Game Console Makers Look to Software This Season
Sat Oct 5,11:18 AM ET
By Ben Berkowitz
LOS ANGELES (Reuters) - Last year, all Sony, Microsoft and Nintendo ( news - web sites) wanted for the holidays was to get a bundle of new game machines under Christmas trees -- and they were willing to lose money to do it.
This year the leading console makers have visions of big-money software sales dancing in their heads.
The holidays are a make-or-break season in the $30 billion video game sector, with the fourth-quarter shopping spree accounting for up to half of some game companies' yearly sales.
As they jostle for position, Microsoft Corp. is pushing to open up the Xbox ( news - web sites) for online fun, Nintendo Co. Ltd. is trying to expand its audience and Sony Corp ( news - web sites). is battling to hang on to its top spot.
"This is a day in, day out street fight for consumer mindshare," said John O'Rourke, head of Xbox marketing. "Share points are won and lost based on how well you execute."
To underscore that point, Microsoft this week said it would buy U.K. game developer Rare Ltd. for $375 million in cash.
Even though the peak of the holiday shopping is still months away, game makers are eager to get their software and accessories out now, hoping to build buzz, analysts said.
The Yankee Group consultancy estimates that the console makers lose anywhere from $37 to $117 on every game box they sell -- steep, since Nintendo's GameCube sells in the United States for $149, with Sony's PS2 and Microsoft's Xbox at $199.
That makes game software -- particularly in-house games -- the major remaining profit engine. Major third-party publishers typically pay a royalty to the console maker and keep the lion's share of profits for themselves.
XBOX GOES LIVE
Microsoft, which wants the Xbox to become a digital entertainment hub that changes the living room in the same way the personal computer reinvented the workspace, is running headlong into "Xbox Live," the online gaming service it will launch on Nov. 15.
Demand for the new games is high -- Microsoft said more than 100,000 gamers tried to enroll in Xbox Live tests and orders from retailers for the service's online connection kit really started to accelerate in mid-September.
That kit, which includes a game, a headset for voice communications and a year's subscription, will cost $49.
Meanwhile, more than 200 Xbox games will be on the shelves by year end. Among the upcoming titles Microsoft is counting on are "Quantum Redshift" and "Blinx: The Time Sweeper," which has garnered heavy buzz among the gaming press.
But while industry watchers say Microsoft has shown its staying power, some also question whether its big bet on online gaming will prove a breakaway hit just yet.
"It's definitely something exciting for the enthusiast gamer, but we're in a marketplace where that doesn't really matter anymore," Dan Hsu, editor of fan magazine Electronic Gaming Monthly, said.
CRUCIAL PERIOD
Nintendo, which once dominated the game market, is now running a close third and fighting to keep pace with Microsoft in the market for home-entertainment consoles.
The company, which still dominates the handheld game market, is banking on three main game titles to bring cheer to its holiday season: "Super Mario Sunshine," "Star Fox Adventures" and "Metroid Prime," executives said.
"We recognized that this holiday season was a crucial period," Peter MacDougall, the executive vice president of sales and marketing for Nintendo of America, told Reuters.
Mario, released in late August, is the latest installment in the biggest franchise in gaming and follows the adventures of Nintendo's signature chubby plumber.
"Metroid," and "Star Fox" are key for Nintendo because both are geared toward players in their late teens, an audience outside the company's stronghold of children aged 6 to 14.
Nintendo remains less optimistic than its rivals, and particularly Microsoft, on the near-term prospects for online gaming. "I don't think anybody in the industry believes, certainly this year, that online is going to be a major factor in the market," MacDougall said.
SONY SITS ON TOP
Sony, the market leader, is pinning its fortunes this season on untested games like "Ratchet & Clank" and "Sly Cooper and the Thievius Raccoonus."
Getting a head start on Microsoft, the company also launched its own online adapter for PS2 in August, months before Microsoft launches Xbox Live.
"The initial launch of the network adapter was an unquestionable success," Kaz Hirai, the president of Sony Computer Entertainment of America told Reuters. In fact, Sony might top its target of selling 400,000 of the adapters by the end of 2002, he said.
But Jeetil Patel, an analyst at Deutsche Bank Securities, said Sony has been losing market share in sports games, a key category. Sony's key games this season are also new franchises, a risk in a business that prizes proven concepts, he said.
Even so, all sides agreed that year-end game sales would be generally strong despite the still-weak economy.
"I think that history has proven that this business is recession-proof," Hirai said. |
