sales):

  • Bring secondhand games to the fore (even more). Secondhand game sales are a controversial topic that retailers have typically had to tip-toe around. Publishers get angry at what they see as the lost revenue of a new game sale, but for retailers, a successful secondhand game section makes better margins than new game sales. They have to be well managed to do this though; this means more selective game trading (what you buy, how much you pay), better inventory distribution across multiple stores, and even offloading excess stock via an online portal, partner, or eBay. Making the secondhand section look less like a post-hurricane garage sale would help, too. Of course, publishers may object to this — and come the next generation of consoles, they may pretty much kill this market by withdrawing physical media — but for now, they continue to bring in money in tough economic times.
  • Stop toying with online and go all out. The game retail groups may have online portals and e-commerce facilities, some of which are even quite good, but they aren’t Amazon or Play.com good! Retailers need to bring their unique high-street presence to their online offerings: order and pick up in store, trade in and drop off at store, virtual events, and local store forums should at least level the playing field with the big e-commerce players.
  • Make the stores more relevant. Yes, I’m going to use the dreadful “retail experience” phrase — but I am going to try not to reference Apple Stores (darn — too late!). Physical game stores have limited square footage, a lot of stock, and cater to a young male audience; they are never going to be “minimal”, “airy”, or “smell good” — but they can change some things. Reduce front-of-store stock and countless racks and fulfill from the back room; introduce more demo pods and advice points. More interestingly, think about demo events, “parent evenings” where you explain things like age classifications and downloadable content — and refocus on supporting digital, with stored value cards, memory cards, and capacity upgrade advice. And always remember: customers without credit cards are your friends!
  • Get publishers more involved. Publishers might not like an increased focus on secondhand, but game shops still remain one of the most effective ways of directly reaching the more active component of their customer base. It’s time for them to help out more. Move beyond exclusive downloadable content (which costs publishers virtually nothing) and get publishers to provide previews and showcase material and to create competitions. Ironically, small PC game developers (most of which distribute digitally) may be the best bet here; they can offer show reels, demos, and individual levels that the in-store staff can support. This may also help revise the relatively poor image that store staff have in the eyes of the gaming community.

GAME Group: Scenarios For The Future (If It Has One)

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I won’t retread the series of events that have led to today’s (dire) situation for GAME Group; instead, let’s look at the three most likely scenarios for how this story ends:

1) Recover and survive. This is looking less likely by the day. GAME is in the classic death spiral: 1) cash flow problems lead to 2) suppliers tightening financial terms, which results in 3) an inability to service customer demand, causing 4) even deeper cash flow problems. Add in the crash in the share price from nearly £3 in 2008 to just 1p, and raising additional funds from banks or the market seems unlikely. Some reports are saying that cash is so short that it’s unlikely GAME can pay the quarterly rents due at the end of March. Disposal of some assets like overseas operations (GameStop is reportedly interested in the Spanish and Portuguese operations) or prime retail locations could help the balance sheet long enough for the group to get back up to profitable trading, but this would be a long, hard slog, with suppliers and creditors continuing to view it suspiciously. Most recently, the FT reports (warning: pay wall) that OpCapita (the group that bought Comet for £2 last year) might offer GAME a financial lifeline – again, improving survival hopes or at least buying the firm extra time to come up with a strategy.

2) Get bought by another group (pre- or post-administration). If the current operations can’t be saved, selling the whole firm (or at least the majority UK arm) to someone else is a real possibility. After all, this is a firm with a healthy revenue stream (£1.6 billion for the financial year ending January 2011) in a vibrant market — although admittedly the high-street element is struggling — and with a wide reach across much of Europe (the second-largest gaming market after North America, according to VGChartz). Again, GameStop is an obvious buyer here but is reportedly only really interested in those Spanish and Portuguese gamers, so the price would have to be a real bargain.

This raises another issue: why would anyone buy GAME Group at the moment when they can wait a month or so and buy a more attractive ‘prepackaged administration’ firm without some of the baggage (i.e., creditors) that they will have to deal with in a straight purchase? The upside of purchasing it as a going concern (whether in or out of administration) is the continuity it allows the business; stores can stay open, staff be retained, and suppliers placated. Inevitably, efficiencies will be needed post-acquisition; stores will close and management jobs will disappear or be merged with the structure of the new corporate overlords, but this is still a much better outcome than the worst-case scenario . . .

3) Close down and be broken up. This is still a possibility, particularly given the difficult retail environment in many European territories. If a buyer can’t be found for the firm as a whole, the administrators’ duty is to get as much money back for creditors and shareholders as possible via any means. Overseas operations or the online store could be sold off as going concerns, but the UK may see piecemeal store-by-store acquisitions via management buyouts or selective site purchases by other retail chains (effectively what happened to Woolworths Group in the UK back in 2008/2009).

This last scenario is bad for the economy, bad for employment, and very bad for the game retail ecosystem. Without GAME in the UK, supermarkets become the dominant providers of in-person game sales, which means less title choice, fewer demonstration areas, and the loss of much of the secondhand gaming market. Sure, HMV (while it still trades) offers a good selection of games and more knowledgeable staff, but other than that, gaming retail risks being thrown back 20 to 30 years to a time when (usually excellent) independent shops struggled to make ends meet — but now with the added competition of online retail and digital distribution.

Scenario No. 2 is still the most likely outcome at this stage. This would mean that GAME survives (in some form) for years to come — with the question of whether it can adapt in the long term. Can videogame retail buck the depressing trend set by book, music, and DVD retail and stay relevant? I’ll look at that in my next post.

How The Videogame Market Has Changed Over The Past Decade

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In the 12 years that I’ve been following the global videogame market, it has gone from a sizable niche industry of $14.7 billion in 2000 to generating between $64 billion and $74 billion, depending on who you ask (after all, what’s $10 billion between friends?). The industry’s focus has also altered in this time:

Gaming hardware has shifted from PCs to consoles to ‘devices.’ Even 12 years ago, consoles like the brand-new PlayStation 2 had started to refine what ‘gaming’ meant, with sophisticated hardware — including one of the best DVD players at the time — and blockbuster titles. Much of the past decade has belonged to the console world. But in the past 1 to 2 years, we’ve seen the rise of non-dedicated gaming devices (such as Android smartphones and iPads) and the creation of mainstream ‘social gaming.’

The console’s ‘5-year rule’ has ceased to be relevant. Back in the day, new iterations of popular consoles came along every 5 years — making use of more powerful hardware and new storage technologies. Sony was the first firm to flex (if not break) this rule in the modern console age; although it continued to release new consoles, it also kept selling its old platforms for years. However, the current generation of consoles has well and truly broken the old rule. Neither the PS3 nor the Xbox 360 seems likely to be superseded any time soon, despite having been available since 2006 and 2005, respectively.

Connectivity has moved from being the exception to the rule. It’s sometimes difficult to remember what the gaming world was like in 2000. The PlayStation didn’t have any connectivity out of the box; you got an analogue modem with the Dreamcast; and the Ethernet-equipped Xbox was still at least a year away in most territories. Everything you did on consoles (and even on many PCs), you did with physical media — no friends lists, no DLC, no patches.

Digital distribution has made PC gaming interesting again. Given all this, has the PC become redundant as a gaming platform? Far from it! Two (diametrically opposed) trends have kept it interesting:

  1. The rise and rise of social games. As Zynga has shown, there is a massive appetite for social games either within social networks or via dedicated online portals. While mobile devices will, inevitably, become the dominant platform for these games, the PC currently still dominates as the device on which to play Farmville, Triple Town, or Bejeweled Blitz — aided, no doubt, by Apple’s iOS devices not supporting Flash.
  2. The digital distribution of ‘proper’ games — and the rebirth of indie developers. Led initially by Valve’s Steam service, the distribution of PC games electronically has grown hugely over the past 18 months. Interestingly, this has allowed small developers who stood no chance of monetizing a ‘boxed’ release in retail to do their thing; the Binding of Isaac, Super Meat Boy, and (my personal favorite) Dungeons of Dredmor are great examples here. Add to this great initiatives like the Humble Indie Bundle, and the PC gaming space is more interesting than ever.

Mega-publishers have been created. Firms like EA, Activision Blizzard, Square Enix, and Namco Bandai have grown from a decade of mergers and acquisitions — as some of their awkward names might suggest. This has been driven partly by games becoming multi-year, multimillion-dollar projects that favour larger-scale operations and partly by the need for diversification (as with Blizzard contributing World of Warcraft revenues to Activison).

Many other things have also changed, such as the rise of mega franchises like Call of Duty, battles over the second-hand market, MMORPGs, etc.; several of these warrant a whole post to themselves, but I don’t want to labor the point here. All these changes are putting an obvious strain on some of the traditionally successful firms in the space. Most notably, boxed-game retailing on the high street is in crisis, GAME group in the UK being the starkest example of this — I’ll look at their prospects in my next post.