Wednesday, February 08, 2006

Long overdue.

Over the past few days there have been some interviews with Nintendo fat-cats which, while not giving too much new info, still reinforce their position adequately in terms of overall marketing strategy. The one I would really like to hit on (no pun intended) is the lovely Perrin Kaplan, VP of marketing and corporate affairs. Her interview with Forbes brings to focus the key Nintendo strategy that I have been trying to expound on, though she is much more succinct. Her quotations will be in blue, Forbes' in red, and my remarks will remain... normal.

Why did consumers spend fewer entertainment dollars this past year, and what is Nintendo doing to stave off the softness in game sales seen by your competitors?

This past year we saw consumers get savvy--they want to experience new innovative software. We have seen this challenge grow over the past year as the console market has seen some decline. The industry library shows a plethora of the same type of games--and while many of them are popular, all good things run dry after a while. While some spending may have gone outside of games this year, if companies make appealing games, that won't be a problem. Nintendo started out more than 100 years ago as a company that made Japanese playing cards called hanafuda. You could say that was our first software, and it is proof that we've always been about the games. Games are really No. 1 for us. Of course, some game titles go across all three main platforms, but we make a good portion of our own games.

This is a bigger deal than Forbes really lets on here. Microsoft lost over a billion dollars PER YEAR throughout the life of the Xbox. Electronic Arts, one of the biggest and long-lived 3rd party developers just announced a 31% earnings decrease from last year and is predicting to be down further this year. Sony made nominal profit ratios during the life-cycle of the PS2 and is losing money on the PSP. Typically, the amount of money spent on the videogame industry climbs each year. If this is the case why such horrible numbers? The reason is that rising game development costs offset these gains, meaning that fewer people are taking larger slices of pie.

What makes Nintendo's corporate culture and tactics different from its competitors?

Inside Nintendo, we call our strategy "Blue Ocean." This is in contrast to a "Red Ocean." Seeing a Blue Ocean is the notion of creating a market where there initially was none--going out where nobody has yet gone. Red Ocean is what our competitors do--heated competition where sales are finite and the product is fairly predictable. We're making games that are expanding our base of consumers in Japan and America. Yes, those who've always played games are still playing, but we've got people who've never played to start loving it with titles like Nintendogs, Animal Crossing and Brain Games. These games are Blue Ocean in action.

In contrast to the sobering fiscal numbers I just threw at you consider Nintendo, up 260% for the November-December period, compared to last year. Certainly this is the result of a really great month but consider also that for the last 9 months their profits are up 36% from last year's same nine month period. Bill Gates referred to Nintendo as being the most profitable gaming company, yet we see here a profound increase in their already high profit margins. This has much to do with what Kaplan refered to as the "Blue Ocean" strategy. If you didn't make the connection "Red Ocean" refers to an ocean full of blood. An ocean only has blood in it if someone is bleeding/dying. This is the strategy Sony and Microsoft have adopted, a strategy where they are fighting over your dollars and basically catering to the same people. Nintendo has a "Blue Ocean" strategy, that is, if you are the only fish in the sea you don't have to fight over food. Nintendo is creating a new market that expands off the old one. They pull in existing gamers and give them an innovative, new experience which drives the industry to new places. Assuming the new controller works well for example, Nintendo's competitors will be forced to play catch up yet again, adopting a free-hand control style of their own while Nintendo has the benefit of having 2nd generation technology having already worked so extensively with the tech. When the market starts to heat up again Nintendo will move on and create something new. Something we didn't expect. Something that prompts developers to create not just new games, but new types of games. This, in turn, will prompt gamers to flock to these games. Afterall, who doesn't want to try out something new?

So what aspects of the new Revolution are "Blue Ocean" and will create a new market?

Well, first there's this new controller. It is out of this world, literally! You can now move your hand, arm, wrist or body to control the game. If you were playing a fishing game, before you would just press buttons on a controller held in both hands in front of you. With this, you can move your arm back and forth and cast your bait. It senses depth. As sdoesn'te who doesn't spend hours per day gaming, I was thrilled with the experience. We're also offering what we call the "virtual console"--the ability to download nearly every kind of Nintendo game going back to the original Nintendo Entertainment System through the GameCube. We think there is an untapped nostalgia market: Gamers who grew up and cut their teeth on these older games could come back.

The guy who runs the Xbox Live Arcade said he didn't think that the older Nintendo games would "hold up". He cited many reasons why he believes that XBLA will be a much better service than anything Nintendo can offer. If he is right, I wonder why emulators for Nintendo games are so much more popular than anything else, even after all these years? (Don't pirate games ppl) Also, in light of Nintendo's outspoken benevolence for 'indie' developers it is foolhardy to think that Nintendo won't sport downloadable games made specifically for the Revolution like the much touted Geometry Wars for Live Arcade (I have played it btw, and it is a blast). The biggest reason for backwards compatibility though is not for the meager pittance they will make on reissued software, but rather to get older gamers who have STOPPED playing to pick up a system for nostalgic reasons and THEN they will buy new software and optimally Nintendo will have garnered another loyalist.

How does the Revolution compare with other Nintendo products that have changed game-industry design standards?

We've launched product designs that our competitors adopt, such as the first directional pad, or wireless controllers or controllers with tactile feedback. One of the reasons we're not giving a lot of details about the design of the new console prior to its release is that there's no way we're going to let that happen again.

Interesting run-around Kaplan gives us here. Obviously Nintendo wouldn't want their competitors to steal their ideas before they are firmly ensconced in their market. We know about the controller already. What design details are we still not privy to so that Nintendo will get the jump on it's competitors? I have my hunches, and my own reasons for hoping they are true and I will blog about this subject soon. Suffice it to say, everyone who is anyone at Nintendo has adopted the mantra "you don't know everything yet." Why shouldn't Nintendo keep the best for last?

All signs point to an aging gamer demographic--at least in the U.S. Isn't Nintendo ceding too much ground to Sony and Microsoft by not offering certain edgy, first-person-shooter (FPS) titles?

If you take a look at our library, you will find games in each genre, including FPS. That's not the core of what we want to develop, but we do offer them. You could argue we have the widest array of games of all the hardware companies.

This is a key point that Forbes brings up. The American market is bursting at the seams with first person shooters. Like platformers, and real-time strategy games, FPS games are on the downward swing of the genre lifecycle. First a genre is created, then it becomes popular to the point that more developers want in on the action. Subsequent games will first ape the genre king and then explore new gameplay aspects in an attempt to breathe life into the genre. In the end, the competition dies down with a half dozen games representing the genre, each basically in the mainstream that the evolution of the genre has dictated. Here though we have a unique opportunity to see what happens to two dying genres, RTS and FPS, when they are reintroduced with a control style that enhances gameplay with an ability to more fluidly and intuitively control the action. If Nintendo can prove that their new controller can achieve this then they will pull hardcore gamers away from the competition in at least these two genres.

Does the "virtual console" effort represent Nintendo's entire online strategy?

No. More will be described soon. We will use the Wi-Fi component in a different way for each game, just like with the DS.

Really stupid question considering that the DS also has Wi-Fi and as yet, has not been announced to have any virtual console features. Nintendo just patented a speech-to-text setup that interfaces with a server. Imagine for instance a game where you talk, the speech is translated into words on a server which breaks down what you are saying and feeds that information into a translation program to turn it into Japanese which is printed on the screen of someone who doesn't speak English and all of a sudden you can talk to Kamikaze_187 in Tokyo. A subtle but effective online feature that could run in the background and as it is being streamed to a server and the server is doing to work it represents little drag on your home machine.

Though the new console won't include a high-definition disc player, how does the impending format war between Sony and Microsoft affect Nintendo?

For us, it's all about the experience, not if the technology allows you to play your game on the high-definition formats, which are now in such a small percentage of homes. Many independent sources tell us that experiencing current high-def games on a regular TV makes it near impossible to see everything clearly. That means the majority of homes are experiencing something lesser than what they bargained for.

I couldn't agree with Kaplan more here. I don't know everything about this stuff, but Perfect Dark Zero looked like crap compared to Halo 2. Call of Duty looked about the same but with better bump mapping and volumetric smoke effects. Nothing has wowed me so far with the graphics on the 360. I keep hearing that a game tweaked to run in standard definition will look better on a regular TV than that same game tweaked for HD and running with standard texture maps. I'm not sure why this happens but I am told there are artifacts quite often. Still, this is a nearly moot point. HDTVs are only in 15% of homes RIGHT NOW. The typical hardcore gamer that Microsoft and Sony are going after with their products is male and in their teens and early twentys. Do you really think that this demographic will lay down a few grand for an HDTV so they can enjoy their graphics a bit more? I seriously doubt it.

Anyway, this was a great interview by Kaplan and I admire her brevity. Till next time.

Thursday, February 02, 2006

Some (more) stats

Sorry for the lack of real updates, I am very busy at the moment getting ready for my big test. When I posted stats for the DS earlier some people brushed it off as being "just Japan". Now let me get one thing absolutely straight, gaming is HUGE in Japan and the Japanese gaming market is like twice that of all the rest combined or something (I don't have exact numbers there). Hence, saying that Nintendo is rocking in Japan is quite telling in terms of how profitable Nintendo has been lately. Because the market is so much greater in Japan they publish sales statistics weekly whereas I'm not quite sure when America and Europe publish theirs, though I think it is quarterly. Anyhow, here are sales figures for the European market, followed by a Japanese poll.

United Kingdom:
DS 1,000,000
PSP 795, 000

DS 750,000
PSP 500,000

DS 520,000
PSP 350,000

DS 425,000
PSP 295,000

Other Regions:
DS 1,005,000
PSP 500,000

These are total figures sold, not monthly or quarterly (I'm pretty sure).

Here is the results of a poll done by Famitsu, the most popular gaming magazine in Japan. They polled 113 retailers, 47 developers, and 370 gamers about what they see in the future of video games.

Most anticipated gaming machine of 2006

1. PS3 - 53.7% of the developers, 56.9% of the retailers, 46.3% of the gamers
2. Revolution - 41.4% of the developers, 43.9% of retailers, 45.8% of the gamers
3.Xbox360 - 2.4% of the developers, 1.7% of the retailers, 7.9% of the gamers

Then they asked what system would be king in 2006.

Number 1 gaming machine of 2006 (Developer’s pick)
1. Nintendo DS - 49.9%
2. PS3 - 16.7%
3. Revolution - 10.0%
4. PSP - 5.0%
5. Xbox 360 - 1.7%

Number 1 gaming machine of 2006 (Retailer’s pick)
1. Nintendo DS - 38.3%
2. PS3 - 31.5%
3. Revolution - 12.3%
4. (TIE) PSP/Xbox 360 - 1.7%

Number 1 gaming machine of 2006 (Gamer's pick)
1. PS3 - 40.3%
2. Nintendo DS - 32.6%
3. PS2 - 11.8%
4. Revolution - 11.5%
5. Xbox 360 - 2.5%
6. PSP - 0.3%

These last numbers show what machine each pollee THOUGHT would be most successful nonecessarilyly what they personally would purchase. It is interesting the note the big difference between the tiny gap between the PS3 and Revolution in terms of what was mostly anticipated and the relatively large gap between the two when they tried to predict what system would be supreme. Personally attributete this difference to the media spin making the PS3 look awesome compared to the usually poor marketing of Nintendo, so it appears to most people that the PS3 will win in a landslide again whereas the numbers of what system gamers wanted themselves was much different. What do you think?