The European way to think the Digital World www.idate.org IDATE – BP4167 – 34092 Montpellier cedex 5 – Tel : +33(0)467 144 444 – Fax : +33(0)467 144 400 – info@idate.fr Video games: NextGen gaming is on its way! Laurent MICHAUD Carole MANERO Mathieu MASSOT Laurence MEYER M23304 -2004 Copyright IDATE 2005, BP 4167, 34092 Montpellier Cedex 5, France Tous droits réservés – Toute reproduction, stockage ou diffusion, même partiel et par tous moyens, y compris électroniques, ne peut être effectué sans agreement écrit préalable de IDATE. All rights reserved. None of the contents of this publication may be reproduced, stored in a retrieval system or transmitted in any form, including electronically, without the prior written permission of IDATE. ISBN: 2-84822-040-6 Video games : nextgen gaming is on its way!! 2004 edition © IDATE 3 Table of contents Executive summary.............................................................................................................................. 9 1. The console wars ........................................................................................................................... 15 1.1. Home consoles: heading for the next generation! ................................................................. 15 1.1.1. Battle of the 3 giants .................................................................................................... 15 1.1.2. Sony wins the 128-bit home console battle ................................................................. 22 1.1.3. Scheduled release of nextgen consoles...................................................................... 24 1.2. Handheld consoles: the end of a monopoly........................................................................... 26 1.3. Video games and TV.............................................................................................................. 33 1.3.1. Hollywood cosying up to the video games industry?................................................... 33 1.3.2. TV programmes devoted to video games.................................................................... 34 1.3.3. Interactive TV programmes dedicated to gaming........................................................ 35 2. Publishers’ challenge: negotiating the sector’s globalisation .................................................. 41 2.1. All grown up! .......................................................................................................................... 41 2.1.1. Electronic Arts, enjoying the lion’s share..................................................................... 41 2.1.2. Development strategy.................................................................................................. 44 2.1.3. Editorial strategy .......................................................................................................... 45 2.1.4. The next technological turn.......................................................................................... 46 2.1.5. The sector’s concentration........................................................................................... 47 2.1.6. Development of online operations ............................................................................... 51 2.1.7. Developing mobile handset operations ....................................................................... 52 2.2. Strategic analysis of the world’s top 15 publishers ................................................................ 54 Activision ............................................................................................................................... 54 Bandai .................................................................................................................................. 60 Capcom................................................................................................................................ 65 Electronic Arts ....................................................................................................................... 71 Infogrames Entertainment/Atari ............................................................................................ 80 Konami ................................................................................................................................. 89 Microsoft............................................................................................................................... 95 Nintendo .............................................................................................................................. 100 Sega Corporation ................................................................................................................ 106 Sony Corporation ................................................................................................................ 113 Square Enix Co ................................................................................................................... 121 Take-Two Interactive Software ........................................................................................... 128 THQ.................................................................................................................................... 136 Ubi Soft Entertainment ........................................................................................................ 144 Vivendi Universal Games.................................................................................................... 153 3. Year One for mobile gaming ....................................................................................................... 159 3.1. Personal Digital Assistants (PDA) and Smartphones .......................................................... 159 3.2. Hybrid mobiles ..................................................................................................................... 166 3.3. Upgraded classic mobiles .................................................................................................... 168 3.4. The mobile gaming market................................................................................................... 173 3.5. A selection of market evaluations ........................................................................................ 174 3.6. Underlying hypotheses......................................................................................................... 174 Video games: NextGen gaming on its way! 4 © IDATE 2004 edition 3.7. Mobile games: typology ....................................................................................................... 176 3.7.1. Single player mobile games....................................................................................... 176 3.7.2. Multiplayer mobile games .......................................................................................... 177 3.8. The value chain.................................................................................................................... 178 3.8.1. Copyright holders....................................................................................................... 179 3.8.2. Platform providers and mobile game publishers ....................................................... 182 3.9. Leading players.................................................................................................................... 183 3.9.1. Incumbent video game publishers............................................................................. 183 3.9.2. Other mobile gaming publishers ................................................................................ 187 4. Online gaming: current state & future prospects ..................................................................... 199 4.1. Web-based games............................................................................................................... 199 4.1.1. GSP ........................................................................................................................... 201 4.1.2. Massively multiplayer games: allure or a lure?.......................................................... 206 4.1.3. International tournaments: both spectacle & electronic sport.................................... 215 5. Market forecasts.......................................................................................................................... 219 5.1. Console market estimates: equipment and software........................................................... 219 5.1.1. Home console market estimates ............................................................................... 219 5.1.2. Handheld console market estimates.......................................................................... 224 5.2. Estimates for the PC game market ...................................................................................... 225 5.3. Estimates for the video game market, worldwide ................................................................ 226 6. Framework data: equipment and markets ................................................................................. 231 6.1.1. Germany .................................................................................................................... 231 6.1.2. South Korea ............................................................................................................... 235 6.1.3. Spain & Portugal........................................................................................................ 238 6.1.4. France........................................................................................................................ 242 6.1.5. Italy ............................................................................................................................ 247 6.1.6. Japan ......................................................................................................................... 251 6.1.7. The United Kingdom .................................................................................................. 255 6.1.8. The United States ...................................................................................................... 260 7. Survey........................................................................................................................................... 267 7.1. French gamers’ profile ......................................................................................................... 267 7.1.1. Socio-economic factors ............................................................................................. 268 7.1.2. Time spent gaming .................................................................................................... 273 7.1.3. Gamers and the internet ............................................................................................ 281 7.2. Profile of North American gamers........................................................................................ 284 Video games : nextgen gaming is on its way!! 2004 edition © IDATE 5 Table of figures Table 1: Estimated worth of the video game market, worldwide 2003-2008 (million EUR) .................. 10 Table 2: Breakdown of the 128-bit console base on 31/12/2003.......................................................... 10 Table 3: Number of massively multiplayer game subscriptions worldwide ........................................... 13 Table 4: Xbox sales worldwide as of 31/12/2003.................................................................................. 15 Tableau 5: GameCube sales worldwide as of 31/03/2003.................................................................... 17 Table 6: PS2 sales worldwide as of 31/12/2003 ................................................................................... 18 Table 7: The Phantom.......................................................................................................................... 21 Table 8: Breakdown of the worldwide base of 128-bit consoles as of 31/12/2003 ............................... 22 Table 9: Evolution of console prices in Europe, 2000-23003................................................................ 23 Table 10: Price of consoles in Japan in 2003........................................................................................ 24 Tableau 11: Number of Nintendo handhelds sold worldwide as of 31/03/2003.................................... 28 Table 12: Leading digital TV platforms around the world which offer interactive TV games ................ 35 Table 13: World’s leading interactive TV game publishers ................................................................... 37 Table 14: Leading iTV game developers in the UK............................................................................... 39 Table 15: World’s top 20 video game publishers, 2002-2003............................................................... 42 Table 16: World’s top third party publishers, fiscal 2002-2003 ............................................................. 43 Table 17: Evolution of pre-production & development schedules......................................................... 44 Table 18: Effect of technological shifts on production teams ................................................................ 45 Table 19: Effect of technological shifts on development budgets (K EUR)........................................... 45 Table 20: Principal acquisitions in the video game industry since 2001............................................... 48 Table 21: Principal mergers in the video game industry since 2001..................................................... 49 Table 22: Principal business closures in the video game industry since 2001 ..................................... 49 Table 23: Principal start-ups in the video game industry since 2001.................................................... 51 Table 24: Massively multiplayer games marketed by SOE................................................................. 120 Table 25: Summary of the mobile data services marketed by Japan’s three operators ..................... 173 Table 26: Comparison of market forecasts for 2006, published by a selection of market research firms (billion USD) ............................................................................................................................... 174 Table 27: Comparison of market forecasts for 2003, published by a selection of market research firms (billion USD) ............................................................................................................................... 174 Table 28: Selection of partnership agreements between game publishers/content providers and mobile telephony players ........................................................................................................................ 180 Table 29: Selection of mobile game publishers and platform providers ............................................. 182 Table 30: Selection mobile game publishers and platform providers, from the video game or PC world .................................................................................................................................................... 183 Table 31: Selection of content providers ............................................................................................. 183 Table 32: Incumbent mobile game publishers..................................................................................... 184 Table 33: Other publishers and providers of mobile gaming platforms............................................... 197 Table 34: Services offered by GSPs ................................................................................................... 201 Table 35: Number of subscriptions to persistent universe massively multiplayer games................... 208 Table 36: Massively multiplayer titles.................................................................................................. 215 Table 37: Estimated home console base 2003-2008 (32-64-128 bit-Next Generation) .................... 219 Table 38: Estimated home console sales 2003-2008 (million units).................................................. 220 Table 39: Estimated home console sales turnover 2003-2008 (million EUR)..................................... 220 Table 40: Estimated home console gaming software sales 2003-2008 (million EUR) ....................... 222 Table 41: Estimates for the home console market: software + equipment 2003-2008 (million EUR) 224 Video games: NextGen gaming on its way! 6 © IDATE 2004 edition Table 42: Estimates for the entire handheld console market: software + equipment 2003-2008 (million EUR)........................................................................................................................................... 224 Table 42: Estimated PC gaming software sales 2003-2008 (million EUR)......................................... 225 Table 43: Estimated gaming software sales(home consoles + PC) 2003-2008 (million EUR)........... 225 Table 44: Estimates for Europe’s video game market 2003-2008 (million EUR)................................ 226 Table 45: Estimates for Japan’s video game market 2003-2008 (million EUR).................................. 227 Table 46: Estimates for the US video game market 2003-2008 (million EUR)................................... 227 Table 47: Estimates for the world video game market 2003-2008 (million EUR) ............................... 228 Table 48: Geographical breakdown of the world video game market 2003-2008 (million EUR) ....... 229 Table 49: Installed hardware base in Germany (2002) ....................................................................... 231 Table 50: Video game software sales in Germany (2002) .................................................................. 231 Table 51: Software market in Germany (2002) ................................................................................... 231 Table 52: Breakdown of the home console market by manufacturer in Germany (2002) .................. 232 Table 53: Breakdown of the latest generation home console market in Germany, by producer (2002) .................................................................................................................................................... 233 Table 54: Players on the German market ........................................................................................... 234 Table 55: Installed hardware base in South Korea (2002).................................................................. 235 Table 56: Video game software sales in South Korea (2002)............................................................. 235 Table 57: Software market in South Korea (2002).............................................................................. 235 Table 58: Breakdown of the home console market in South Korea, by manufacturer (2002) ............ 236 Table 59: Players on the Korean market............................................................................................. 237 Table 60: Installed hardware base in Spain & Portugal (2002)........................................................... 238 Table 61: Video game software sales in Spain & Portugal (2002)...................................................... 238 Table 62: Software market in Spain & Portugal (2002)....................................................................... 238 Table 63: Breakdown of the home console market in Spain & Portugal, by manufacturer (2002) .... 239 Table 64: Breakdown of the latest generation home console market in Spain & Portugal (2002)...... 240 Table 65: Players on the Spanish and Portuguese markets............................................................... 241 Table 66: Installed hardware base in France (2002)........................................................................... 242 Table 67: Video game software sales in France (2002)...................................................................... 242 Table 68: Software market in France (2002)....................................................................................... 242 Table 69: Breakdown of the home console market in France, by manufacturer (2002) ..................... 243 Table 70: Breakdown of the latest generation home console market in France (2002) ..................... 244 Table 71: Players on the French market ............................................................................................. 245 Table 72: Installed hardware base in Italy (2002) ............................................................................... 247 Table 73: Video game software sales in Italy (2002) .......................................................................... 247 Table 74: Software market in Italy (2002) ........................................................................................... 247 Table 75: Breakdown of the home console market in Italy, by manufacturer (2002).......................... 248 Table 76: Breakdown of the latest generation home console market in Italy (2002) .......................... 249 Table 77: Players on the Italian market............................................................................................... 250 Table 78: Installed hardware base in Japan (2002) ............................................................................ 251 Table 79: Video game software sales in Japan (2002) ....................................................................... 251 Table 80: Software market in Japan (2002) ........................................................................................ 251 Table 81: Breakdown of the home console market in Japan, by manufacturer (2002) ...................... 252 Table 82: Breakdown of the latest generation home console market in Japan (2002)....................... 253 Table 83: Players on the Japanese market......................................................................................... 254 Table 84: Installed hardware base in the UK (2002)........................................................................... 255 Table 85: Video game software sales in the UK (2002)...................................................................... 255 Table 86: Software market in the UK (2002)....................................................................................... 255 Video games : nextgen gaming is on its way!! 2004 edition © IDATE 7 Table 87: Breakdown of the home console market in the UK, by manufacturer (2002) ..................... 256 Table 88: Breakdown of the latest generation home console market in the UK (2002)...................... 257 Table 89: Players on the British market .............................................................................................. 258 Table 90: Installed hardware base in the US (2002)........................................................................... 260 Table 91: Video game software sales in the US (2002)...................................................................... 260 Table 92: Software market in the US (2002)....................................................................................... 260 Table 93: Breakdown of the home console market in the US, by manufacturer (2002) ..................... 261 Table 94: Breakdown of the latest generation home console market in the US (2002)...................... 262 Table 95: Players on the US market ................................................................................................... 263 Table 96: Structure of the gamer sample, according to age and sex ................................................. 268 Table 97: Date and price of purchase of the 3D card ......................................................................... 270 Table 98: Consoles owned by gamers ................................................................................................ 271 Table 99: Average time spent gaming per week, according to favourite platform .............................. 273 Table 100: Leading times of day spent gaming................................................................................... 274 Table 101: Top three favourite types of video game........................................................................... 277 Table 102: Video game buying modes................................................................................................ 279 Table 103: Preferred payment method................................................................................................ 280 Table 104: Time spent on the internet................................................................................................. 281 Table 105: Propensity to pay for a downloaded video game .............................................................. 284 Figure 1: Installed base of PlayStation 2 to end July 2003 ................................................................... 18 Figure 2: Installed base of PlayStations and PS Ones in PAL zones ................................................... 20 Figure 3: Installed base of PlayStations and PS Ones in Western Europe .......................................... 20 Figure 4: Installed base of PlayStations and PSOnes other territories ................................................. 21 Figure 5: Home console manufacturers’ share of the market as of 31/12/2003 ................................... 23 Figure 6: How to use Sky Gamestar ? .................................................................................................. 38 Figure 7: Third party publishers’ market share in fiscal 2002-2003 ...................................................... 41 Figure 8: Menu and applications (examples) on O2’s PDA portal ...................................................... 160 Figure 9: Examples of downloadable games ...................................................................................... 161 Figure 10: Examples of applications on the MDA II ............................................................................ 162 Figure 11: Menu and applications (examples) on T-Mobile Germany’s MDA II.................................. 162 Figure 12: Menu and applications on the SonyEricsson P900............................................................ 164 Figure 13: Chess game pre-installed on the P900.............................................................................. 165 Figure 14: Screenshot of the V-Rally game on P900.......................................................................... 165 Figure 15: Examples of games on the N-Gage (download) ................................................................ 166 Figure 16: Examples of games on the N-Gage (MMC Card).............................................................. 167 Figure 17: Java "over-the-air" download applications ......................................................................... 169 Figure 18: Screenshot of Darts and Drinks 2: Favorite enemy ........................................................... 170 Figure 19: Screenshot of Bubble Soccer............................................................................................. 171 Figure 20: Screenshot of The Black Citadel........................................................................................ 173 Figure 21: Market forecasts for the mobile entertainment and mobile gaming sectors, 2003 to 2008 (billion USD) ............................................................................................................................... 175 Figure 22: Breakdown of turnover for the mobile entertainment segment, by type of service, in 2003 and 2008 (billion USD) ................................................................................................................ 175 Figure 23: Geographical breakdown of the mobile gaming market, in 2003 and 2007 (million USD) 175 Figure 24: Screenshot of the Mogi game ............................................................................................ 178 Figure 25: Mobile gaming industry value chain................................................................................... 179 Figure 26: Value chain according to CodeToys .................................................................................. 188 Video games: NextGen gaming on its way! 8 © IDATE 2004 edition Figure 27: Examples of games available on In-Fusio’s ExEn platform............................................... 192 Figure 28: In-Fusio’s business model.................................................................................................. 192 Figure 29: Panasonic handset equipped with ExEn............................................................................ 193 Figure 30: Screenshot of the Lord of the Rings: Return of the King game, from Verizon Wireless.... 194 Figure 31: Screen shot the Mogi game, offered by KDDI ................................................................... 196 Figure 32: Growth of subscribers to the leading massively multiplayer games .................................. 208 Figure 33: Growth of the home console base 2003-2008 (32-64-128 bit-Next Generation)............... 219 Figure 34: Estimated home console sales 2003-2008 (million units)................................................. 220 Figure 35: Growth of home console sales turnover 2003-2008 (million EUR).................................... 221 Figure 36: Home console sales turnover in Europe 2003-2008 (million EUR) ................................... 221 Figure 37: Home console sales turnover in Japan 2003-2008 (million EUR) ..................................... 221 Figure 38: Home console sales turnover in the US 2003-2008 (million EUR)................................... 222 Figure 39: Growth of home console gaming software sales 2003-2008 (million EUR) ...................... 222 Figure 40: Home console gaming software sales in Europe 2003-2008 (million EUR) ...................... 223 Figure 41: Home console gaming software sales in Japan 2003-2008 (million EUR)........................ 223 Figure 42: Home console gaming software sales in the US 2003-2008 (million EUR)....................... 223 Figure 43: Growth of the entire handheld console market: software + equipment 2003-2008 ........... 224 Figure 44: Growth of the PC gaming software sales 2003-2008 (million EUR).................................. 225 Figure 45: Growth of the gaming software sales (home consoles + PC) 2003-2008 (million EUR) ... 226 Figure 46: Growth of Europe’s video game market 2003-2008 (million EUR).................................... 226 Figure 47: Growth of Japan’s video game market 2003-2008 (million EUR)...................................... 227 Figure 48: Growth of the US video game market 2003-2008 (million EUR) ....................................... 228 Figure 49: The world video game market 2003-2008 (million EUR) ................................................... 228 Figure 50: Video game market segmentation ..................................................................................... 229 Figure 51: Growth of the world video game market 2003-2008 (million EUR).................................... 229 Figure 52: Geographical breakdown of the world video game market in 2003 and 2008................... 230 Figure 53: Pyramid of gamers’ age ..................................................................................................... 268 Figure 54: Breakdown of gamers by professional status .................................................................... 269 Figure 55: 3D card.............................................................................................................................. 269 Figure 56: Favourite platform .............................................................................................................. 270 Figure 57: Structure of the French base, by manufacturer – Q1 2004 ............................................... 271 Figure 58: Intended future purchases – consoles ............................................................................... 272 Figure 59: Hours per week devoted to gaming ................................................................................... 273 Figure 60: Gaming times, according to sex......................................................................................... 274 Figure 61: Gaming times, according to time spent gaming per week ................................................. 275 Figure 62: Number of video games owned ......................................................................................... 275 Figure 63: Average number of games owned, according to age ........................................................ 276 Figure 64: Swapping games between friends ..................................................................................... 276 Figure 65: Number of second hand video games purchased ............................................................. 277 Figure 66: Favourite type of video game............................................................................................. 278 Figure 67: Annual video game budget ................................................................................................ 279 Figure 68: Estimated monthly entertainment budget .......................................................................... 280 Figure 69: Type of connection............................................................................................................. 281 Figure 70: Online gaming on console.................................................................................................. 282 Figure 71: Types of games played on the internet.............................................................................. 282 Figure 72: Types of product ordered online ........................................................................................ 283 Figure 73: Type of product bought online............................................................................................ 283 Video games : nextgen gaming is on its way! 2004 edition © IDATE 9 Executive summary The next technological turn The next generation of consoles is scheduled for release in 2006, bringing with it a range of technological features that developers will need to master. This naturally involves an accelerated learning curve on the new development tools supplied by console manufacturers. In the past, this step has sometimes been underestimated which, in turn, has had a considerable impact on production budgets. But technological advancements and their budgetary impact are not the only elements that game designers have to take into account. Software sales in the video game sector are highly seasonal, and hardware sales are affected by the consoles’ lifespan. This last element has now become a key factor in the business. The video game market is driven by console sales and, almost simultaneously, by the sale of the games themselves. A console’s lifespan is between 5 and 6 years. Sony, however, is attempting to prolong this longevity by recycling their PlayStation into the PSOne and their PS2 into the PSX. The Japanese giant thereby hopes to be marketing the latest version of their console for 10 years. Here, Microsoft, in a bid to outdo the competition, plans to shorten the lifespan of their consoles. The Redmond-based firms has announced the release of their Xbox 2 for the end of 2005. But will this be enough to gain a strong foothold? Sega had also opted for this strategy, and launched their Dreamcast console a year before Sony’s PS2. Three years later, they announced that they were pulling out of console production altogether. The release of each new home console means a new catalogue of games, the new titles taking advantage of the machine’s new technological features. When a console is launched, 20 to 40 new games are marketed alongside it. The catalogue grows only gradually, and cannot be considered consequential until roughly 18 months after the console’s release. During the fifth year of a console’s shelf life, software sales begin to drop, and gamers are by that time beginning to look forward to the release of the next gen console within the next two years. The sales cycle for games generally runs the same course as for the consoles themselves, but running 6 to 12 months behind. Added to this, the growth curve of the console software market is longer than the curve for hardware sales. Publishers and developers are caught in the consoles’ growth cycle, and must conform to the demands of a market which is increasingly competitive from a design and publishing standpoint: quality of the products, time to market, production costs, ubiquity of licences, increased marketing budgets… Technological leaps require players along the value chain to adapt their marketing tools, the size of their investments, their distribution structure… A great many players were incapable of adapting their operations, and either closed up shop or were taken over by the few lucky survivors. The most critical year for the industry was in 2002. Of the 52 operations in the industry, over half involved shutting down a business. The PC gaming software market is growing slowly but steadily. It will continue to expand in the coming years since personal computers continue to be the sole platform for several categories of gaming: massively multiplayer games (although they are beginning to emerge on home consoles as well, e.g. Final Fantasy), real time strategy games which need a keyboard to be played, Flash games, online titles for casual gamers… But consoles are establishing themselves more and more as the leading edge gaming platform, even amongst gamers who own a PC. Because of this, we can predict that when the next generation of consoles and games is released, households will elect to devote a sizeable share of their entertainment budgets to them, at the expense of other forms of entertainment and PC games. This market could therefore experience a seasonality opposite to the one experienced by consoles. Video games : nextgen gaming is on its way! 10 © IDATE 2004 edition Table 1: Estimated worth of the video game market, worldwide 2003-2008 (million EUR) 2003 2004 2005 2006 2007 2008 Home console market (hardware) 7 453.3 5 096.7 2 773.3 8 281.7 12 673.3 13 426.7 Home console software market 10 300.0 9 805.0 9 175.0 11 475.0 13 780.0 15 150.0 Handheld console market (hardware) 1 521.2 1 596.5 3 803.1 4 674.8 4 795.6 3 939.0 Handheld console software market 2 741.0 3 611.2 5 087.9 5 725.0 5 868.6 5 501.5 PC gaming software market 3 525.0 3 849.0 3 953.0 3 930.5 3 657.0 3 493.5 Total 25 540.5 23 958.4 24 792.3 34 087.0 40 774.5 41 510.7 Source : IDATE Sony wins the battle of the home consoles At the end of 2003, there was a worldwide base of 97.64 million latest generation home consoles. Sony emerges victorious in the 128-bit console wars, in large part thanks to a wise choice of features (standard issue DVD player, compatibility with PlayStation games). The Japanese firm boasts a 70% share of the world market. This consoles war was waged over technology, the machines’ features, the catalogue of available games, marketing and pricing. Table 2: Breakdown of the 128-bit console base on 31/12/2003 Microsoft Xbox Nintendo GameCube Sony PS2 Number of consoles sold (million) 13.70 13.94 70.00 Source: IDATE, based on industry data Manufacturers of the next generation of consoles are keeping quiet about the technical features and functionalities that will equip their machines which are scheduled for release in 2006. But, there is no doubt that the next batch of consoles will boast an expanded range of features to include family multimedia. To increase the size of their user base, consoles need to attract the whole family. The goal needs to appeal to father, mother, sister and brother to meet the demands of the maximum number of users, and to create a consensus within the family when shopping for a new home entertainment device. This means that the PS3’s built-in DVD player/burner and hard drive could seal the deal with parents in the same way that the PS2’s DVD player did. The same holds true for the inclusion of Web browsing capabilities as a standard feature. This feature can enable ecommmerce browsing, access to e-learning applications and, of course, massively multiplayer online gaming. Connection to the Web also opens the way to a number of possibilities for electronic content distribution that have been a laborious process over PCs up to now. A number of prospects are also opened up in the areas of film, music and digital photography. Nintendo may, however, remain faithful to their longstanding gamer and gaming-centric strategy. The expansion of consoles’ functionalities to include a full range of interactive family entertainment could therefore involve only Microsoft and their Xbox 2, and Sony and their PS3. The consoles’ placement in homes, next to the TV or the stereo is highly strategic. Their simplicity of use make them the ideal platform for hosting related content. This means that it becomes entirely imaginable for a console to become a device for acquiring music or films off the Web (via download or broadcast in streaming). Ultimately, new generation consoles could well become portals to new technologies for all of the home’s audio and video based entertainment. They will embody convergence and enjoy a very good chance of succeeding there were PCs (too complex) and set-top boxes (too little deployed) have failed up until now, and while awaiting the development of 3G networks and the 3G mobile handset market. Video games : nextgen gaming is on its way! 2004 edition © IDATE 11 Handheld consoles: the end of a monopoly Nintendo is the world’s leading producer of handheld consoles. For now, they have no serious competition. In March 2003, the worldwide base of their latest handheld, the GameBoy Advance, totalled more than 45 million units. But Nintendo’s hegemony could begin to be undermined by Sony in the coming months. Aside from games Sony’s PSP can read video and music. By marketing a handheld console, Sony complete their product range and aim to be able to reach all types of gamers. The mobile PSP for youngsters, the PS2 (in the living room or bedroom) for teenagers and the PSX (in the living room) for the whole family. Nintendo are not resting on their laurels, however, having announced the Nintendo Dual Screen for late 2004. The console will be equipped with 2 three-inch LCD TFT screens, an expanded 128 Mb memory and Bluetooth technology. Faithful to their existing policy, rather than going head to head with their rivals, Nintendo will be offering a radically different product. The Nintendo DS will offer bleeding edge playability to give their customers an entirely new gaming experience, whereas Sony will be expanding their PSP’s features to include multimedia capabilities. Phone manufacturer Nokia’s N-Gage phone-console could be the dark horse here. The first version of their machine, which was released in late 2003 was a flop. The Finnish producer is tightening its aim with the follow-up version, baptised N-Gage QD, which will correct its predecessor’s flaws. Year one for mobile gaming Game publishers are displaying a growing interest in mobile devices. Two years ago, a string of titles for PDA came onto the market, while 2003 was marked by the rising number of games available for mobile phones and web-enabled portable devices. The success of i-mode and Nokia’s arrival on the scene have both had a clear impact on the market. EA is banking on the N-Gage and its future versions, having signed an agreement that plans for the release of some 20 titles in the coming year. Others, like Infogrames, are waiting to see how the situation evolves, remaining cautious and porting only a small number of games to mobile devices. Several publishers have created a subsidiary in charge of developing and/or publishing titles for mobile devices: Bandai Wireless, THQ Wireless, Konami Online, Sega Mobile. Others have preferred to sign agreements with players who are already present on the mobile device value chain: content providers, service providers, technology providers, distributors and even telcos. Noteworthy here are the deals that have been struck between: EA & Jamdat, EA & Ziosoft, EA & Nokia, Capcom & NTT DoCoMo, Capcom KDDI, Bandai & ATT Wireless, Infogrames & Jamdat, Konami & NTT Docomo, Konami & Verizon, Konami & ATT, Konami & Vodafone, Sony & Verizon Wireless, SquarEnix & NTT Docomo, SquarEnix & UIEvolution, THQ & Orange, THQ & Vodafone, THQ & ATT, Sprint and Verizon, VUG & In-Fusio... Of note too is the connection between Ubi Soft and Gameloft, which have a common shareholder (Guillemot Corporation). Some publishers are not confining themselves to porting their titles to mobile handsets, getting involved in distribution as well. Here, THQ and Konami have joined forces to create a video game download service on i-mode. THQ has gone one step further by also operating a website devoted exclusively to their games for mobiles (www.madtap.com). Even though incumbent video game publishers are releasing more and more titles for mobile devices, their catalogues are still fairly small, comprising between 5 and 8 games. A benchmark for the rest of the world thanks to the success NTT DoCoMo’s i-mode service (40.6 million subscribers at the end of February 2004), Japan now has a base of 68.7 million mobile data services subscribers, out of total base of 80.5 million mobile phone subscribers, which means a mobile internet penetration rate of 85.3% at the end of February 2004. At the end of December 2003, operator NTT DoCoMo reported having 21.6 million users of their i-appli service out of total 40.5 million i-mode subscribers. So the market’s prospects are very good, and a great many observers forecast a market value of several billion dollars by 2008. The European market promises to be the most dynamic, accounting for over half of total turnover. Video games : nextgen gaming is on its way! 12 © IDATE 2004 edition Video games and TV Video games and TV make an ideal couple. Their efficiency is unmatched when combined with a console. But their relationship does not end there and currently involves three facets, in fact. • TV’s involvement in the area of video games appears to be going more and more by way of licences and the launch of video games whose characters, settings and plots have been borrowed from popular TV programmes; • Coupling video games and TV is becoming increasingly prominent in the form of TV channels or programmes entirely dedicated to video games; • And, lastly, since 1998, players involved in developing and publishing interactive products for the small screen have been able to adapt themselves to the constraints of digital TV decoders and to offer increasingly popular interactive TV services devoted to games. Electronic Arts, unrivalled dominance Electronic Arts stands out from their rival third party editors in terms of turnover and net profits. Their turnover (2.5 billion USD in fiscal 2003 and close to 3 billion USD for fiscal 2004) represents close to a quarter of the total revenues generated by the world’s top 20 game publishers. The company reports a more than 40% rise in sales since fiscal 2002. With 1 billion USD in turnover in fiscal 2003, Take Two Interactive ranks as the world’s number two independent publisher (behind EA by 1.5 billion USD). The gap between the leader and its top competitor has never been so wide. Globalisation of publishing The arrival of four 128-bit consoles shook up the publishing and development sector. To reach a greater number of gamers, publishers needed to create a version of the same game for several platforms. The production cost for a game can run into the tens of millions of dollars (over 20 million USD for the titles SquarEnix’s Final Fantasy and Konami’s Metal Gear Solid), not to mention the marketing costs. The average cost of producing a console-based game is 5 million EUR. To earn a profit on a game, publishers now need to sell several hundred thousand copies, and even several million for the more costly ones. While American and Japanese companies can rely on their home markets, European publishers need to woo gamers on other continents as well. Here, they are inclined to invest more in the North American than in the Japanese market whose gamers remain harder target and to keep faithful. The salvation for European publishers now lies in outsourcing all or a portion of their operations overseas. Fiscal conditions are more advantageous and public authorities, notably in Canada, have set up attractive policies for video game designers. Developing online operations Publishers’ initiatives to develop their online operations have diminished. It is not that the internet is without appeal, but the burst of the internet bubble put a damper on players’ enthusiasm., so publishers put an end to unprofitable operations. But, over the past two years, video game publishers’ Web strategies has begun to pick up steam. The overriding trends in this area are: • Developing of a showcase portal for the publisher that presents and markets their entire catalogue. • Developing games that can be played online, first on PC, this option is becoming increasingly common on consoles. • Porting popular home console games to an online computer version. • Making old offline titles available for online gaming. Electronic Arts, for instance, offers 17 titles, including FIFA Soccer 97 and NHL 97. • Managing an online gaming portal, offering matchmaking, access to massively multiplayer games, Flash games, e-commerce services… • Developing, publishing, distributing and managing massively multiplayer games. In addition to Sony, Microsoft and Electronic Arts which are already involved in MMG, the past two years have been marked by the arrival of several players who had been playing it safe. Infogrames has decided to invest in the sector, Ubi Soft has signed a series of publishing and distribution Video games : nextgen gaming is on its way! 2004 edition © IDATE 13 agreements for Europe with Verant Interactive, a Sony Online Entertainment subsidiary and creator of Everquest. Among other things, the French publisher plans to market a massive version of Myst. SquarEnix offers a massively multiplayer version of their core game, Final Fantasy, on PC and on the PS2 console. The MMG market is fiercely competitive. Some 20 titles are available and only a handful can boast having reached their target. The outstanding market here is still South Korea where several titles enjoy a base of over a million subscribers. South Korean publishers are now setting their sites on neighbouring China, a hugely promising market. Table 3: Number of massively multiplayer game subscriptions worldwide 1999 2000 2001 2002 2003 Number of subscriptions 1 345 000 2 650 000 4 167 000 4 797 000 6 713 000 Source: IDATE and Bruce Sterling Woodcock Video games : nextgen gaming is on its way! 2004 edition © IDATE 15 1. The console wars 1.1. Home consoles: heading for the next generation! 1.1.1. Battle of the 3 giants Microsoft, eyeing top spot • Xbox The launch of the Xbox in 2001 marked Microsoft’s entry onto the consumer electronics market. This console is positioned as a high-end product, equipped with an ad hoc graphics card (Nvidia), standard PC components, plus a DVD player and the ability to decode MPEG-2 to combine it with video games. The Xbox is enabled for broadband access via an Ethernet card (since April 2002). The console’s memory supplies HDTV quality if the connected TV set allows it. This high-speed connection to the Web constitutes an asset for Microsoft which has a solid mastery of the techniques and business end of internet access. Table 4: Xbox sales worldwide as of 31/12/2003 Geographic zone Units sold (million) North America 8.6 Europe, Africa, the Middle East 3.7 Asia/Pacific 1.4 Total 13.7 Source: IDATE, based on Microsoft The Xbox ranks number two on Europe’s console market. Sales in Europe have been sustained by special offers and by the launch of new games (Counter Strike in exclusivity, Need for Speed, Star Wars, Project Gotham Racing 2, Top Spin...). In just over a year, Microsoft cut the price of their console in Europe by close to 60%, from 480 EUR to 199 EUR. The Redmond giant hopes to thereby meet its sales objectives, and to become one of the world’s top two suppliers of video game consoles. The console’s global sales target of 14.5 to 16 million units is expected to be met by the end of fiscal 2004 which ends on 30 June of this year. To attract a greater number of players to their new console, one of Microsoft’s main selling points is the existence of a large community of developers based on PC-Windows and the low cost of porting games from PC to the Xbox. In August 2002, Microsoft rolled out two solutions to help development studios to design games for the Xbox at a minimal cost: • The first solution is the Independent Developer Programme. Microsoft offers a free development kit which allows developers to create a beta version of a game before signing an agreement with a publisher who holds an Xbox licence; • The second solution is the Incubator Program, whereby Microsoft advances a copy of the paid development kit to the studio which then looks for a licensed publisher to sign with; • All projects need to be submitted for approval to the Xbox Team. Microsoft launched an online console-based gaming service called Xbox Live in November 2002 in the US, and in January 2003 in Japan. It operates on a subscription bases (49 USD a year in the US and 59.99 EUR a year in Europe). Users have to buy the Xbox Live kit to access the service. The kit ships with a headset and a microphone. The Xbox Communicator lets gamers communicate verbally with other subscribers. It is supplied with demos of Xbox Live compatible games, but does not include the Ethernet cable needed to connect the console to a cable or ADSL modem. At the end of December Video games : nextgen gaming is on its way! 16 © IDATE 2004 edition 2003, there were 750,000 Xbox Live subscribers worldwide (of which 100,000 in Europe). The most popular games on Xbox Live are Project Gotham, Racing 2, Rainbow Six 3 and Counter Strike. In early January 2004, 50 Xbox Live compatible games became available in Europe. European cablecos were involved in the launch of Xbox Live. In France, Microsoft joined forces with cable operator Noos for the European launch of Xbox Live in March 2003. A joint collaborative platform was designed especially for the occasion by Noos and Microsoft. Microsoft has been offering paid content on Xbox Live since late 2003, even if the vast majority of content is still free. Publishers tend to supply targeted paid content (the game MechAssault switched to paid download format in December 2003). In late 2003, Xbox Live was launched in Australia, Austria, Ireland, Finland, Denmark, Switzerland and Norway. Following Japan, South Korea become the second Asian country where Microsoft introduced their online gaming service (October 2003). In February 2004, Xbox Live had a base of 6,500 subscribers. South Korea is considered a highly strategic market given the level of broadband penetration there, and the massive popularity of online gaming. In early February 2004, Microsoft expanded the presence of their online service in Asia; Xbox Live is now available in Taiwan, Hong Kong and Singapore. Aware of the fact that gamer communities are at the heart of their online service’s success, Microsoft, which is already very involved in managing communities (MSN, massively multiplayer games, portals…), plan to expand the features offered on Xbox Live in the coming months. In late February 2004, Microsoft unveiled the latest developments: • Download of the Xbox Live interface; • Extension of online (out of game) communication between gamers via MSN instant messaging; • Offering gamers the ability to organize and manage tournaments; • Integration of online backups and gamer tags to promote the creation of teams. Nintendo, become the outsider • GameCube The GameCube, Nintendo’s latest 128-bit home console, was launched in Japan on 14 September 2001, at the price of 25,000 JPY. The console enjoyed Day 1 shipment of 500,000 units. On 18 November, the GameCube was released in the US (5 days after the launch of Microsoft’s Xbox), retailing for 199 USD, shipping 1.1 million units on Day 1, including Canada. In Europe, the console was unveiled on 3 May 2002. Since then, Nintendo has been responding systematically to Microsoft’s sales offensive, cutting the price of their console several times. Available for 99 EUR since October 2003, it now retails for much less than Sony’s PS2 and Microsoft’s Xbox. Nintendo has slashed the price of their box by 50%, making it cheaper than their handheld console, the Game Boy Advance SP. Here, Nintendo is carrying over to Europe the aggressive commercial strategy that they began in the US in September 2003. The company’s American division cut the price of the GameCube from 149.95 to 99.99 USD. Thanks to this drop in price, between the end of November 2003 and the start of January 2004 sales of the console rose by 70% worldwide, compared to the same period in 2002. With the GameCube, Nintendo has cemented their commitment to a gamer-centric machine. They have switched from cartridges to CDs whose mass production is less costly. Unlike the PS2, the GameCube does not have a built-in DVD player. GameCube sales have not reached the targets set by Nintendo: in Japan, only 70% of the 500,000 units shipped to shops were sold in the first week. In the US, however, over 500,000 units of the 740,000 shipped were sold during the first week in shops (twice the number of Xboxes and 25% more than PS2). In June 2003, Nintendo reached the 10 million GameCubes sold worldwide mark. Over the course of fiscal 2003/2004, Nintendo’s target had been the sale of an additional 6 million consoles, a figure which seems relatively ambitious given the 5.76 million GameCubes sold the previous fiscal year. Note that in August 2003 Nintendo decided to put GameCube production temporarily on hold. Since October 2002, Nintendo have been marketing two adaptors in the US that allow gamers to connect their console to the Web to play several games online. Retailing for 34.95 USD a piece, the first is compatible with a dial-up connection, and the second with broadband. Phantasy Star Online Episodes I & II were the first GameCube titles available for online play. Video games : nextgen gaming is on its way! 2004 edition © IDATE 17 In September 2003, Nintendo signed un partnership with Internet service provider AOL. The Japanese firm does not however have any plans to design online games. They have specified that this agreement is aimed at third party studios that want to develop games with online capabilities. These developers will have to use the AOL network. 2003 marked Nintendo’s expansion into three new markets: Taiwan, South Korea and China. Tableau 5: GameCube sales worldwide as of 31/03/2003 (million units) Japan North America Europe and other PAL regions Total GameCube 2.47 5.13 1.95 9.55 Source: IDATE, based on Nintendo Mid-February 2004, Nintendo announces that they have sold just under 14 million GameCubes worldwide, of which close to 3 million in Europe. In France, 750,000 households are equipped with a GameCube, which places Nintendo’s console behind Sony’s but ahead of Microsoft’s. • Q With the GameCube, Nintendo made a deliberate choice to market a console whose multimedia features were geared primarily to gaming, whereas their competitors elected to integrate a DVD player as well. But, to avoid being completely cut out of the commercial potential that DVD brings with it, Nintendo allied themselves with a consumer electronics giant to market a higher end GC in Japan, equipped with a Panasonic DVD player. Called the Q, the console was released in August 2001, at a price of 38,000 JPY, in other words 13,000 JPY more than the GameCube without a DVD player. The Q can also read MP3 CDs and V-CDs, but has not been terribly popular, particularly since the price has not budged. In December 2003 Matsushita announced that they would no longer be producing the Q. • iQue (www.ique.com) Like Sony which recycled their PlayStation into the PS One, Nintendo are seeking to prolong the lifespan of their 64 bit console, the Nintendo 64, with the launch of the iQue console in China on 21 November 2003. To do so, Nintendo created a 50-50 joint venture with Dr Wai Yuan (ex Silicon Graphics and ArtX) called iQue Ltd. (Shinyu Technology Ltd. in China). The company is in charge of producing, marketing and distributing the machines. The iQue was first released in three cities: Shanghai, Chengdu and Guangzhou. Priced at 598 Yuan (roughly 57 EUR), the console is in the form of a joystick that connects to the TV set. Based on the N64’s technology, the iQue (central processor produced by NEC; video processor by Samsung) offers the same level of performance and the same catalogue of games as the N64, plus games made for the Super Nintendo console. This means that the games are already amortised. The platform used for the iQue is a 64 Mb rechargeable cartridge. iQue Ltd. has proved innovative in the area of game distribution. The games can only be downloaded from kiosks located in retail shops (chiefly Carrefour outlets), called "iQue Depots". The goal here is to limit distribution costs, and therefore the price of the software, a key element in appealing to Chinese gamers’ budgets. The average price of a game is therefore 48 Yuan, or roughly 4.60 EUR. Later on, downloading off the Net will be offered as well. Added to this, the iQue depots allow users to upgrade their console’s operating system, if necessary. Nintendo’s ambition is to penetrate this market whose potential is unrivalled: 1.29 billion inhabitants. This marks the very first console distribution initiative in China that does not involve imports. The main reasons for this lack of initiative are widespread piracy, a high level of protectionism, both economic and governmental, and households’ very low buying power. Now, however, thanks to China’s growing economic openness, the rise of its GDP and the emergence of a middle class, long term prospects are bright. For now, the goal for Nintendo and Sony (which have been marketing their PS2 in China since early 2004) is to occupy the field and to gradually introduce their products, while not expecting a return on investment anytime in the near future. Video games : nextgen gaming is on its way! 18 © IDATE 2004 edition Sony, top dog • PS2 The PS2 went into shops on 26 October 2000 in the US, retailing for 299 USD. 500,000 units were shipped on Day 1. It was released on 4 March 2000 in Japan, where roughly 1 million units shipped on Day 1. To date, 70 million PS2s have been sold worldwide. Table 6: PS2 sales worldwide as of 31/12/2003 Million units sold Launch date Japan 16.18 4 March 2000 North America 29.26 26 October 2000 Europe and PAL zones 24.56 24 November 2000 Total 70.00 Source: IDATE, based on SCE data Figure 1: Installed base of PlayStation 2 to end July 2003 Source: SCEE Sony reports good results in South Korea where 700,000 consoles were sold in 2003, a 21% increase over the previous year. In Japan, the online gaming service for the PS2 has been up and running since May 2002. By March 2004, there were over 50 games available for online play. The Ethernet adaptor was launched in August 2002 in the US. By 30 June 2003, 2.4 million adaptors had been shipped (400,000 in Japan and 2 million in the US). In early July 2003, the service had a base of over 500,000 users. At the start of March 2004, the American community of PS2 gamers had a total 2.6 million members. The peak hours on the service are between 5 pm and 11 pm, and 65% of members are men between the ages of 18 and 34. Video games : nextgen gaming is on its way! 2004 edition © IDATE 19 In the UK, Germany and Spain, the PS2 online service was activated in June 2003. Users need to purchase a Sony kit for 24.99 GBP, which includes an Ethernet adaptor, and an independent broadband connection, which is billed extra. The first titles available were SOCOM: American Navy Seals and Twisted Metal Black Online. At the end of 2003, between 15 and 20 games were available. The service was launched in France in July 2003, and Sony made 30,000 connection kits available for the price of 39 EUR. In addition, a partnership agreement was signed with Wanadoo which allows the ISP to market a package that includes a Wi-Fi modem and an Ethernet adaptor for the PS2. The PS2 online gaming service is free, but does not include broadband access to the Net. SCE opted for an open management mode for their online service. They plan to leave service architecture and customer billing up to the publishers. Sony has also decided to market the PS2 in China. It has been on sale since January of this year in two cities: Shanghai and Guangzhou. The console sells for 1,980 Yuan (roughly 190 EUR). Only the ICO (SCE) game is available. Sony hopes to generate a turnover of 4 billion USD in China by 2005, compared to 1 billion in 2002. Chinese mobile operator, Cellstar, is in charge of distributing the console there. In late December 2003, SCE reports that they have sold close to 2 million Eye Toy Plays in Europe and 3.4 million worldwide. This accessory that plugs into the PS2 is a camera that lets gamers replace the face of the game’s hero with their own. The two most popular titles are “Eye Toy Play” and “Eye Toy: Groove.” This accessory was unveiled in Europe on 9 July 2003, as a world premier. The PS2 also has space to hose a hard drive. The new hard drive with a 40 Gb capacity was announced for March 2004 in the US, priced at 99 USD. It is shipped with SquareEnix’s core title, Final Fantasy XI. The hard drive lets gamers back up their games, store and play MP3 files, photos and record TV programmes thanks to a built-in TV tuner. Thanks to Qcast Tuner software from BroadQ and to Sony’s network adaptor, the PS2 can also be connected to a PC. An application lets users watch audio files from a PC on their TV screen. It is DivX compatible. In March 2003, Sony announces that it will be outsourcing all of their PS2 production to China to cut manufacturing costs. This outsourcing is expected to begin in fiscal 2004, up to March of this year. Production will be taken over by two plants located in Taiwan: Hon Dai Precision Industry and Asustek Computer. • PSX In May 2003, Sony announces the marketing plan for their PSX, a platform that converges video games and consumer electronics. On the video game side of things, the PSX is a PS2 and, on the CE side, the console is equipped with a DVD player/burner, a satellite TV tuner and a hard drive (160 Gb or 250 Gb). It is therefore capable of storing and/or recording TV programmes and of making DVD video copies. It can read audio CDs and serve as a player for digital videocams. Like the PS2, it supports a broadband connection to the Web thanks to a network adaptor. Sony’s Memory Sticks can be used for data storage and transport. The PSX has been available in Japan since late 2003 and is scheduled to be in shops in the US and Europe in late 2004. Its retail price ranges from 79,800 JPY and 99,800 JPY (618 and 773 EUR). In the first week of sales in Japan, Sony sold 100,000 units. Sales of the PSX made Sony the number one producer of DVD burners in the month of December 2003, with a 35% share of the market, ahead of Matsushita Electric Industrial. Video games : nextgen gaming is on its way! 20 © IDATE 2004 edition • PS One The PlayStation was unveiled in 1994. In 2000, it got a makeover and changed its name to the PS One. The goal here was to prepare the transition to the PS2. By the end of May 2004, over 100 million units of the PlayStation/PS One console had been sold worldwide. In April 2002 SCE announces the release of an LCD screen for the PS One. The PS One was released in India in February 2002, and has been available in the US since 8 June 2000. Figure 2: Installed base of PlayStations and PS Ones in PAL zones Source: SCEE Figure 3: Installed base of PlayStations and PS Ones in Western Europe Source: SCEE Video games : nextgen gaming is on its way! 2004 edition © IDATE 21 Figure 4: Installed base of PlayStations and PSOnes other territories Source: SCEE Infinium Labs, a risky bet In January 2004, Florida-based firm Infinium Labs (www.infiniumlabs.com), unveiled their home console, the Phantom (www.phantom.net) at the Consumer Electronics Show. This much-awaited console was scheduled to be marketed via e-commerce only, starting on 31 March 2004, with preordder being possible on Infinium Labs’ own website. The console is equipped with a PC that can be plugged into a TV screen, running on an operating system that is none other than Microsoft’s Windows XP. The Phantom can host PC games, which allows the company to tout an unrivalled catalogue of games, compared to the other consoles on the market. Thanks to its built-in broadband modem, its designers can boast that the Phantom is an "Always on broadband device", enabling gaming on-demand, rentals via download, OS upgrades, patch management and network gaming (including with PC-based players) via the PhantomNet Game service. Gamers pay a monthly subscription to access the PhantomNet service. The system is equipped with a Digital Rights Management system designed by Digital Interactive Streams. Table 7: The Phantom Features of the Phantom console AMD XP 3200+ processor operating at 400 MHz Dolby Digital Surround Sound 5.1 with digital audio output 80 Gb hard drive, upgradeable to 120-320 Gb. 256 Mb RAM DDR, upgradeable to 512 Mb or 1 Gb Options: Wi-Fi card, ADSL modem ADSL, speaker, flat screen display nVidia NV36 Full DirectX9 graphic card 10-100 base T Ethernet network card Wireless keyboard and mouse S-Video output, RCA, video and PAL component 2 USB ports 4-port controller Nforce-2 Ultra 400 motherboard Radio frequency module Source: IDATE, based on Infinium Labs Video games : nextgen gaming is on its way! 22 © IDATE 2004 edition The challenge for Infinium is a big one. The firm has little public recognition, which is a major drawback when hoping to go head to head with Sony, Nintendo or Microsoft. To avoid fading into obscurity, which has been the demise of companies like Indrema (Console L600) and VM Labs (NUON technology), in mid-February 2004, Infinium hooked up with Trology Capital Partners. Trology will be in charge of Infinium’s financial marketing, investor relations and the dissemination of information with shareholders and the industry. Digital Interactive Systems Corporation (DISC), a bridge between PC and TV In January 2004, American company DISC, presented DISCover (www.discoverconsole.com), a technology that allows gamers to play PC games on TV. DISC’s goal is to make the massive library of PC games available to the world’s largest mass market, banking on the ease of use of the forthcoming DISCover consoles. The principle behind DISC’s "Drop & Play" technology involves transforming PC games into console games using a driver, a Bios chip, a proprietary application and a database. When a CD is inserted into the player, DISC’s drive recognizes it and launches the game, or installs it if necessary. The database and video games can be upgrade via the Net. When the gamer removes the CD from the player, the game is uninstalled, but saved games remain on the hard drive. Apex Digital, a company which has specialised in producing DVD players up to now, has integrated DISC technology to create a full console, called ApeXtreme. The device is equipped with other features, comparable to those produced by the competition: a DVD player, MP3 player and photo viewer. Other optional features are also possible such as a CD/DVD burner, or a PVR (Personal Video Recording), thanks to the machine’s 40 Gb hard drive. ApeXtreme also comes with a keyboard, a mouse and USB ports. In terms of hardware, the console’s Biostar motherboard is equipped with an AMD AthlonXP2000 processor and an nVidia nForce2 IGP graphic card. ApeXtreme operates on Windows XP. It will be available in the US at the end of 2004, at a price of 399 USD for the standard version, and 499 USD for the full-options version. The company Alienware has also acquired a DISCover licence from DISC, and will be producing the Media Center Edition. Their machine is equipped with an AMD FX-51 processor, 1 Gb of RAM and an nVidia GeForce 5950 video card, and also operates on Windows XP. For matchmaking, Apex and Alienware are working with the firm, Gamespy which supplies an application that locates servers, downloads patches if necessary, and lets gamers go head to head. 1.1.2. Sony wins the 128-bit home console battle The worldwide base of the latest generation of home consoles represents a total 97.64 million machines. Sony is the big winner in the 128-bit console war: boasting an over 70% share of the world market. The war is waged over technology, the consoles’ features, the catalogue of games, marketing and pricing. Table 8: Breakdown of the worldwide base of 128-bit consoles as of 31/12/2003 Microsoft Nintendo Sony North America 8.6 nd 29.3 Europe, Africa, the Middle East 3.7 nd 24.6 Asia/Pacific 1.4 nd 16.2 Total 13.7 13.94 70.00 Source: IDATE, based on industry data Video games : nextgen gaming is on its way! 2004 edition © IDATE 23 Figure 5: Home console manufacturers’ share of the market as of 31/12/2003 Microsoft 14.0% Nintendo 14.3% Sony 71.7% Source: IDATE The console’s technical configuration and features are a success, particularly the presence of a DVD player as a standard feature. Providing an add-on external hard drive and an adaptor also helped to limit the risks of losing market share. Sony had ruled that because of current practices at the time, it was premature to provide this hardware as standard features, added to which they would have had a considerable impact on the price of the console. Microsoft had opted to include a 40 Gb hard drive as a standard feature, which was costly and well over the required capacity needed for gaming software. The time saved for loading games that the hard drive allows was not a major factor among consumers for favouring Microsoft over the PS2. The compatibility of PlayStation/PS One games with the PS2 is also a plus. By offering a catalogue of over 6,000 titles, Sony boasts a major asset when seeking to gain gamer loyalty. Microsoft’s pricing strategy can be qualified as offensive. The new kid on the market, the American firm needed to take away a portion of their rivals’ market share, and to limit their console’s chances of failure. So it was that less than a month after having released their new product, Microsoft slashed the price of the machine. Sony has always aligned their prices with Microsoft’s but that which may at first appear to be a defensive strategy was in fact a systematically offensive response, because their console was being outsold by the competition. Microsoft’s task quickly became a complicated one. Their multifunction console was competing directly with Sony’s, but also having to compete with Nintendo’s much less expensive, single function machine. Table 9: Evolution of console prices in Europe, 2000-23003 In EUR 2000 2001 2002 2003 24/11/2000 29/09/2001 29/08/2002 10/04/2003 PlayStation 2 425 299 249 199 -14/03/2001 17/04/2001 29/08/2001 10/04/2003 Xbox -480 299 249 199 -03/05/2001 -25/09/2003 GameCube -199 199 100 Source: IDATE In Japan, the latest price cut was at Sony’s initiative. It took place in November and, two days later, Nintendo, then Microsoft (a week later) followed suit. Video games : nextgen gaming is on its way! 24 © IDATE 2004 edition Table 10: Price of consoles in Japan in 2003 Console Date Price (EUR) PlayStation 2 04/11/2003 155 Xbox 12/11/2003 131 GameCube 06/11/2003 87 Source: IDATE Up until the end of March 2004 in the US, the Xbox and the PS2 were both retailing for 179.99 USD, compared to 99.99 USD for the GameCube. But Microsoft plans to keep the price wars going. They announced that, starting in April, the price of the Xbox would drop to 149.99 USD. If Sony does not react to the move, Microsoft could well steal away a portion of their rival’s market share in the coming months. 1.1.3. Scheduled release of nextgen consoles Sony PS3 On 21 April 2003, SCE and Sony announced that 200 billion JPY (roughly 1.6 billion USD) will be spent between fiscal 2003 and 2005 on designing and building a semi-conductor that will be at the heart of the new chipset, code named CELL, which will equip the PS3. 73 billion JPY (roughly 580 million USD) were spent over the course of fiscal 2003 on designing the new microprocessor. The chipset is being developed in partnership with Toshiba and IBM. SCE’s next home console is already in the works, and is scheduled for release in 2006. In September 2003, Ken Kuturagi announced that the machine will be compatible with PS One and PS2 games, a feature that contributed to the success of the PS2 by extending the longevity of the PlayStation catalogue of games. In addition to the 1.6 billion EUR that Sony have earmarked for R&D between 2003 and 2005, the company will also be investing 120 billion JPY (roughly 988 million EUR) in building three plants for producing the CELL processor. 53 billion JPY (400 million EUR) are tagged for the SCE plant in Nagasaki, 36 billion JPY (272 million EUR) for the IBM plant in New York, and 42 billion JPY (317 million EUR) will go to Toshiba’s factory in Oita. In early February 2004, Sony announces that production is scheduled to begin in early 2005. Since 1999, the Emotion Engine chipset that equips the PS2 has cost Sony 2.73 billion USD. The PS3’s memory, which is based on Rambus Yellowstone technology, was developed by the Hitachi-Nec joint venture, Elpida Memory. Theoretical data transfer rates clock in at 6.4 Gb/s on a 16 bit bus running at 400 MHz. For the microprocessor, Sony upholds their faith in Mips Technologies, the chief supplier of Silicon Graphics graphic stations. Sony has acquired an Mips64 licence from the American firm which had supplied their technology (R3000A and Mips IV) for the PS One and the PS2. Sony could draw inspiration from Grid Computing and connect the PS3 to a home network so that the machine can take advantage of the processing and storage capacity of the other Sony devices in the home. To this end, Sony has forged a partnership with IBM and Butterfly. The principle of taking advantage of unused resources, an area in which Butterfly specialises, could be used for online gaming, and help cut the risks of overload on servers that are hosting gamers. Nintendo N5 Nintendo has signed a partnership agreement with graphic card producer, ATI, to take part in the creation of their new products. It appears that the two companies will be joining forces to design Nintendo’s forthcoming home console, code named N5, which is expected to be on the market some time in 2005 or 2006. In terms of processor, the N5 is expected to be equipped with a PowerPC, produced by IBM. Video games : nextgen gaming is on its way! 2004 edition © IDATE 25 Microsoft’s Xbox Next Microsoft – via Yoshiro Maruyama, head of the Xbox division in Japan – has confirmed that the next generation console, called the Xbox Next, will not be available until 2006 in Japan. The American release could take place in late 2005. It is likely that the European launch will take place after the US and Japanese launches. The Xbox Next could be equipped with several PowerPC processors designed by IBM (the rumour is at least 4 processors). The graphic chipset will be supplied by ATI, which replaces the firm nVidia that supplied the pioneer Xbox. A hard drive might not be a standard feature on the Xbox 2. Should Microsoft opt for this solution, it would mean that Xbox 1 games will not be compatible with the new machine, unless users buy an external hard drive as well. Added to this, Microsoft is changing graphic chipset suppliers. The games developed for the current Xbox use a proprietary algorithm developed by nVidia and which Microsoft’s new partner, ATI, will not be able to use, unless it opts for emulation. The compatibility of catalogues is still a major selling point when marketing new consoles and seeking to cement gamer loyalty. On the other hand, the removal of a large capacity storage drive will have a significant effect on the price of the console, at a time when Microsoft is losing money on each unit sold. The hard drive could be replaced by a removable storage unit. Here, in late February 2004, Israeli company M-System announced that they had signed a contract with Microsoft to develop personalised high-capacity memory units. In early April 2004, Microsoft announces that they have signed an agreement with the world’s leading producer of semiconductors, Taiwan Semiconductor Manufacturing Company (TSMC). Microsoft’s announcement did not stipulate which types of semiconductor TSMC would be producing (central processor, graphic chipset), but the company already manufactures graphic chipsets for nVidia and ATI. A number of industry observers are speculating on the release date of new generation consoles. Here, Microsoft might get a jump of a couple of months on the competition since, back in February of this year, Apple development kits were already being distributed to a selection of developers. In addition, at the end of March 2004, Microsoft unveiled their new Windows, Windows Mobile and Xbox compatible development tools. Baptised XNA, these tools include billing, security, identifier, community and matchmaking management for Xbox Live. Microsoft’s goal is to facilitate the development and portage of titles for platforms on which the Redmond firm is present. These tools could have a sizeable impact on the cost of developing games. Developers could be encouraged to design titles for Xbox/Xbox Live and so port them more easily to PC or mobile phone. Home consoles: for the whole family Companies in the process of creating their next generation console are remaining secretive about the machines’ technical features and functionalities. They will reveal details only gradually, like they did last time around. Gearing up to a commercial launch in 2005-2006, the battle of the press releases on the consoles’ technology and features, and later on third party game publishers and the games themselves (exclusive or not), is likely to start heating up later this year. But, they would be wise not to get ahead of themselves with their announcements, thus running the risk of either disappointing gamers, or of revealing too much too soon to the competition. Added to this, consumer behaviour is somewhat unpredictable. The announcements that preceded the launch of 128-bit consoles put a freeze on gamer spending, as they began to save up for the forthcoming machines. Despite the manufacturers’ discretion, it is clear that the next generation of consoles will offer an expanded range of multimedia features for the whole family. The components that are being marketed as peripherals are expected to be offered as a standard equipment on the future machines. DVD player (already standard on the PS2), DVD burner (already standard on the PSX) hard drive (already standard on the Xbox), Ethernet adaptor (already standard on the Xbox). Nintendo could, however, remain faithful to their longstanding strategy of marketing consoles bereft of any features that are not related to gaming. To expand their user base, consoles need to attract the whole family. The goal is to appeal to father, mother, sister and brother to meet the demands of the maximum number of users, and to create a consensus within the family when shopping for a new home entertainment device. This means that the PS3’s built-in DVD player/burner and hard drive could seal the deal with parents in the same way that the PS2’s DVD player did. The same is true for the inclusion of Web browsing capabilities as a standard feature (Ethernet adaptor + hard drive + broadband flat rate + keyboard + mouse). This Video games : nextgen gaming is on its way! 26 © IDATE 2004 edition feature can enable e-commerce, browsing, access to e-learning applications and, of course, massively multiplayer online gaming. Connection to the Web also opens the way to a number of possibilities for electronic content distribution that have been a laborious process over PCs up to now. A number of prospects are also opened up in the areas of film, music and digital photography. In the music sector, there now exist a host of legal downloading services. After the fruitless attempts made by PressPlay (Sony, Vivendi Universal), MusicNet (EMI, Warner Music, BMG) and Listen.com (later taken over by RealNetworks), success appears to now be at hand, particularly thanks to Apple’s iTunes Music Store and Roxio’s Napster 2.0. As to films, there are far fewer offers. There is only one of consequence in the US: Movielinks, which is backed by Universal and Sony, and which offers films downloads via subscription. To this should be added RealNetworks’ Real Gold Pass, which is more akin to TV, and which has a base of 450,000 subscribers. The consoles’ placement in homes, next to the TV or the stereo is highly strategic. Their simplicity of use make them the ideal platform for hosting related content. And so it becomes entirely imaginable for a console to act as a device for acquiring music or films off the Web (via download or broadcast in streaming). Ultimately, new generation consoles could well become portals to new technologies for all of the home’s audio and video based entertainment. They will embody convergence and enjoy a very good chance of succeeding there were PCs (too complex) and set-top boxes (too little deployed) have failed up until now, and while awaiting the development of 3G networks and the 3G mobile handset market. 1.2. Handheld consoles: the end of a monopoly GamePark’s GP32 GamePark (www.gamepark.co.kr or www.gamepark.com) is a Korean firm that was founded in 2000. The GP32 is one of the most powerful handheld consoles on the market. Its prime assets are a 3.5-inch TFT 16:9 screen, with 320x240 definition: better than the PlayStation’s. It is equipped with a 32-bit Risc processor operating at 66 MHz (overclockable to 166 MHz) compared to 13 MHz for the GBA, along with 8 Mb of SDRAM. In addition, the GP32 is equipped with a wireless radio frequency communication module for 4-player games and game transfers. Software is stored on a Smart Media Card (SMC) and can be downloaded off the internet. The GP32 can be connected to a PC. The console owner uses his computer to acquire content off the Net and install it on the console. GamePark drew their inspiration from MP3 players and PDAs which are more and more common. Thanks to a simple and user-friendly interface, consumers are now used to synchronisation and to browsing on this type of device, as well as being aficionados of miniaturised multimedia technologies. But the most significant innovation with the GamePark is the availability of free development tools. The developer community in Korea has got hold of these tools and releases new games on a regular basis (close to 80 titles have been developed this way), coming to flesh out the existing, rather small catalogue of official games. At the end of 2002, there were only 16 official titles on offer, of which 4 were developed by GamePark. Twelve titles were announced for 2003, but no information on the subject is currently available on the company’s website. As it stands, no major publisher has taken part in the development or publication of games for the GP32. Negotiations are, however, underway with Capcom Sega and Activision. The console is in fact a mini computer. It runs on an OS that can be upgraded via the Net. The open platform operates on the same philosophy as a PC, and the browsing system draws its inspiration largely from the same concept. Aside from gaming software, the console can support other applications, both GamePark proprietary and from other developers. The developer community, for instance, has released GPCinema for reading Divx files (www.entware.com). For their part, GamePark offers their own software, MoviePark. The GP32 can also read MP3 files, thanks to its Player MP3 software. The TextViewer application is a light text application. It enables text file reading and formatting, and offers a handful of basic functions: text colour, font, background colour… ImageViewer software is compatible with jpg, tif, gif, bmp and pcx formats. Video games : nextgen gaming is on its way! 2004 edition © IDATE 27 And, lastly, the GP32 can be transformed into a phone thanks to the communication kit which is sold separately. Like the PC, and thanks to the impetus of the gamer community, the GP32 is in a constant state of evolution. GamePark is currently in talks with Nanotek to integrate back lighting in the machine. Other projects are also in the works: upgrading the USB ports, transforming the console into a joypad for PC games, marketing multiplayer titles, BIOS upgrade with Team Kyaa, portage of the J2ME standard onto the GP32. The console is marketed only in South Korea at a price of 235,000 Wons (roughly 200 EUR). Imports cost roughly 170 EUR or 209 USD. It is available for sale online at www.lik-sang.com. At the end of October 2003, GamePark announced that their console would not be distributed in Europe, even though the gamer community was eagerly awaiting it. Mitsui, which currently distributes the GP32 in Europe, as well as being in charge of distributing Nintendo’s handhelds, did not want to take the chance, given GamePark’s ongoing financial troubles. As an import, it is in France that the GP32 has sold best. According to a GamePark spokesperson, 150,000 units have sold worldwide since the console was launched. Nintendo’s GameBoy Nintendo is the world’s leading producer of handheld consoles. The adventure began in 1988, with the worldwide release of their first model, the GameBoy. As sales had begun to lag, the GameBoy Pocket was unveiled in 1996. Two years later, at a time when the handheld console market appeared to no longer appeal to gamers, Nintendo released their GameBoy Colour which, thanks to the line of Pokemon games, enjoyed massive success. Despite the overwhelming popularity of the GBC, Nintendo is having to compete with new services being offered on rival consoles: the Bandai’s WonderSwan Color handheld in Japan, and above all the development of games for mobile phones (the success of i-mode in Japan) and PDAs. Nintendo needed to react quickly, and offer a new handheld console. • GameBoy Advance & GameBoy Advance SP The GameBoy Advance – equipped with a 32-bit microprocessor and an LCD screen that is larger than the GBC’s, along with an active matrix designed by Sharp – was launched on 21 March 2001 in Japan at a price of 9,800 JPY, before being distributed in the US, starting on 11 June 2001 at a price of 99.95 USD. The console was launched in Europe on 21 June 2001, retailing for 130 EUR, with game cartridges priced at between 46 and 56 EUR. In March 2003, Nintendo launched the Game Boy Advance SP (Special Project) in Europe, the enhanced version of the Game Boy Advance (new back lit, foldable screen). In September 2003, Nintendo announced that they had sold over a million units. The GBA SP is released in Japan in February 2003, shipping 300,000 units. Starting in August 2000 in Japan, the GBA is shipped with a cable that lets users connect to the Web from a mobile phone, and enables gaming for up to 4 players. GBA games can be downloaded off the GameCube. In December 2003, Japanese firm Digital Act Co releases the Campho Advance (roughly 98 EUR), a plug-in for the Game Boy Advance that enables videophony. By March 2003, 33.8 million GameBoy Advances had been sold worldwide. Its popularity in Europe was particularly strong, selling 3 million units in 6 months (versus 1.2 million in the US). In October 2003, Nintendo report over 2 million Game Boy Advance SPs sold in Europe. After the GameBoy Advance, Nintendo launched a new handheld called the Pokemon Mini, devoted entirely to the world of Pokemon characters. Available in Japan since 2001, then in March 2002 in Europe, this mini LCD console is sold with the Pokemon Mini game and three other cartridges. Nintendo has not released any sales figures for this handheld, which does not appear to have met with the success the company had hoped for. Video games : nextgen gaming is on its way! 28 © IDATE 2004 edition Tableau 11: Number of Nintendo handhelds sold worldwide as of 31/03/2003 million units Japan The US and Canada Other Total Game Boy Advance 10.06 15.37 8.38 33.81 Game Boy Advance SP 0.82 0.83 0.46 2.11 Total 10.86 21.33 10.79 45.47 Source: IDATE, based on Nintendo Co Sales results for the GBA and GBA SP are remarkable: after two and half years in shops, over 10 million European households, and over 20 million American households are now equipped. As a reminder: in the US, 2.4 million GB and 14.3 million GB Color have been sold in the two and half years since their release. At the end of 2003, there was an installed base of 1.85 million GBA and GBA SP consoles. In June 2002, American firm nReach perfected a Bluetooth adaptor that connects the GBA to a mobile phone or a computer, which enables Web browsing and network gaming with distant opponents. Still other features have been added, notably by the US company Majesco. The company developed GBA Video technology which lets users view 45 minutes of video stored on a cartridge on the GameBoy Advance. The first available products were cartoons from the Nickelodeon channel. • Nintendo Dual Screen In early 2004, Nintendo announced their plans to market a new handheld console, code named Nintendo Dual Screen. Very little information on the product has been released. But, it is known that the hardware will be the same used on the GameBoy Advance. The Nintendo DS console will be equipped with a dual ARM7 and ARM9 processor. It will have two 3-inch LCD TFT screens, an expanded memory of 128 Mb and be Bluetooth enabled. The new handheld was unveiled at the E3 show in May 2004, and will be on the market by the end of the year, on the world’s top three markets (Europe, The US and Japan). Nintendo intend to continue to operate on the handheld market, at a time when Sony will be launching their PSP. As usual, instead of competing directly with their rivals, Nintendo plan to offer a radically different product. The Nintendo DS will offer bleeding edge playability to give their customers an entirely new gaming experience, whereas Sony will be expanding their PSP’s features to include multimedia capabilities. Nintendo have not yet shed any light on whether GBA games will be compatible with the Nintendo DS. But, this compatibility would help boost the new handheld’s sales since it would benefit from an existing large and varied catalogue of titles. Namco and Konami have already confirmed their desire to develop games for the Nintendo DS, while Electronic Arts is still testing the new device. Nokia’s N-Gage: communicate Nokia, which has gained their reputation on the mobile phone sector (on which they are number one, with a 40% share of the market), are now investing in the video game sector, having released a handheld console in October 2003 that combines video games and telephony. It is equipped with the following: • Processor: ARM9 104 MHz • Operating system: Symbian version 6.1 • User interface: Nokia Series 60 • Shared memory: 3.4 Mb (for data storage) • Additional memory: 1 MMC slot (cards of up to 128 Mb) • Screen: TFT backlit 176x208 (35x41.5 mm) 4096 colours • Audio: PCM 8/16 kHz, 8 bits, mono or stereo • Data transfer: USB 1.1 • Wireless connectivity: Bluetooth Video games : nextgen gaming is on its way! 2004 edition © IDATE 29 • Telephony: Tri-band EGSM 900/GSM1800/GSM 1900 • Battery: BL-5C Li-Ion • Autonomy: Telephone 2-4 hours, stand-by 150-200 hours, Music 8 hours, Radio 20 hours, Games 3-6 hours And has a wide range of features: • Vibration mode • Built-in antenna • FM stereo radio (20 station memory) • MP3 + AAC player • AAC (TBC) coding, via stereo or radio input (analogue recording) via • SMS + Multimedia messaging (audio, video...) • E-mail (IMAP4, POP3, SMTP, MIME2) • Web: XHTML (GSM data, HSCSD to 43.2 Kb, GPRS to 40.2 Kb) with iMode extension, SyncML • Java: Java 2 Micro Edition (J2ME) • Multimedia: RealOne • Ringtones: MP3, AAC, Midi, WAV • Speaker: calls, music, games (not for the radio) • PC connectivity: N-Gage PC Suite/Nokia Audio Manager PC software (Windows 98, ME, 2000 professional, XP) • Keyboard: 21 keys (12 digital keyboard keys, Music and Radio short cuts, 7 multifunction keys) • Directional pad: 4 directions + button (8 directions in gaming) • Applications: Calendar, address book, to do list, downloadable applications for Symbian OS, Java... The consoles are manufactured in Germany. After a sneak preview release in Hong Kong, Australia, Singapore and Thailand, Nokia launched the N-Gage worldwide on 7 October 2003. The company invested 150 million EUR, in what was their largest marketing campaign ever. 30,000 shops in 60 countries around the world will be selling the console-phone. Nokia’s target is to sell 6 to 9 million units by end of 2004. In the US, the console retails for 299 USD, and games cost between 30 and 43 USD a piece. The NGaag is available through several retail chains, including Best Buy, Circuit City, Electronics Boutique, GameStop and Target. In late October GameStop and Electronics Boutique’s online shops dropped the price of the console to 100 USD. To turn the tide on poor sales, some retail chains in the US, including Wal-Mart, began to market bundles that included three games + a 64 Mb MultiMediaCard + the console for 299 USD. The UK’s daily paper, The Sun, is offering an N-Gage for 0.01 GBP to anyone signing up for a 2-year subscription. In Europe, the list price from Nokia ranges anywhere from 299 EUR to 349 EUR for a basic console. But, the prices depend on the agreements that Nokia have with telecom operators. In France, for instance, the N-Gage is available for 149 EUR to future Orange subscribers and for 99 EUR to future SFR subscribers who sign up for a one-year subscription. The games sell for between 39 and 49 EUR a piece. The core target is gamers between the ages of 18 and 25. A spokesperson for a consumer electronics specialist nevertheless points out that, two weeks after its release, the average age of N-Gage buyers was 15. Nokia want to distinguish themselves from Nintendo whose clientele is generally quite young (8 to 14 years old for the GBA). Thanks to the GBA’s facelift with the GBA SP, Nintendo was able to attract older gamers who had got their start on the first generation GameBoy. Four distribution modes will be used: in department stores, in retail shops specialised in video games (ScoreGame, Strat Games), in retail chains that specialise in consumer electronics and entertainment (Virgin, Media Saturn, FNAC), and through retailers that specialise in mobile telephony (Internity, The Video games : nextgen gaming is on its way! 30 © IDATE 2004 edition Phone House). It is worth pointing out that, in France, games specialist Micromania has refused to market the console. N-Gage is enabled for multiplayer gaming. A maximum six gamers can go head to head via the Bluetooth communication port. Here, Nokia contribute their expertise in community management over mobile phones. The company hopes that gamers will be aware of the uses of SMS to call other gamers to arms. To do so, they are creating a service called DuelZone which, during its test phase, increased the firm’s ARPU (average revenues per user) by 15% to 20%. Seeking to develop an online gaming service to match their ambitions, in late August 2003, Nokia took over the Sega subsidiary, Sega.com. Thanks to this acquisition, the Finnish firm gains control of the Sega Network Application Package (SNAP) online gaming management platform. SNAP will help to improve Nokia’s online gaming service, N-Gage Arena. The service offers the following features: access to a library of tips and codes, download of other gamers’ ghost (available for Tomb Raider, Pandemonium and Tony Haw's Pro Skater 4), video game sequence capture and sharing, access to cheats (game solutions) and downloading bonus add-ons. In terms of software and technical performance, the console has gained unanimous support. Leading publishers were not wrong, and a great many of them have elected to be candidates for developing and porting games onto the Finnish machine: Sega, Electronic Arts, Eidos, Vivendi Universal Games, Capcom, Taito, THQ Wireless, Gameloft and Activision. Here, it is worth noting the absence of Atari, Take Two Interactive, Konami and Namco. The games come on Multimedia Cards cartridges. To avoid piracy, Nokia chose not to offer paid downloadable versions. When the console was released, 6 games were available. By February 2004, the catalogue included 15 titles. 15 more games are likely to be available by the end of the year. To compare: the catalogue of games available for the GBA includes 1,300 titles. Planning on a long-term involvement in the video game industry, Nokia announced in mid-February that they would be publishing the game Ashen, which is currently in the development stage. In late 2003, Nokia reported that they had shipped 600,000 units of the N-Gage to retailers. France’s Day 1 shipment was between 3,000 and 4,500 units. Up until now, the Finnish firm has said very little about the console’s sales, but has admitted that initial targets are still far from having been met. In fiscal 2003, Nokia had set a target of 3 million users, and planned to have a base of 9 million in order to be in the black and become a major player on the market. At the end of February 2004, the GameStop retail chain announced that it was pulling the Nokia console from the shelves in its 450 points of sale in the US. Four elements account for the failure of the Nokia console: • Marketing of the N-Gage began at a time when market leader Nintendo was enjoy very high sales of their GameBoy Advance SP. The market does not yet appear to be saturated, but Nintendo came early to the game, were able to renew their product line (GBA SP), enjoy a strong relationship with most of the leading publishers, and have a very large catalogue of games. • The N-Gage retails for between 299.99 EUR and 349 EUR, 2.3 to 2.7 more than the price of its chief rival, the GBA SP. Sponsoring from telcos (notably T-Mobile, O2, Orange and SFR) has not been enough to boost sales. • Gamers are not used to buying their consoles from phone shops. • The N-Gage has come under fire from the gamer community, particularly for the awkward process of changing MMC game cartridges, the battery’s limited autonomy, the unappealing phone function, screen size… Nokia will be drawing up a balance sheet after two years of operation. But, it is clear that the Finnish giant has not dealt their last hand. To prove it: in April 2004, they released a new version of their game deck: the N-Gage QD. From a technological standpoint, the N-Gage QD is an N-Gage, but several improvements have been made, notably longer battery life and the screen’s luminosity. In addition, Nokia appear to have learned their lesson from the failure of their pioneer console. The MMC cartridges can now be accessed more easily. The speakers and the microphone have been moved, and games can now be launched with a single click. The console is also equipped with a programme for launching N-Gage Arena, which lets gamers interact with the community (swaps, challenges, chat...). Video games : nextgen gaming is on its way! 2004 edition © IDATE 31 The N-Gage QD was released in May in Europe, in Africa and in Asia Pacific, with a price tag of 99 USD when signing up with a mobile operator, or 199 USD, unsubsidized. It was on shelves in the US in June. N-Gage games are compatible with the new console. Since early September 2003 another leading mobile phone manufacturer, Sony Ericsson, has been marketing a joystick that can be plugged into their phones, called the EGB 10. The mobile is thereby transformed into a handheld gaming console, but does not compare to the N-Gage in terms of power, ease of use or the type of games available. An American player enters the market: Tapwave and their Zodiac multimedia console Tapwave (www.tapwave.com) is a California-based company that was founded in March 2001 by four ex Palm executives. The Zodiac, which was initially baptised Helix, comes in two versions: the Zodiac 1 (299 USD) equipped with 32 Mb of RAM and the Zodiac 2 (399 USD) equipped with 128 Mb of RAM. Aside from the quantity of RAM, the two consoles are equipped with the same technical components: • Motorola® i.MX1™ ARM9 processor (200 MHz) • ATI Imageon W4200 graphic accelerator with 8 Mb of SDRAM • 3.8 inch transflective, 16-bit colour backlit display (65,536 colours), 480 x 320 resolution • Yamaha audio component and stereo speakers • Vibration mode • Support via Secure Digital Cards (SD), MultiMediaCard and DSIO • Wireless Bluetooth connection for multiplayer gaming & file exchange • 2 USB ports • Rechargeable lithium battery • PC connection The software configuration is as follows: • Proprietary OS based on Palm OS 5.2T • Integrated word processing • MP3 player • JPG photo viewer • Video games and game downloads via PC • Kinoma Player for video • Video creation and conversion to AVI, QuickTime, MPEG-1 & MPEG-4 with Kinoma Producer • e-Book Palm Reader • Organizer: address book, planner, to do lists … • Other features: MP3 alarm clock, wireless chat and shared whiteboard, graphic calculator, Microsoft Word compatible, Web browser and SMS client for use with compatible Bluetooth enabled phones All Palm OS compatible software can be used on the console. A number of partnerships have been established in addition to those signed with technology providers. Several American and European video game publishers will be developing and publishing content for the Zodiac: Activision, Atari, Midway Games, Apogee, Id Software, Sega. Given the features that are specific to the device, the Zodiac could find itself competing directly with Sony’s PSP. Both consoles target an older clientele than Nintendo’s. According to Tapwave’s directors, its rather large target market is gamers between the ages of 18 and 34. The console was available for online ordering starting in September 2003, and sales began in November in the US with a dozen games, including Tony Hawk's Pro Skater 4 (Activision), Neverwinter Nights (Atari), Doom II (Id Software), Spy Hunter (Midway Games) Stuntcar Extreme Video games : nextgen gaming is on its way! 32 © IDATE 2004 edition (Vasara Games) and AcidSolitaire (Red Mercury). In early 2004, 20 titles were being promoted on Tapwave’s site. Over 1,200 development kits have been distributed to studios so far. The PSP: Sony’s 21st century walkman On 13 May 2003, SCE announces that they will be releasing a handheld console in the last quarter of 2004 in Japan, the US and Europe, simultaneously. A few months later, Sony opt out of a worldwide release, fearing that the associated catalogue of games will be too small. So the device will appear first in Japan, still in late 2004, while marketing in the US and Europe will take place some time in 2005. The console uses the Universal Media Disc (UMD), a 60 mm optical disc developed by the Sony Group, and which can store up to 1.8 Gb of data (games, 4 hours of video or music). The device will be equipped with a 16:9, high resolution TFT LCD, 4.5-inch, backlit screen produced by Samsung and Sharp. The agreement published at the end of March 2004 is worth 330 million EUR a year. The PSP will be compatible with MPEG-4, which offers DVD quality imaging. It will also be compatible with Memory Sticks. The handheld could also benefit from the deployment of a wireless network that enables multiplayer gaming. A USB 2.0 port means that gamers can connect the device to a PC, a PS2 or another PSP. The PSP can be connected to a PS2 or a PSX in the same way that Nintendo’s GBAs can interconnect or interface with a GameCube. During a meeting of developers, Ken Kuturagi hinted at the fact that the PSP’s processing power will be 10 times that of the PlayStation, thanks to a 32-bit processor, in addition to enabling 3D images and stereo sound. The development tools were made available in early 2004. A number of development gateways exist between PS2 and PSP tools. This means that it will be easier for developers to create new titles thanks to a shorter and simplified learning curve. Several major publishers have already announced plans to market games for the PSP, including THQ, Koei and EA, while Sony could also promote the development of musical and video content. Sony plan to market accessories that would allow the PSP to work as a mobile phone, and even as a digital camera. The price of the PSP has not yet been set, but Chris Deering has said that it will be closer to 200 GBP than to 300 GBP. The price of the games should be somewhere between 20 and 60 EUR, while films will retail for between 20 and 30 EUR. Unknown in Europe and in the US, the Pocketstation is a handheld console comparable to Sega’s Dreamcast VMU. On the market since 1998, 4.9 million units have been sold. But, in July 2002, Sony announced that they were putting an end to the device’s production. By marketing a handheld console, Sony complete their product line, and cover the full range of gamers. The Japanese firm will have a line of three consoles, for three different locations and aimed at three complementary targets. The PSP handheld for youngsters, the PS2 (in the living room or the bedroom) for teenagers and the PSX (in the living) for the whole family. Bandai’s Wonderswan line Bandai has designed and markets a line of handheld consoles called Wonderswan. Three versions have been released: Wonderswan, Wonderswan Color and Wonderswan Crystal. The main element that distinguishes the Wonderswan from the GameBoy line is the ability to play both horizontally and vertically by turning the handheld. The latest addition to the Bandai line is the Wonderswan Crystal, which came out in July 2002. It is equipped with a 16-bit processor, a 2.1 inch LCD TFT screen that can display between 241 and 4,096 colours. Available only in Japan, the Wonderswan handhelds were never a match for Nintendo’s, selling only 3.5 million units in all. In February 2003, Bandai announced that it was putting an end to the console’s production. Video games : nextgen gaming is on its way! 2004 edition © IDATE 33 There are other handhelds on the market, but none have been terribly successful: • NEC Interchannel’s Turbo Express System (PC Engine GT, in the US); • Tiger Electronics’ Tiger Game.com (USA); • Japanese firm SNK’s NeoGeo Pocket which has risen from the ashes and is now focused on developing and publishing games. 1.3. Video games and TV Video games and TV make an ideal couple. Their efficiency is unmatched when combined with a console. But their relationship does not end there and currently involves three facets, in fact. • TV’s involvement in the area of video games appears to be going more and more by way of licences and the launch of video games whose characters, settings and plots have been borrowed from popular TV programmes; • Coupling video games and TV is becoming increasingly prominent in the form of TV channels or programmes entirely dedicated to video games; • And, lastly, since 1998, players involved in developing and publishing interactive products for the small screen have been able to adapt themselves to the constraints of digital TV decoders and to offer increasingly popular interactive TV services devoted to games. 1.3.1. Hollywood cosying up to the video games industry? Among the 20 top selling video games in 2002-2003, 5 were derived from recent feature films, most of which were produced by Hollywood. Up until now, Hollywood has been involved in the video game industry chiefly in two ways: • For a long time now, in the development of licences for making films into video games ("Star Wars", "James Bond") and vice-versa ("Tomb Raider", "Mortal Kombat"); • More recently, using existing talent (script writers, directors, actors) in the development and production of original video games ("True Crime: Streets of L.A.”), or a spin-off of a feature film ("Enter the Matrix"). Exchanges between the world of film and TV production and the video game world are now taking place higher up the chain: movie directors are lending their expertise to game developers in how to set up shots (John Woo has signed a contract with Sega and Tiger Hill), while actors (Jennifer Garner (Alias), Gary Oldman, Arnold Schwarzenegger) are lending their voices and image to the characters in some of the games. This cooperation is in fact beginning to take the form of a true alliance: • A number of recent films ("The Matrix", "Terminator 3", "Jurassic Park 3") appear to have been written with a future video game in mind. • In the same vein, Hollywood agencies are more and more on the lookout for projects which offer both a view of a film script and the various components of a video game, allowing for a simultaneous release of the movie and the game, like what was done with "The Hulk" in June 2003. It is worth noting that this trend is not taking place only in the US, but is infiltrating the world of TV as well. In February 2004, in the UK, BBC Worldwide announced that they had a project to develop a video game based on the popular police show, “Spook”, which tells the tale of three MI-5 agents. The game is scheduled for release at the same time as the programme’s third series. Developed by one of the programme’s writers, the game lets players control the MI-5 agents, and battle wits with an international crime ring. Video games : nextgen gaming is on its way! 34 © IDATE 2004 edition 1.3.2. TV programmes devoted to video games The range of video games on offer is increasingly broad. This means that gamers, and particularly gamers’ parents, need to be properly informed about what they plan to buy. This is where TV programmes devoted to video games come in. They also allow certain TV channel operators to cement their viewers’ loyalty. At the same time, thanks to these programmes, video game publishers can offer existing content in a new gaming environment, and to reach a potentially large audience. This helps them reduce the costs of their advertising campaigns. The programmes being broadcast are largely geared to providing news and information (the latest releases, strategy, tips…), while some are also adventure series or interactive shows, most of which are produced in collaboration with websites that are also dedicated to video games. In North America, there are more and more TV programmes devoted to video games. In Canada, the firms Game Nation Inc. and Viewz both produce a weekly show. “Game Nation” is broadcast both over the Net and on cable. The programme focuses on the latest releases, tournaments, and testing games. In the US, Tech TV1, which is owned by Comcast, broadcasts a daily half-hour programme called “X Play.” The Game Show network offers a weekly two-hour show called “GSN Video Games” which picks up segments from the British programmes "Game Sauce" and "Gamer.tv". In late 2003, the channel Spike TV, whose target audience is young men, broadcast the first ever video game award show and, in the near future, plans to begin broadcasting a weekly two-hour show devoted to the latest industry news. For their part, MTV is planning to offer at least 5 programmes focused on video games ( "Ultimate Videogame Countdown.") UPN too appears to want to enter the video games on TV market, broadcasting a programme called “Game Over” starting in March 2004. This sitcom puts the Smashenburns family in a video game universe, after a long day at work, to tackle the problems of everyday life. And, lastly, 11 million households have access to the G4 channel whose entire line-up is dedicated to gaming (including a talk show and a reality show), broadcast 24 hours a day. In Europe, TV viewers also have the choice of several channels whose programming focuses on gaming. Italian group Digital Bros operates the Game Network TV channel. Founded in 1999, it was the first ever Free to air channel dedicated to video games and multimedia entertainment. Its programmes are broadcast round the clock in the whole of Europe (55 countries), using the Astra and Eutelsat satellite systems. In 2002, Game Network TV’s had a total viewership around Europe of 610,000. Launched in 1998 by Canal Plus in collaboration with Atari (since renamed Infogrames), French channel Game One also offers an entire line-up focused on video games. More recently, music channels MTV Networks Europe acquired a 50% share in the Game One specialty channel which is currently broadcast on cable and satellite in France, Poland, Hungary, North Africa and the Middle East. But its internationalisation is only just beginning2. Despite having a niche position, Game One is very popular among the 15 to 24-year old crowd and, in France alone, boasts a base of 3 million viewers. Game One offers just under ten programmes: DVD news, video game news, a high tech and gaming industry news magazine, reports on the most highly awaited releases, game previews, plays of the first level of video games, along with tips and cheats, patch downloads … North American channel, GSN, is part of British operator BSkyB’s basic package. It offers 55 hours a week of interactive programmes, along with programmes dedicated to video, of which some offer PCTT synergy (use of the PC to play on TV). Still in the UK, and like Spike TV in the United States, for the second year running, ITV in March 2004 broadcast the Game Stars video game award ceremony, as well as the final episode of the game "The Hunt for the UK’s Greatest Gamer". And lastly, the UK is also home to Gamer.tv, which produces programmes devoted to video games (a subsidiary of TWI, the TV branch of IMG and PCCW). Over the past two years, Gamer.tv has clocked 1 Broadcast to a base of 40 million viewers. 2 MTV Networks channels in Europe (MTV, VH1, TMF, Nickelodeon) can be accessed by 110 million households in Europe Video games : nextgen gaming is on its way! 2004 edition © IDATE 35 over 900 hours of programming, including the series "Game Sauce", "Gamer TV" and "Evolver". In Europe, the producer’s shows are available in Italy (Mediaset) and in Sweden (TV4). 1.3.3. Interactive TV programmes dedicated to gaming Along with electronic programme guides, games are undoubtedly the most popular interactive TV (iTV) application. Viewers perceive games on iTV as a new form of TV entertainment, in and of itself. In the UK, a survey conducted by BMRB reveals that 43% of viewers with access to a digital TV offer have already played an interactive game on their set at least once. This means that interactive TV services dedicated to gaming are now being considered by channel operators as an efficient means of fostering viewer loyalty, boosting their channel’s image and, at the same time, generating additional revenues. Consequently, virtually all digital TV platforms worldwide now offer iTV games. Table 12: Leading digital TV platforms around the world which offer interactive TV games Digital platform Type of platform Operator Country Sky Digital Satellite BSkyB The UK Digital Plus Cable NTL The UK Active Digital Cable Telewest The UK Canal Satellite Satellite Canal+ Group France TPS Satellite TF1, M6 France Noos Cable UnitedGlobalCom France Digital+l Satellite Sogecable Spain Sky Italia Satellite Telecom Italia, News Corp Italy Stream Cable/Satellite Telecom Italia, News Corp Italy Canal Digital Satellite Telenor/Canal+ Scandinavia TV Cabo Cable/Satellite PT Multimedia Group Portugal Cyfra+ Satellite Canal+ Group Poland Matav Cable Dankner Investment Israel ATT Digital Cable Cable ATT Broadband USA DirecTV Satellite Hughes Electronic Corp. USA DiSH Network Satellite Echostar USA Oceanic TW Cable Time Warner USA Rogers Cable Cable Roger Communications, Inc. Canada Bell Express Vu Satellite Bell Express Vu Canada DirecTV Latina Satellite Galaxy Latin America Latin America Jupiter Telecommunications Cable/Satellite Liberty Media, Microsoft, Sumitomo Japan Austar Cable/Satellite United Global Communications Australia Sky Television Cable/Satellite News Corp New Zealand Source: IDATE Features of the offer There are several types of game on offer. The most common are: • Board games/game show games, running parallel to eponymous TV programmes ( "Who wants to be a millionaire?", "Wheel of fortune", "Monopoly”, "Jeopardy"…); • Classic puzzle, labyrinth, skill and brainteaser games ("Tetris", "Battleships", "Darts", "Clue"…); • Quizzes ("Movie Trivia Quiz", "Trivial Pursuit"…); Video games : nextgen gaming is on its way! 36 © IDATE 2004 edition • Games linked to sports (snowboard: "Scuzzboarding" on Sky Gamestar, volleyball: Channel 4, tennis: MTV, football: "FantaCalcio" Stream TV, "TV Goal" on Digiturk, "David Beckham soccer International Challenge" and "Dream Team Fantasy" on Sky Gamestar); • And, chiefly in the UK, adventure, action or combat games ("Tomb Raider", "The Hulk", "Space Invaders", "Pac-Man", "Duopolis”, "Dexter’s Robotic Revenge"…). In terms of graphic quality, the interactive TV games that are currently available are comparable to those offered on first generation consoles. But, in terms of playability, they are far less sophisticated than the games that are currently on offer on the PS2 or the Xbox. This lack of quality is expected to gradually be erased parallel to the deployment of new generations of d