Game Giants Are Scoring on the Rebound
Frazzled? Frustrated? Furious? Feeling like an embattled Arnold Schwarzenegger as you scramble to find the elusive Nintendo 64 console to put under the Christmas tree for your video-game-crazed child?
It may sound cruel, but to the long-struggling video game industry, your frenzied efforts are a sight for sore eyes.
After three years of sluggish sales, video games are staging a major comeback. The new Nintendo machine, released in the U.S. this fall, is in short supply nationwide, even though it costs a cool $400 or more if accessories and the popular Super Mario 64 game are included.
Competing products from Sony and Sega, which have been on the market for more than a year, are suddenly flying off the shelves too. Although it’s still unclear whether this new generation of machines can bring back the video game glory days of the late 1980s and early ‘90s, industry executives are euphoric about the rebound.
“Nintendo’s entry has been good for the whole category,” says Andrew House, Sony Computer Entertainment’s marketing vice president. He says sales of the Sony Playstation are double last year’s levels for September and October in spite of the new competition from Nintendo, and total sales will be limited only by supply.
Even third-place Sega Entertainment is seeing some action. When the company launched a special on Thanksgiving weekend--throwing in three free games for purchasers of its Saturn systems--many stores quickly sold out.
“Their sales increased tenfold,” says Peter Roithmayr, head of video buying for Electronic Boutique, a national video game chain. “We were shocked.”
It isn’t just the three Japan-based console makers that are seeing sales soar. The developers of the game software, mostly U.S. firms, are upbeat as well.
The new-generation “game machines are selling faster than anybody expected,” says Bing Gordon, executive vice president at Electronics Arts, a San Mateo, Calif.-based game maker. The rapidly growing population of new-generation machines provides a lucrative new market for EA’s popular sports titles, many of which are available for both the Sega Saturn and the Sony Playstation.
Sega says it is now selling four games for every machine purchased, up from just two a year ago.
Cynics suspect part of the current euphoria is well-engineered hype. After all, if there is such a shortage, why are the three console makers collectively spending $160 million in advertising to drive even more buyers to the stores?
Although game makers say they hate to lose sales that result when they don’t have enough product on hand, they also know that there’s nothing like a shortage to put buyers into a frenzy.
Some customers are downright angry. “It sucks,” says Clint Ringel, 18, as he stares at the empty space at Toys R Us where the Nintendo 64 should be on display. “They’ve been advertising it on television and everything, but I can’t find it anywhere.”
Nobody knows whether the current boom in advanced game systems will ever equal the explosive sales of the earlier-generation 16-bit machines. About 40 million of the SuperNintendo and Sega Genesis machines have been sold in the U.S.
But the early signs are good. According to the NPD Group, which collects market data for the game business, sales of games, game machines and accessories were up 40% in September from the year before, and up 32% in October, the latest month for which numbers are available.
Video game and game machine sales, which shrank from $5 billion in 1993 to $3 billion last year, should climb back to about $3.6 billion this year and show even stronger growth next year, says Peter Main, Nintendo’s executive vice president of sales and marketing.
The comeback of the video game business has surprised naysayers who predicted that a growing base of powerful multimedia computers in millions of homes would result in a sustained shift toward PC-based games.
For most fast-paced adventure and fighting games, though, consoles remain far superior to computers--and serious “gamers,” especially, are starting to act on that fact.
The NPD Group notes that 16 of the top 25 interactive game titles have been for video game machines rather than PCs in the nine months ended Sept. 30. And for all of Microsoft’s efforts to push Windows 95 as a great game platform, the top PC games are still being developed for the older DOS operating system.
Companies that bet too heavily on the PC and don’t have console games available for sale this Christmas are suffering. New York-based GT Interactive saw its shares plunge 38% last week after it announced that several key console games for the advanced game machines wouldn’t be ready in time for Christmas.
Will the Nintendo fever continue?
“It’s too early to tell what happens in the U.S.,” says Andrea Williams, analyst at Volpe, Welty & Co. in San Francisco. “If you look at Japan, Nintendo sales dropped off after a couple months [because of poor software availability], while Sony’s sales have remained strong.”
That hasn’t happened yet in the United States. After selling 1 million of its machines since Sept. 30, there are only 40,000 Nintendo 64 games now in the pipeline to serve 15,000 stores.
The slowdown in Japan and a decision to delay launch of the system in Europe has freed an additional 500,000 machines that Nintendo hopes to have in stores by the end of the month. Retailers have few doubts they will sell the machines.
Nintendo’s long-term success, though, depends on a steady flow of high-quality games such as Super Mario 64. So far there are only a handful, and many experts say the difficulty of developing for the Nintendo system is a major barrier.
And because Nintendo games come in semiconductor-packed cartridges that cost $30 to produce, versus $1 for the CD-ROM used in the other machines, software makers say they can’t make much money developing for the Nintendo machine.
Maybe that’s why Sony is not particularly concerned. The company already claims to have shipped 9 million units of its Playstation worldwide, and there are about 200 games available for the machine.
Gary Gabelhouse of Lincoln, Neb.-based Fairfield Research figures sales of the high-priced game consoles will hit a ceiling at about 7 million in America unless prices come down again. The three systems all currently carry a suggested retail price of about $200; game cartridges for the Nintendo machines start at about $70, whereas Sega and Sony discs range from $25 for older titles to $60 for the latest hits.
Sega may be in the most difficult position of all. Although it has the advantage of having exclusive access to the games it develops for its huge arcade business, many gamers dismiss the machine as a kludge.
Gabelhouse, who does regular surveys on game-buying intentions, sees little future for Sega. “This will be a two-platform race,” he said. “Sony and Nintendo both have great brand equity. I don’t think Saturn will make it.”
