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Retail

Rearguard Action

Fri 19 Aug 2011 6:35am GMT / 2:35am EDT / 11:35pm PDT
BusinessRetail

Price drops and redesigns are business as usual - but can this week's Gamescom announcements jumpstart the retail market?

Germany's Gamescom has been rapidly growing in stature as an industry trade event each year - with its increasing importance in global terms being most readily seen from the rapid rise in the number of important announcements made at the event's platform holder conferences. As such, the event's organisers were no doubt delighted this week when Sony and Nintendo took the opportunity to unleash a barrage of major announcements.

Taken in a wider context, though, those announcements start to look worryingly like fire-fighting - and they remain overshadowed by the steady drip of depressing figures from retailers' tills, the most recent being a stat which showed that the UK market has shed a full decade of growth and returned to 2001 figures.

With that in mind, everything from Nintendo's redesigned Wii to Sony's new bargain-basement PSP starts to look like a bit of a rearguard action. Not everyone is suffering equally, and some segments of the market are still seeing growth, but something is rotten in the state of dedicated gaming machines. Slow growth and stagnation are the norm, with genuine decline becoming ever more common - and the platform holders are desperate to jump-start the engine.

There's a sense that the Wii may have gobbled up the territory underneath the PS3 and 360. Nobody's quite sure if a mass market price drop will unlock mass market sales.

Of course, it's not entirely a negative picture. Last week I wrote about digital distribution and the rapid rise of revenues flowing through the industry from digital channels - either simple digital distribution or more exotic business models such as freemium and subscription. These revenues aren't measured in any meaningful or reliable way - we know that they exist, that they're pretty significant and that they're growing rapidly, but that data isn't included in the ostensibly depressing figures we're now seeing each week, which stem solely from traditional and online retail.

That doesn't account entirely for the situation we're in, however, and nor does the wildcard that is the world's macroeconomic malaise (although that's certainly not helping). There are other factors that need to be borne in mind when we're taking the pulse of the console games business right now.

One obvious factor is simply the age of the consoles that are on the market right now. It was noted by several observers that the present sales decline in North America has brought us back to levels last seen at the middle of the decade - which is the point directly before the last console hardware transition. It's normal for the market to take and hold a deep breath at that stage - new machines are coming and consumers slack off from investing in the old generation of hardware.

To a large extent, this explains the Wii's sales problems - Nintendo has, after all, announced a replacement, although the subsequent drop in sales is really only a continuation of a sharp downturn that began long before Wii U confused the hell out of consumers of all stripes at E3. PSP, too, has a replacement on the way which is making its older sibling look tired and unattractive right now. Both of those systems would be entirely expected to have a tough year as the market turns its interest to their replacements.

The PS3 and Xbox 360, meanwhile, are doing relatively well - there's some suggestion of slackening growth in demand, but no real indication that we're going to see a sustained decline for either console in the coming months. They, crucially, don't have a replacement on the horizon. Some commentators suggest that Microsoft may be ready to start talking about the next Xbox by E3 next May; I'd suggest that while both Sony and Microsoft could be ready to talk next-generation in a year's time, both parties would rather not, and will be watching the other side warily to try to avoid being leapfrogged.

You can see just how unprepared we are for a console hardware transition any time soon by looking at the price points being used in the market right now. Sony just cut the PS3's prices, which will put it in a much more competitive position coming into autumn and winter, but still leaves the PS3 as a distinctly premium-priced product - while Microsoft is also sitting at a high price point (for a console that's been on the market for a year longer), and has been keen to actually increase its average selling price by making Kinect bundled consoles into the default purchase.

New players have already got a Wii and a few games for it, and are unlikely to contribute to a major casual boom - because the boom already happened.

This is a predictable but nonetheless interesting consequence of lengthening the console life-cycle - a stated objective of both Sony and Microsoft dating back to long before the present generation of hardware hit the shops. Stretching the cycle from five years to six, seven or even eight (if they can get away with it) could work one of two ways. Either the price of the hardware falls at the same pace it always has, and the last few years of the cycle see the consoles priced at a very low, mass-market level - or that pricing curve is stretched to fill the new graph, so prices stay higher for longer, only hitting mass-market level when new hardware is about to appear and fill the gap at the top of the market.

It's the latter approach that has been taken - unsurprisingly. Four or five years into the life-cycle, the present generation of hardware is still premium priced - even after this latest round of price cuts. There are many reasons for that, not least of which is that they're still selling respectable numbers at the higher price point, so there's little reason to reduce it. There's also a potentially worrying consequence, however.

That consequence is down to the Wii - a console which has been at a mass-market price point for quite some time (and yes, the Xbox 360 Arcade is competitive with the Wii, but it's never really rivalled Nintendo's systems as a mass-market proposition). In general, consoles skate along at a high price point for a few years, and each time that price drops, they tap into a new and increasingly casual strata of the market. This time, there's a sense that the Wii may have gobbled up the territory underneath the PS3 and 360. Nobody's quite sure if the old logic works, or if a mass market price drop will actually unlock mass market sales any more.

That's an important factor to consider when you watch the console manufacturers doing their competitive dance - or when you watch retail sales continue their worrying slide. We're at the point in the cycle where consumers are usually being wowed by new hardware and tempted by formerly unaffordable consoles at mass-market price points, bringing in a host of new players whose more casual tastes support a boom in family-oriented, social software.

This time, however, the new hardware is veiled in mystery (and may not appear for years), the consoles aren't dropping in price too quickly (and are being sold in an economy that's really not keen on spending) and the new players have already got a Wii and a few games for it, and are unlikely to contribute to a major casual boom - because the boom already happened.

It's a tough market, and even the inevitability of strong sales in the run-up to Christmas won't be able to disguise that. Sony's super-cheap PSP (lacking WiFi, an utterly bizarre move for a console whose sole reason for existence in its most successful market, Japan, is the Wi-Fi multiplayer of Monster Hunter), Nintendo's redesigned Wii, the PS3 price drops and the probably inevitable price drop for the Xbox 360 in early autumn - these are all normal moves for the industry, but in the present environment, it's hard to say how much demand they'll kick start. We're in uncharted waters; people are getting their game entertainment from a myriad of sources that aren't consoles, and the five-year cycle is in tatters, with Sony and Microsoft desperate to lengthen it and Nintendo off in a different field playing an entirely different ball game. Nervous jitters over the retail figures are justified - because nobody, least of all the once impregnable platform holders, really knows where the market goes from here.

10 Comments

The one thing no one has looked at is the physical harddrive space that limits a full digital download approach, which can be partially circumvented by a cloud method but it not idea if there is no internet connection.

Posted:3 years ago

#1

Kingman Cheng Illustrator and Animator

954 182 0.2
I personally would have thought it would have been better if they focused their resouces on the WiiU as opposed to the 'Wii Slim'. Considering it's goign to be out months later but oh well.

And Dr. Wong I think you have a very good point there. I'm sure over time there will be such a solution but I don't see it happening at the moment. Although with Steam now on PS3 who knows?

Posted:3 years ago

#2

Terence Gage Freelance writer

1,288 120 0.1
"(lacking WiFi, an utterly bizarre move for a console whose sole reason for existence in its most successful market, Japan, is the Wi-Fi multiplayer of Monster Hunter)"

Y'know, I never understood why Sony didn't make their own PSP equivalent to Monster Hunter given how horrendously popular it has been in Japan for several years now.

EDIT - as for the declining market and the Big Three's attempts to counter that, it's surely just a combination of factors such as the continued economic issues, a number of high-end consumer electronics and/or entertainment means competing for attention as well as market saturation. I mean, last gen the PS2 sold about 140 million units, the Xbox about 25 million and the Wii about 22 million, right? So that's a total of say somewhere between 180-190 million units in total, and if figures are to be believed the Wii's 80 million, and 50+ million for the PS3 & 360 each already make up a similar figure. Maybe we're just at market saturation and there aren't many more consumers who will buy the current-gen machines?

Edited 2 times. Last edit by Terence Gage on 19th August 2011 10:24am

Posted:3 years ago

#3
@ Terence - the thing to consider is, the whole Japanese scene is one convoluted in house incest fest. What i mean is thus, whenever one studio starts a IP, they subcontract locally within a cartel of japanese production houses/artists/programmers/etc.

So, IF you do a monster hunter clone, chances are you will let on, that you doing so. And as such, there may be a loss of giri or open one up for future litigation (if its too similar - the answer is, make it in the same vein and totally not too similar)

And lastly, because the Japanese culture is besieged with maintaining the status quo, very few established companies may take the risk of working on a new IP (in japan). Established brands need sequelitis penned in and focused on. For example, you couldnt imagine there NOT being a zelda game or mario game in the future.

Newer start up companies (2-3 year old) or animation studios have no qualms about producing, directing and making new IP franchises however.

So in a way, its a mixture of old guard, new guard ecology in circulation

Posted:3 years ago

#4

Terence Gage Freelance writer

1,288 120 0.1
It doesn't have to be a straight clone, but surely a co-op fantasy adventure could deliver similar appeal to Monster Hunter without specifically infringing on its territory. I mean, they've even got something not wholly dissimilar in Demon's Souls, but it would seem Sony don't want to keep that brand going (I am aware of course that Dark Souls is Demon's Souls 2 in all but name). If they put Demon's Souls on PSP or Vita, I'd probably have to get the handheld.

Posted:3 years ago

#5
Demon souls ala hunter, would be great on Vita. perfect for Co op play but...the whole point of Demon souls was it was stupidly hard for one player alone.

Co op souls would be a nice thing for westerners though

Posted:3 years ago

#6

Michal Korec Editor/Analyst

9 1 0.1
Ad. own Sony Monster Hunter clone - maybe it doesn't look like it at first sight but when you look at it more carefully, you can find one in White Knight Chronicles Origins (a.k.a Dogma Wars in Japan). It truly is game very similar to Monster Hunter mechanics and Sony even brought it to Europe recently.

The fact it was released just two months after MH 3rd Portable (end of January vs. December 1st) is more interesting - they could have waited, pour some yens to marketing and could get better figures with it. And try to go for the same goal in the West too.

Although, it brings me to another question. Will MH 3rd Portable be first 5m game that won't make it to the West? After all this PSP No Wi-Fi approach vs. need to be competitive on Christmas market, I really don't know.

Posted:3 years ago

#7

Terence Gage Freelance writer

1,288 120 0.1
I haven't really been following WKC: Dogma Wars, even though I have the second game on PS3 at home with the remastered first instalment included. I struggled to enjoy the first game; found it a bit too slow-paced and I'm more a fan of real time combat a la Demon's Souls as opposed to the menu-driven style of semi-real time as seen in WKC, FFXII, Dragon Age, etc. Is Dogma Wars any better? I can see it being quite a good fit for a more simplistic model in the Monster Hunter guise.

Posted:3 years ago

#8

Greg Wilcox Creator, Destroy All Fanboys!

2,193 1,170 0.5
As noted, retail stinks because the money isn't there in a LOT of places. For many gamers who can't or don't buy console content online for any number of reasons, they can't contribute to sales in either direction simply because they can't afford to. I'm sure some of these folks buy and play cheaper mobile/device games by the bucket load (which is great for that segment of the market), but I'd bet any amount of money that most would be spending more money in brick & mortar stores if they had it.

The minor problem with this article is it ignores who's going to be buying up these now (or soon to be) discounted consoles. The pricing will be attractive to those lower income gamers (who are still working and actually have time to play games while working over 40 hours a week) who've somehow managed to avoid buying a PS3, PSP or Wii. From my years working in retail, whenever a major price drop was announced, we always saw a huge increase in sales from consumers who held out because they couldn't afford a system at its initial price point.

Granted, those were the simple days of plug and play. Today's consoles are too much like PC's in that games require patching (some on day one of release), updates and a ridiculous amount of intrusion into what should be for some, a LESS social experience (or one limited to immediate family and friends)...

Posted:3 years ago

#9

Curt Sampson Sofware Developer

596 360 0.6
Does the fact that the E1000 is not being introduced into the Japanese market perhaps indicate that Sony does understand that WiFi is important there? And it's not as if Sony's replacing the 3000 with the E1000 in the PAL markets.

I don't know how the E1000 will do, but it's clearly intended to grab some sales that otherwise simply wouldn't happen. (Anybody more serious about their portable gaming will go for the 3000.) For that market, low price is far more important than features; if losing WiFi allowed them to shave five or ten euros off the price, that could quite well be worthwhile.

Posted:3 years ago

#10

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