IT IS a vicious fight—and one that all three participants claim to be winning. Sony, Microsoft and Nintendo are battling for supremacy in the $30 billion video-games industry, a struggle that takes place in rounds lasting five or six years each. The previous round, which began in 2000, pitted Sony's PlayStation 2 (PS2) against Microsoft's Xbox and Nintendo's GameCube. (Sony won, achieving a market share of 70%.) The present round began in 2005, when Microsoft began to sell the Xbox 360. Last year Nintendo came out with its new console, the Wii, and Sony shipped the PlayStation 3 (PS3) in America and Japan. With the start of sales of the PS3 in Europe on March 23rd, all three machines are at last available in all of the world's biggest markets. The fight is just getting started, and already everyone claims to be on top.
Microsoft can justly boast to have sold the most consoles: 10m Xbox 360s since launching the machine in November 2005. The 360 is popular in America and Europe, but is doing badly in Japan (though not quite as badly as the original Xbox did). The head start means that the 360 has by far the best line-up of games, the main reason for buying consoles. Microsoft's online service, Xbox Live, is also impressive, offering game and video downloads and allowing gamers to play together online.
For its part, Nintendo can boast that its new console has taken off the fastest, having sold nearly 6m units since November. The low-cost Wii is proving so popular that it is still hard to come by months after its launch, and is generating by far the most buzz. In part this is because the Wii's motion-sensitive controller means even non-gamers can quickly start playing tennis, golf or bowling. Nintendo hopes this will help to expand the market: non-gamers, it argues, are put off by the complexity of modern games. But sceptics warn that the Wii's novelty could wear off, that it lacks the “high-definition” graphics of its rivals, and that its online features are somewhat rudimentary.
What about Sony? The ageing PS2 outsold both the Xbox 360 and the Wii in America during December, so arguably it still rules the roost. Its maker insists that the PS3's relatively modest sales—2m units since November—are the result of supply shortages, though anecdotal evidence suggests that PS3s are far easier to find than Wiis. The PS3's high price—$499 and $599 in America, and €499 ($660) and €599 in Europe—may be putting buyers off, or prompting them to wait for price cuts. Sony says sales will take off once supply increases. This month it unveiled Home, an impressive virtual world similar to Second Life, which will become available on the PS3 in October and might also boost sales.
Analysts are divided about the outcome. The PS2 “achieved a level of market dominance never seen before, and I'm not sure we'll see again,” says Ed Barton, an analyst at Screen Digest. This time around, he suggests, different winners might emerge in different markets: it seems likely that Sony will do best in Japan and Microsoft in America. The wildcard is the Wii, which could trump the competition by attracting entirely new customers. IDC, a market-research firm, predicts that the Wii will be the bestselling console by 2008, and Merrill Lynch predicts that 30% of American homes will have a Wii by 2011. But Mr Barton warns that the Wii's success depends on publishers producing distinctive games for it. Also, its relatively underpowered hardware could soon look feeble next to the stunning graphics of its rivals.
So far, then, Microsoft has put in a solid performance, Nintendo is doing better than expected and Sony worse. The stakes are highest for Sony, which desperately needs the PS3 to succeed, both to protect its lucrative gaming franchise and to ensure success of its Blu-ray high-definition disc format, on which the PS3 is based. Let battle commence in earnest.
Tuesday, December 4, 2007
Why two big companies are teaming up
LIKE the instruction manuals that used to accompany the industry’s wares, the deal looks a little complicated. On Sunday December 2nd Vivendi, a French entertainment conglomerate, announced that it will merge its video-games division with a subsidiary of Activision, an American counterpart. At the same time it will buy $1.7 billion of new shares in the combined group—Activision Blizzard—implying a value of $18.9 billion for the new company. Shortly after the deal closes, Activision Blizzard will launch a $4 billion buyback of its shares. The upshot will be, if the buyback is fully taken up, that Vivendi gets a 68% controlling stake in the new firm.
Game producers now eschew long manuals, preferring to make games easier to play but harder to master. Vivendi expects that mastering the games industry will be possible, once the complications of the deal’s structure are out of the way. That is a reasonable assumption.
Blizzard Entertainment is the part of Vivendi Games that is responsible for World of Warcraft, a “massive multi-player online role-playing game” to give it the game-speak description. Some 9.3m players subscribe to the biggest web-based game around the world. It accounted for a big chunk of Vivendi’s €804m ($1.1 billion) of games revenues last year. Nearly half that sum was profit. All in all it is an impressive number.
Activision will also be pleased that it has teamed up with Vivendi. It too has done well out of gaming, but of the console variety. Unlike Warcraft, which is played exclusively online, Activision develops games that can be played on the consoles built by Microsoft, Sony and Nintendo. Bringing the two companies together will create a force with a foot in both markets and a firm that will leapfrog EA Games, the world’s current leading games-software company, to become the industry number one, at least in terms of revenue.
The tie-up makes sense because both console gaming and its online counterpart are booming businesses that are set to keep on growing. In 2004 the industry saw its revenues overtake those generated by film box-office receipts. This year it is expected to outstrip the music business with revenues of $37.5 billion, according to PricewaterhouseCoopers (PWC), a consultancy. And the games industry is forecast to expand by over 9% annually over the next few years to become worth $48.9 billion by 2011.
Fancy new consoles—Microsoft’s Xbox 360, Sony’s PlayStation 3 and the Nintendo Wii—require more sophisticated games. Moreover, the rising expectations of gamers for better graphics and gameplay has pushed up the cost of developing new games. Activision Blizzard will be in a better position to finance these and to attract talented developers. Vivendi’s other media businesses could also come in handy. Guitar Hero, one Activision’s biggest hits, may benefit from access to the back catalogue of Vivendi’s Universal Music.
Activision would have found it hard to break into the online gaming world alone. And this is the part of the market that is likely to grow the quickest. In America PWC reckons that revenue from online gaming will increase from $1.1 billion last year to $2.7 billion by 2011 and that on wireless gaming earnings will double to around $1 billion, driven by an increase of in-game advertising.
Vivendi’s gamble is that this segment of the entertainment industry will provide it with the rapid growth that it has found hard to come by at its other old-fashioned media assets. Universal, while faring better than many music companies, is still struggling. Vivendi’s mobile-phone operations and Canal+, its cable-TV business, are growing, if somewhat slowly. At the moment games account for just 5% of Vivendi’s revenues. This deal with Activision should allow the French firm to add considerably to that score.
Game producers now eschew long manuals, preferring to make games easier to play but harder to master. Vivendi expects that mastering the games industry will be possible, once the complications of the deal’s structure are out of the way. That is a reasonable assumption.
Blizzard Entertainment is the part of Vivendi Games that is responsible for World of Warcraft, a “massive multi-player online role-playing game” to give it the game-speak description. Some 9.3m players subscribe to the biggest web-based game around the world. It accounted for a big chunk of Vivendi’s €804m ($1.1 billion) of games revenues last year. Nearly half that sum was profit. All in all it is an impressive number.
Activision will also be pleased that it has teamed up with Vivendi. It too has done well out of gaming, but of the console variety. Unlike Warcraft, which is played exclusively online, Activision develops games that can be played on the consoles built by Microsoft, Sony and Nintendo. Bringing the two companies together will create a force with a foot in both markets and a firm that will leapfrog EA Games, the world’s current leading games-software company, to become the industry number one, at least in terms of revenue.
The tie-up makes sense because both console gaming and its online counterpart are booming businesses that are set to keep on growing. In 2004 the industry saw its revenues overtake those generated by film box-office receipts. This year it is expected to outstrip the music business with revenues of $37.5 billion, according to PricewaterhouseCoopers (PWC), a consultancy. And the games industry is forecast to expand by over 9% annually over the next few years to become worth $48.9 billion by 2011.
Fancy new consoles—Microsoft’s Xbox 360, Sony’s PlayStation 3 and the Nintendo Wii—require more sophisticated games. Moreover, the rising expectations of gamers for better graphics and gameplay has pushed up the cost of developing new games. Activision Blizzard will be in a better position to finance these and to attract talented developers. Vivendi’s other media businesses could also come in handy. Guitar Hero, one Activision’s biggest hits, may benefit from access to the back catalogue of Vivendi’s Universal Music.
Activision would have found it hard to break into the online gaming world alone. And this is the part of the market that is likely to grow the quickest. In America PWC reckons that revenue from online gaming will increase from $1.1 billion last year to $2.7 billion by 2011 and that on wireless gaming earnings will double to around $1 billion, driven by an increase of in-game advertising.
Vivendi’s gamble is that this segment of the entertainment industry will provide it with the rapid growth that it has found hard to come by at its other old-fashioned media assets. Universal, while faring better than many music companies, is still struggling. Vivendi’s mobile-phone operations and Canal+, its cable-TV business, are growing, if somewhat slowly. At the moment games account for just 5% of Vivendi’s revenues. This deal with Activision should allow the French firm to add considerably to that score.
Monday, December 3, 2007
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