Showdown in Cyberland
It’s Christmas 1996. Dozens of U.S. computer game makers, bogged down by soaring production costs, failed to finish their hottest titles before the holidays.
A few products sold big. Yet most of retail’s precious shelf space was crowded with hundreds of ho-hum products that generated a lukewarm buzz among shoppers.
A year later, things look great. Fans are overwhelmed by a bounty of selections. Game makers excitedly release a stream of eagerly anticipated sequels. Early indicators show that 1997 could be the field’s best year ever for retail sales.
And yet, game insiders warn that even the warmest glow of holiday sales will not be enough to erase fundamental problems that plague the industry. At most, analysts say, a good month in the stores will provide a temporary respite.
“There are too many people trying to make a go of this business,” said Dan Lavin, a multimedia analyst with technology research firm Dataquest. “This industry has some serious problems, and a lot of companies really need this Christmas to save them.”
At the top of the hype list this holiday season is Riven, the hotly anticipated sequel to the best-selling computer game of all time, Myst.
Myst sold a remarkable 3.5 million copies by appealing to an audience far broader than the teenage males who buy most games. Rand Miller, co-founder and president of Cyan Inc., the Spokane, Wash., company that created Myst and Riven, hopes the new title can do the same.
Riven, released in late October, has already broken the 500,000 mark. But many analysts are skeptical that it will achieve the crossover appeal of its predecessor.
The other contenders for blockbuster status this year are firmly within traditional gaming genres. The likely No. 2 is Id Software’s Quake 2, the follow-up to its wildly successful--and gleefully gruesome--shoot-’em-up game.
Others include Jedi Knight: Dark Forces II by LucasArts Entertainment; Wing Commander: Prophecy by Origin Systems Inc.; Tomb Raider II with its busty heroine, Lara Croft, by Eidos Interactive; and Starfleet Academy, the Star Trek-themed sequel by Interplay Productions.
The holidays routinely account for about 50% of the industry’s annual sales, and so far 1997 looks like a good year. For the first nine months of 1997, PC game sales in the United States were about $725 million, up 18% over the same period last year, according to PC Data.
The demand is being driven by rising PC hardware sales, which grew 19% worldwide--16.6% in the U.S. market--in the last year, according to Dataquest. PC and peripheral vendors help prime the game market by persuading consumers that they need to buy the latest monitor or the fastest video card to enjoy these games.
“The PC market grows every year, and so does the public’s expectations,” said David Perry, president of Shiny Entertainment, a successful game publisher based in Laguna Beach. “[Personal computers] are getting so fast and so powerful that companies like Intel and Microsoft realize there’s no killer app in the business world for all that power. They need the game world to convince consumers they need to buy the latest, greatest technology.”
But producing games with the video and graphics and other bells and whistles that the new hardware makes possible is an expensive proposition. It costs nearly $1.5 million to develop a game--not including marketing fees--compared with $500,000 just two years ago.
Despite the rising costs, though, the industry continues to swamp consumers with a flood of new game titles. The number of new PC games in the U.S. rose nearly 11% from January through November 1997, compared with last year’s offerings, according PC Data Inc., a Reston, Va., market research firm.
The high costs and glut of products makes it tough for any but the largest firms to play, and a shake-up in the business is underway.
This year, Seattle-based CUC International acquired Berkeley Systems and Sierra Online, fattening up its already powerful stable of game developers. Bay Area powerhouse Electronic Arts added Accolade Inc., known for its sports titles, and Maxis Corp., makers of the SimCity line.
In November, industry leader GT Interactive Software Corp. was set to buy MicroProse Inc., which has long struggled to find consistent profitability.
When the deal fell through earlier this month, MicroProse announced that the merger cancellation delayed its production schedule at least a quarter, which triggered a net loss of as much as $10 million on revenues of $17 million to $20 million for the third fiscal quarter ending Dec. 28.
Wall Street reacted violently, as MicroProse shares plunged 51% on the Nasdaq Stock Market, dropping $2.36 a share to close at $2.31 a share on Dec. 8.
“Right now, the industry is fragmenting into the haves and the have-nots,” said Bobby Kotick, chairman and chief executive of Activision Inc. “The ones that are thoughtful about what products they make and the ones with enough revenues to sustain their momentum will survive.”
To compensate for high development and marketing costs, several large game firms quietly revamped their corporate approach and refocused their product catalog this year.
Only hit titles mattered, insisted these developers. Everything else became disposable fluff.
Faced with having to boost internal costs to keep up with the fast-moving video game market, Disney Interactive decided to fire a quarter of its staff and massively scale back its in-house game effort.
The Glendale-based unit of the Walt Disney Co. will produce titles only through its license agreements with other developers.
Virgin Interactive in Irvine released only about 25 games this year--half of what it shipped last year. These days, only games that look like sure hits get approval. To date, about 40% of all the proposed titles get killed at the development phase.
Interplay Productions, also of Irvine, wrote off about 20% of the games slated to be released this year, said company President Brian Fargo.
Still, the battle for retail shelf space remains fierce. And without creative breakthroughs that can expand the market, many game companies face a difficult future.
“There are just too many good titles,” Fargo said. “The consumer only has so much money. We’re all fighting over those dollars and someone is going to lose out.”
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Numbers Game
A look at U.S. retail sales of PC game titles:
Units Sold / 1997: 31.7 (in millions)
Sales Revenue / 1997: $828.8 (in billions)
*through November
Source: PC Data Inc.
