The market for video game accessories is dominated by the console manufacturers, as they are usually best able to market additional controllers and other useful bits to their installed base. Third-party game accessories have been a factor in the market for a long time, as they can provide features not present in accessories from the console manufacturers, or often a better value.
One of the leading peripheral manufacturers is Nyko Technologies, headquartered in Los Angeles, California. They've been manufacturing video game peripherals since their founding in 1996 for many different devices. According to the NPD Group, Nyko was the #1 branded third-party manufacturer of console accessories in 2011 with 3.6 million units sold. Nyko's sales in 2011 totaled over $72.5 million, with their best sales coming from their line of Xbox 360 peripherals.
One of Nyko's innovations in peripherals is the Zoom for Kinect, which lets players use the Kinect in a 40% smaller space. The Zoom for Kinect was just awarded US Patent #8,123,622 granting Nyko sole authority to produce "a lens accessory for a video game sensor device and method of adjusting a sensing distance of a video game sensor device."
The video game accessory business in the US dropped 11% in total sales last year, according to the NPD Group figures, compared to an overall drop of 8% for the entire video game hardware and software business. Nyko's founder and CEO, Herschel Naghi, answered some questions from GamesIndustry International regarding the business of selling peripherals and where that business is going.
Q: Does Nyko have plans to move beyond gaming accessories to accessories for smartphones or tablets? Perhaps gaming-related accessories for those devices?
Herschel Naghi: Absolutely. We will consider developing products for non-console platforms if there is consumer demand for a particular accessory and we feel we can provide a solution. For example, we are already working on accessories for the Kindle Fire like our Power Case and Go Audio Pro for Kindle Fire that we unveiled at CES and will soon be bringing to market.
Many markets are crowded by multiple companies who make the same accessory across every platform or device. While choices are always good for the consumer, we know that true success comes from genuine technological innovation. With each new device, Nyko goes through a rigorous process of testing and brainstorming in order to find a unique accessory designed to complement the strengths and shortcomings of the new device. Then we make sure that this idea provides value to the consumer. As we explore peripherals for mobile phones, tablets and other devices, we will keep our focus on gaming-related accessories.
Q: Making unlicensed accessories has led at times to disputes with console manufacturers. What are the pros and cons of licensing versus not licensing, and why have you chosen to avoid licensing?
Herschel Naghi: The pros to licensing include the ability to say your product is officially licensed, put a stamp or seal of approval on the box, and ideally receive support and cooperation during development, marketing and distribution from the first-party licensor. Frankly, the only con is the cost. It can be very expensive to obtain a first-party license, and in some cases the costs outweigh the benefits.
In general Nyko has always been open to producing products licensed by console manufacturers, and in some cases such as our licensed Memory Card for PlayStation 2 we have maintained successful licensing arrangements. In an ideal world all of our products would carry the first-party license, but in reality there can be exorbitant commitments that would impinge on the viability of our business. When need be, we will create hardware without the blessing of the license. In most cases our unlicensed approach is more successful for us and allows us to provide a superior product to the consumer at a lower cost than would have been possible with the license. Plus, we can get them on store shelves sooner.
Most first parties see Nyko as a threat to their business; after all, we fix flaws in designs that represent a great deal of labor and testing. As a result, first parties can be reluctant to license Nyko. But despite these setbacks, we have continued to work hard and include new and advanced features such as our Transport Technology in the Wand. We have made a very successful business by capitalizing on opportunities that first parties have neglected. At its core, our goal is to solve problems no matter the cause so that players have the best possible gaming experience.
"Most first parties see Nyko as a threat to their business"
Q: The Zoom for Kinect, which allows the device to be used in smaller rooms, seems like it would be very useful in countries like the UK and Japan where living space tends to be smaller than the US. Have the sales reflected this?
Herschel Naghi: In general the strongest sales for the Zoom have been in the US but that also happens to be where our strongest distribution channels are. However, there has been overwhelming interest from these regions, and the Zoom is now our best-selling international product. We are actively working with international retailers and distributors to bolster Zoom availability - that way everyone can enjoy the wonders of Kinect.
Q: Are you preparing to create peripherals for the Wii U? If Nintendo doesn't allow for a second tablet controller, do you think it might be possible for you to provide one?
Herschel Naghi: Yes, we're already brainstorming and planning the types of Wii U accessories that can meet a demand or fix a problem that is not addressed at launch. Every new hardware or console launch presents us with an opportunity to identify problems that we can solve through technology. We cannot comment further on unannounced products or unreleased hardware.
Q:Are your controllers typically purchased as replacements for controllers that came with a console, or as extra controllers?
Herschel Naghi: In most cases our customers are purchasing a Nyko controller to be their second, third and fourth controllers for multiplayer gaming, or to replace a first-party controller that has broken or worn down from use. Less common, although we know it does happen, is a customer who outright prefers our controller to the first-party option and will purchase one of ours as a replacement right away. This was especially true with our Raven controller for PS3 which is available in an Xbox-style joystick configuration, something that many PlayStation gamers were actively seeking.
Q:What opportunities do you see for growth for Nyko, when the current generation of consoles is slowing down in sales?
Herschel Naghi: Though thick and thin, Nyko has consistently released new and innovative products through every phase of the console lifecycle. Despite the downturned economy and slower stream of new consoles, my team has continued to develop "outside the box" ideas to create new opportunities for both us and our retail partners. This was shown most recently with the Zoom, which has garnered rave reviews, numerous awards, and amazing retail adoption to become the bestselling Kinect accessory of all time.
There are three ways that Nyko can grow over the next year or two. First of all, we see plenty of opportunities for growth within our traditional demographics just by virtue of expanding our presence and distribution in foreign territories. We have popular products for current-gen systems that are limited only by their availability outside of North American and we know we can do better in getting these products into international markets. This year we hired a new head of international sales for Europe and are continuing to expand our distribution channels in Latin America, Asia and the Middle East.
Second, we are developing accessories for new platforms like PlayStation Vita, Wii U and Kindle Fire. Despite a slowdown in sales for current-gen consoles, thousands of new Xbox 360 and PS3 systems are sold every month, and our products for these consoles continue to sell well.
Lastly, and perhaps most significantly in terms of a new direction for Nyko, we have announced that we are producing in conjunction with W!ldbrain and Yo Gabba Gabba! (the most popular children's entertainment brand) a line of licensed accessories featuring the lovable characters from the hit TV show. Unveiled at CES 2012 and coming soon to market, Nyko's Yo Gabba Gabba! products will help us bring the Nyko brand to a non-traditional demographic of young children, their parents, and fans of the TV show. This represents a major push into a mainstream category for us - we hope to create a whole new generation of Nyko fans!