Console wars

A look at the intense competition in the game console world, where launches are now bigger than in Hollywood.

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By  David Crow Published  October 18, 2007

It was the biggest event yet seen in the US$35bn global video game industry. Halo 3, the shoot-em-up sensation for Microsoft's Xbox 360, took US$a170m in the US alone in its first 24 hours on sale last month; it flew off the shelves in the Middle East too. The game blitzed Hollywood's blockbuster opening of the year, Sony Pictures' Spider-Man 3, which took in a comparatively miserable US$151m at the box office during its three-day opening weekend in May.

More than 1.7m Halo 3 units were pre-ordered in the US before it went on sale at midnight on September 25, making it the biggest pre-selling game in history. Halo 3 was released within a couple of days in 37 countries, including the UK, and 17 languages, matching the scale and sophistication of Hollywood's marketing armoury. Gaming is bigger than Hollywood, at least when it comes to individual launches. The overall film business, with more outlets and a greater range of spin-offs, is projected to achieve revenues of US$84bn globally this year, more than double the US$37.5bn forecast for the game industry, according to accountants PricewaterhouseCoopers.

But gaming is catching up fast: console, portable and PC game sales in the US hit US$13.5bn in 2006, up 18% on the previous year, according to NDP, a market analyst. US sales will hit US$16bn - US$18bn this year. More mouthwatering still is the profit mark-up on the games. Sony will see an estimated profit margin of 46% on Spider-Man 3, according to SNL Kagan, an entertainment research firm; Microsoft has the potential to see a profit margin of 90% or more on Halo 3. Although Spider-Man 3 will probably bring in worldwide revenues of US$1.4bn for Sony, eclipsing Halo 3, the game stands to make Microsoft a profit of more than US$500m - not far short of Sony's expected profit of US$628m on its blockbuster film.

The video games market has changed beyond recognition since the 1980s, when customers could choose between the charms of Italian pizza chef Mario (courtesy of Nintendo) or hyperactive blue hedgehog Sonic (from Japanese rival Sega). Back then the supporters of games consoles were fiercely loyal and crossing the Sega-Nintendo divide was nothing short of sacrilege; today, the Facebook generation is much less loyal. Sega abandoned the field to concentrate on arcade machines after Sony's PlayStation 2 wiped it off the map in 2001, around which time Microsoft also made a play for the market with its Xbox. But one thing hasn't changed: manufacturers remain locked in "console wars", an intense and often bitter battle to provide the best graphics and games.

Now in the "seventh generation" of video games, the major players are vying for the top spot in a market where overall revenue is expected to increase by 42% in 2009. By 2012, when the companies are expected to move to the next generation of machines, total sales of today's top three - the Nintendo Wii, Sony PlayStation 3 and Microsoft Xbox 360 - will total 210m.

For now, Nintendo is well and truly on top. In fiscal 2007, it reported an 89% increase in sales and a 77% rise in net income, pushing its market cap to 8.4 trillion. Astonishingly, it became the second most valuable Japanese company after Toyota last month. In the UK, the Wii has become the fastest selling console of all time, shifting over one million units in the 38 weeks since its launch. This success has been repeated across the globe; the Wii has sold 9m units worldwide compared to 8.9m for Microsoft's Xbox, despite the fact that the American company launched over a year earlier. It is also far more profitable than Sony or Microsoft's products: both lose money on consoles which they hope to recoup from game royalties.

The Wii - which costs around US$360 - makes Nintendo US$74 on every unit sold in Europe, US$49 in the US and US$13 in Japan. By contrast, Microsoft's Entertainment and Devices Division - which houses the Xbox business - lost US$693m in 2006 while the game segment of Sony's business produced an operating loss of US$1.97bn in fiscal 2007.

Nintendo's success story is simple. Its machine is cheap because it is comparatively unsophisticated. While hardcore gamers have bemoaned the product's below-par graphics and lack of feature-length games, the firm is happy to leave this market behind. Instead it has targeted the Wii at a new kind of consumer: the casual gamer. This buyer has neither the time nor inclination to spend hours mastering complex games, instead preferring to spend five or 10 minutes a day playing a simple, challenge-based game.

4265 days ago
Hussain Motabagani

As a veteran gamer I can confirm every thing you said. I remember the old days vividly - the release of Mario and Sonic the Hedgehog. Gaming has drastically evolved over the decades. Personally I do enjoy a game more than movie. As a player I find myself more involved in the plot rather than just an observer. Many games also offer more in their genre compared to the movies up close and personal, for instance. Sci fi action... halo 1 was one remarkable game that forced you to admire it. Compare to halo 1...halo 3 is a disappointment. Horror, Doom 3, F.E.A.R, and Resident evil offered an extreme rush of adrenaline in scary situation. It's not watching a person die helplessly.. its you being confronted with death. Video games are the future of entertainment, but sadly I find games falling short educationally. I wish the game developers would create more games teaching children how to read and spell rather than killing aliens and stealing cars. Also i think women should get more involved and develop video games for "HER" where as most video games are biased towards the male gender. It is only a few titles that can be called "unisex" - games like the new versions of Sonic the Hedgehog and Mario. I would also like to see an Arab push for video game development...

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