Wednesday, November 12, 2008

Gaming Industry: Is the grass still greener on the other side?

As we have all come to realize, some earlier than others, the economy is in full retreat. The crash of the stock markets has had a deep impact on all major sectors. While it is certain all sectors will try to brave the storm, some will do the job better than others. So how will the gaming industry perform? Many market analysts, present company included, felt that the gaming industry represents a tremendous growth opportunity at the start of the current generation of consoles in 2006 end. And the gaming industry has thus far not disappointed, undoubtedly being the fastest growing sector of anything near its base size currently in the market. But will the recession change all that, or will gaming continue its anti cyclical trends?

We believe that while the gaming industry is not in any immediate danger, but continued economic downturn will trickle down to gaming as well, and effect the ‘Casual Gaming’ segment in particular. Many may wonder what casual gaming exactly means.

The term ‘Casual Gaming’ has existed for very long, but it came into popular use ever since Nintendo picked a different direction for their current gen console the Wii when compared with Sony and Microsoft. While Sony and MS went to market with a typical generation upgrade, namely better graphics with similar gameplay, Nintendo made negligible improvements to their visuals from the previous generation, and focused more on making the gameplay fundamentally different. Not improving the visuals also ensured they could offer the consoles much cheaper than their competition from day one.

What ensued post the Wii launch in Nov-Dec 2006 is the stuff of legends! Nintendo not only succeeded in selling a whopping 35 million Wii in two short years, it also consistently sold first party titles in each region’s top 10 games. In hind sight, it is believed that Nintendo’s price points for hardware and software (Wii games are cheaper than 360 and PS3 titles) and it’s unique gameplay opened the close knit gaming community to many casual gamers. The Wii is believed to be a very popular choice amongst the very young and the very old. Many publishers have since caught on to the concept of casual gaming, and each month many titles targeted at casual gamers are being churned out of the gaming industry engine.

While this is great news for the gaming industry, many core gamers feel estranged. Gaming forums are constantly bombarded with comments on how Nintendo has abandoned its core fanbase in search for big bucks. Now with the new market dynamics in play, where many so called casual gamers might reduce their gaming purchases drastically in these trying times, where does Nintendo stand? To put this question into a little more perspective, let us look at what MS and Sony have been doing while Nintendo was running away with the first place. MS has been aggressively slashing the prices of its hardware, upto a point where the lowest end Xbox 360 (Arcade) is now cheaper then a Wii. MS has also developed a healthy online gaming community with its Xbox Live Arcade. Xbox is considered the best console for First Person Shooters, and many of its flagship products like the Halo series, and the Gears of War series are FPSes. The 360 has its share of technical problems of course, with the rate of units dying (the infamous Red Ring of Death) significantly higher than other consoles. Sony meanwhile, has had to fight an uphill battle from the start of this generation. The PS3 had immense trouble in the initial phases as it struggled with its install base, because it is the most expensive console of its generation. Lack of quality titles has also been one of its major criticisms. In most regions, the PS2 still outsells the PS3 on raw numbers. But the last few months have seen a stream of strong titles for the PS3 such as Metal Gear Solid 4 and Little Big Planet, and an impressive list of upcoming exclusives like Final Fantasy XIII, Heavy Rain and the unnamed ICO project (makers of the critically acclaimed PS2 title “Shadow of the Colossus”), the PS3 seems to stand a much better chance than it did before.

Although many possible scenarios can emerge from the new economic developments, the most plausible scenario seems to be unfavourable to Nintendo. Most of the current and upcoming titles for the Wii are aimed at the casual mass market, and the new price points of the 360 Arcade take away the cheapest console advantage as well. Of course many of their bigger titles like Wii Fit, and Mario Cart will continue to sell at least till the other side of the holiday season 2008. So while, we don’t see any immediate problems in Nintendo’s future, continued recession may start to drag them down Q2 2009 and beyond. The key question here is, “Will we see Nintendo exhibit a stronger focus trying to rekindle the interest of core gamers, or will they once again prove that casual gaming points to the future?”
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