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Used Games Are Not the Problem
Jun 25th, 2010 by worldblee

Videogame publishers and analysts are blaming used games for shortfalls in revenue and profit. But the problem goes much deeper than can be explained by any increase in the sales of used games. If people are flush with cash, they will buy a new car. If they’re worried about money, they’re going to buy a used car.

It’s similar with games. Consumers aren’t trying to rip off game developers when they wait a month or three to buy a used copy of the latest hit game—they’re spending less and forcing themselves to wait patiently because a new AAA game is $60, and that money is slotted for rent or food or childcare.

Publishers, led by my friends at EA, have struck back with new pay-for-play access to online features. If you buy a new game, you get a coupon for online play. Buy a used game, and you’ll have to fork over $10 or so for those privileges. Will this slow used game sales? I doubt it. Will it increase revenue for publishers? It will increase DLC sales figures, but it won’t affect the fundamental problem for the industry: there are only so many dollars that can be allocated toward entertainment. The $10 EA takes in from the guy who bought Madden two months after launch is $10 he won’t be spending on NBA Live (sorry, NBA Elite—as one of the guys from the original NBA Live launch, I have trouble letting that one go).

If you try to nickel and dime your customer in a time of financial hardship, you’re endangering your customer relationship over the long haul. In these days of quarterly performance, that lesson is often lost in the boardroom—but ultimately the price will be paid. It will probably just become the problem of a new management team that’s brought in after the current regime is forced out because of declining market share.

A harsh assessment? Most definitely. But I’ve said it before and I’ll say it again: a better strategy is to lower pricing on frontline games. You want to put the hurt on used game sales? Try selling your sports game for $20. Make online play an extra charge, let hardcore fans buy roster packs and extra levels, release limited editions, do what you have to do to extract more value from those willing and able to pay more. But realize that recession is a time to increase market share, not a time to boost profit margins. Maintaining revenues vs. 2008 or 2009 is not going to happen. Publishers will make less money, because there’s less money in the hands of consumers.

If you want to blame someone, blame the financialization of our economy that is transferring cash from the hands of workers into the hands of bankers and other financial wizards who ran up bad bets they expect taxpayers to cover. That’s the real reason people have less money in their pockets for games.

But don’t make the cost of entry so high your customer starts looking for a new door. Like the one to his or her local Gamestop, where they can buy a used copy of last season’s hit game for $40 less than your brand new game. Give your customer a real choice. Put yourself in their shoes and price your games accordingly.

Sorting Out Sony’s Gamescom Announcements
Aug 18th, 2009 by worldblee

Kudos to Sony. It took them long enough, but they finally dropped price to $299 and came out with a smaller, more power-efficient console, the long-rumored PS3 Slim. Because Sony is focused on profitability at a time when the corporation is losing money, they first got their manufacturing costs down before making the move publishers, analysts, and customers alike were waiting for.

The $299 Sony PS3 Slim: Late to the party, but not unwelcome

The $299 Sony PS3 Slim: Late to the party, but not unwelcome

Sony made other good moves at Gamescom, coming up short on only one major item: failing to provide PS2 backward compatibility via software in its latest firmware update. The family that’s still using its PS2 doesn’t want to throw out its huge library of games, but nor do they want to have two consoles to try to plug into their TV or receiver. Sure, they could shift the PS2 to the kids’ room, but in today’s economy people want to see maximum value for their purchase. Sony can argue (and rationally so) that the Blu-ray capability of the PS3 makes the system a great value. And it’s true. But when trying to convince late adopters to pick up a PS3, letting them know they can play all their PS2 games (which every person tempted to buy a PS3 will have) on their new system is a good argument.

Back to the other Sony moves. The PSPgo app store with iPhone-like pricing and size is a good move, although a copycat one. But better copying someone else’s strategy than sticking with the UMD forever. I like it for small developers because for what should be a manageable port (fingers crossed on that one) they can expand the size of their potential market while putting their games on a device that’s actually made for gaming (with real buttons and a D-Pad). Of course, I imagine the crossover between iPhone owners and PSP owners is fairly substantial but the market will be increased nonetheless. For anyone to be able to stay in business making quality games the median price will have to rise above $2, but that’s another discussion.

With Sony’s film offerings for Europe, PSN cards that kids can buy at shops without a credit card, and a €299 (£249 in the UK) console price, Sony has put the pieces in place to strengthen their hand in Europe, where the PS2 brand is strong. I can see Sony being the #2 console in Europe this console cycle.

What I can’t see is the company overtaking the PlayStation 360 in the US. Microsoft has a big lead, their audience skews younger than Sony’s, and they have a strong games lineup and good online services for their paying customers. If MS offered everyone Gold services for free, it would be game over. They could still make money with upcharges for things like Netflix, although the revenue would be far less than they’re making from Gold. But as long as they continue to hold steady on sales I don’t see them changing…

The Battle for Number Two

Unless Nintendo stumbles horribly they’ll remain #1 worldwide. Microsoft will be a strong #2 in the US and Sony may become #2 in Europe. Sony has the PSP market to flank Microsoft with, but MS may eventually get a viable HH platform themselves. Zune HD? I don’t know; we’ll see.

Sony should see a sales lift from their price cuts but it won’t catapult them into the lead unless they have exclusive games that are so absolutely killer that anyone who loves games can’t live without them. If their video offerings become so compelling that you can service all your entertainment needs with a single device, then they could also take the lead in new consoles sold (not total consoles sold; new consoles sold from here on out).

But with the lack of purchasing power of US households it’s a hard time to be hawking $300 machines. The great recession is not going anywhere; over $13 trillion of household wealth has vanished in the US the past couple years and it’s not returning soon. The so-called ‘green shoots’ lauded in the mainstream press are a figment of Fed policy that has pumped a tremendous amount of money back into the financial sector. Having no place to go, it got pushed into stocks. But it didn’t go into consumer pockets and a consumer-driven economy needs low unemployment and higher wages to thrive. Unfortunately, neither of those will arrive in the near future.

However, for a company willing to invest, a down economy offers the opportunity to grow a brand. The New Yorker had an interesting article in April about the success Kellogg had in outspending Post to take a huge chunk of their market share during the Great Depression. When other business cut ad spending, Kellogg increased theirs and boosted profit by 30%, and they kept their increased market share after the depression was over.

Does a similar possibility await Sony or another console maker this cycle? I would argue that Nintendo has already done just that. They came out with the cheapest console, made it fun, and advertised the heck of out it. The battle from here on out is about maximizing the remaining sales in the market And for this, the $299 price helps, but it’s not yet low enough to move millions of consoles in a down economy. Not when you still have to pay $60 for a AAA game.

But a PS3 for $299 with God of War and some other extras? That would be a step in the right direction.

Cool Factor vs. Purchase Intent
Apr 29th, 2009 by worldblee

Gamasutra had an interesting article today looking at game awareness vs. sales in the case of the Wii game MadWorld from PlatinumGames and SEGA. The game had high awareness and good reviews (80+ scores) yet sold only 66K units in the US according to NPD. VGChartz tracks it as 100K units in the US and 180K worldwide, but either way its sales numbers were smaller than expected based on awareness and coverage of the title.

Here’s a quote from the article:

There has been a great deal of speculation about the underwhelming retail performance of PlatinumGames’ MadWorld, but now research firm OTX’s business intelligence tool GamePlan Insights shows detailed data illustrating the often-thin correlation between online acclaim and real-world retail success, particularly on the Wii platform.

As demonstrated by OTX Gaming Insights director Nick Williams at the Los Angeles Game Conference, with slides made available to Gamasutra, the game’s strong awareness among the hardcore online gaming community bore little relationship with its weak awareness among the wider gaming public.

OTX‘s GamePlan Insights tracking tool, based on a survey of 1,000 gamers, had MadWorld‘s purchase intent at only 2.8%, which placed it 41st among Wii titles. Conversely, IGN‘s tracking of its users had the game ranked highest in interest among Wii games.

So what can we learn from this? For starters, without the aid of research we can probably predict that an extremely violent black and white game (although technically it’s not black and white since the blood is red) won’t sell very well. Feast your eyes on the screen below.

MadWorld screenshot from Joystiq.com

MadWorld screenshot from Joystiq.com

As you can see, this is not a game that your average Wii Sports player is going to snap up in the first week of release. It has what I would describe as a self-conconsciously ‘edgy’ design style and really violent play mechanics (although in truth the outcome of gameplay is no more violent than most shooters; you’re carving up people with a chainsaw rather than a shotgun but the effect is the same).

Aside from that, it always, always, always pays to look at interest in your game title from the perspective of your actual customer. You (the designer, producer, artist, writer, engineer, product manager, etc.) may love your game, but if it only appeals to people just like yourself your market will be smaller than if it appeals to, for example, the afore-mentioned Wii Sports players. And gamers on IGN’s Wii channel are not representative of the larger Wii market; they’re core guys closer to your dev team than they are to Wii Fit customers.

In this case, we have a cool niche title that appeals to niche players, which is great if that’s in line with your expectations and budget. But if you’re dealing with Other People’s Money (OPM), which you usually are when dealing with a disc-based console game, you have to know the realistic potential of your game (Note: realistic potential, not the potential you wish for your labor of love).

Depending on the dev budget and marketing, MadWorld may end up turning a profit or at least breaking even (Wii-only development, single player, so they have a shot). But if they overshot the mark, they have no excuse since it should have been easy to prognosticate that this game was not likely to be a huge seller (easy for me to say, I know). New IP, developer not that well known, smaller publisher, and niche-oriented gameplay. Not a single one of those attributes screams, “breakout title!”

The lesson: If you’re making a full budget title don’t let interest from the game press–or from your dev team–get you too excited unless it corresponds to larger (and quantifiable) customer interest. If you’re making an indie game for a core audience, on the other hand, this interest can mean you are on track with something that is going to work for your audience and your budget. Just don’t confuse the two.

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