The Three Titans of Gaming

I would like to share my thoughts on the video gaming industry.

Just to give a basic background, Sony's PlayStation, Microsoft's Xbox, and Nintendo's Wii are the major gaming consoles as of today. Nintendo has enjoyed monopoly for over two decades, and then Sony and Microsoft joined the fray and started commanding a very respectable market for themselves over the last decade and half.

These are the only three players in the market right now, and each has created their own brand image: 

- Nintendo catches them very young with games that are very much fun to play. And they then cater to gamers who grow older by integrating elements of play from their childhood into more mature themes. They are by far the most ingenious game developers, and keep working on new technologies and intuitive gameplay. I personally believe that the Japanese are the best sort of people when it comes to dedication to whatever needs to be done.

- Sony caters more to gamers from the teenage and above. They are very developer friendly, as in, they have very good policies when it comes to third party game developers who want to contribute to the gaming world. Also, Sony ensures loyalty by providing a lot of freebies and discounts, especially free online gaming (this is now one of the most popular forms of play - multiplayer via internet). Sony caters more to gamers who are interested in core gameplay, rather than graphics.

- Microsoft has captured the market that is more interested in graphics. They have really good hardware for this. They are not so friendly when it comes to third party developers though. They charge very high fees to allow them to sell their games on the Xbox platform. But, since many developers first code on the PC, it is easier for them to port the game over to an Xbox, as the architecture is similar.

Since the players are very few, I believe this falls under the oligopoly market. And even though they cater to basically different kinds of gamers (market), most of the games are released on all three platforms. It is only those games that are developed in-house that differentiate them from each other.

Now, we have discussed that a technology change in one product will result in an almost immediate introduction of similar technology in the other products. But, the life cycle of any video game console ranges from 6 to 10 years, during which only support can be provided to the consoles, along with changes pertaining only to storage size. For example, Sony's PlayStation 3 released with Blu-Ray disc technology in 2006, whereas Microsoft's Xbox 360 released with DVD readers in 2005. On a Blu-Ray disc, developers could fit in an entire game on one disc, and utilize extra space for more details. Whereas, the same game would need to be released on 3-4 DVDs for the Xbox. Now, Microsoft could only watch this happen, and not change anything at all, since the games were already being made, and it is impossible to shift to new technology. So, they had to wait till 2013 (8 years) to release their new version of the Xbox with Blu-Ray technology, but this is already stale news.

If we need to consider an off-shoot technology innovation, the Xbox rules the market when it comes to motion gaming (where cameras detect your body movements and reflect the actions on-screen). This was started by Nintendo, and copied also by Sony. However, one must understand that this was done only to capture the family entertainment market, and most core gamers do not care one bit for motion gaming. After all, who wants to exercise while getting entertained? :)

Now, let’s discuss about one player eating into another player's market share. Up until now, this has not happened in the gaming industry. However, both Sony and Microsoft are on the verge of releasing their new consoles. Microsoft has received extremely bad press by the way they have tried to project the capabilities of its new console (they made the mistake of projecting a gaming console as a family entertainment hub - but to an audience of core gamers who were very loyal to the company. The audience was sorely disappointed with this new direction. Also, Microsoft implemented many policies which are very much against the mentality of a gamer). Sony jumped upon this chance, projected every negative point about the new Xbox as a positive point of buying the next PlayStation. And I have read today that there was a poll taken for the general public (i.e., the casual gamers and even non-gamers), and the results for opting the next console weighed heavily on the new PlayStation. Even many previous Xbox loyalists have switched their choice to the PlayStation, just because of one very bad press event. This has caused Microsoft to revert on every single change they wanted to make.

Now, when it comes to pricing of the products we have discussed that pricing is mostly similar or else price wars may trigger. Sony and Microsoft were pricing their current consoles at very comparable prices. But now, coming to the new console, Sony has actually priced it at 100$ lesser than what Microsoft wants to charge (400$ vs. 500$). This has generated even more immense goodwill toward Sony. This may be an initial loss to Sony, but consoles sell in the millions (to give an idea, the PlayStation 2 holds the record of selling 144 million consoles; the PlayStation 3 has sold 85 million consoles to date worldwide).

So, I understand that circumstances can change the position of a player at any time. Branding and focus on what is the ultimate goal is most important, even though you may enjoy profits currently by your way of operations.

Games are locally produced and distributed in the US. They are priced at around 60$. However, when it comes to international markets, they charge 80$ in Australia (they have no choice but to buy the games), and only 2500Rs. – 3000Rs. in India (much lesser than the conversion rate). So, I understand that there are strategies based on the kind of market you are entering into also. As in, Indians are never willing to pay too much in general.

Just to share a fact about the gaming industry. The total revenues and profits of this industry are far higher than that of the Hollywood industry. For example, in 2011, Gaming industry generated 17.02 billion $, whereas Hollywood generated 9.42 billion $.

Grand Theft Auto 5 was made on a budget of 265 million dollars, which is more than any Hollywood movie ever made till date. They had 7 million pre-orders, and made revenues of 1 billion dollars in just 3 days, which is a record in the entertainment industry of any form. However, I have read that 50% of this goes to the video game producer, and most of the rest goes to the retailers. So the company is yet to realize a profit.

There is a huge market for it, and India is currently an untapped market. The only foray has been into mobile platform.