Kids Embrace New Generation of Video Games
Remember Nintendo mania? It’s back. At Wal-Mart, at Toys R Us and at electronics stores across the country, video game consoles are flying off the shelf as kids pester their parents for the latest generation video game machine from Nintendo or its rival Sony.
That’s great news for video game companies that had all but given up on any hope of returning to the glory days of 1989 and 1993, when parents shelled out hundreds of dollars on games to feed the consoles tethered to their living room television sets.
“We’re completing the 25th anniversary of the video game business with the best year ever for the industry,” says Peter Main, executive vice president of marketing at Nintendo.
With buyers snapping up such titles as Nintendo’s James Bond shoot-’em up game, Goldeneye, and Sony’s Final Fantasy VII, analysts predict the video game industry will ring up sales of $5.2 billion this year, up more than 50% from last year.
The Nintendo 64 and the Sony PlayStation are in a neck-to-neck race for market leadership of the console business, with both boasting sales of more than a million machines in November.
Gary Gabelhouse, a Lincoln, Neb., market researcher who predicted two years ago that the new generation machines would never sell more than 6 million units--a tiny fraction of the 39 million units of the original Nintendo NES system that blanketed the nation in the late 1980s--now believes that Nintendo and Sony could together reach total sales of 45 million game machines over the next two or three years.
The rapidly expanding base of console machines in homes around the world is great news for beleaguered game companies. Many had been migrating to the smaller and less lucrative personal computer and Internet game markets as a result of slumping console sales in recent years.
Bing Gordon, executive vice president at Electronic Arts, the leading vendor of sports titles with such games as NHL 98 and Madden 98, figures the industry will sell 45 million video games this year--matching the peak year for the earlier 16-bit generation of games and getting close to the all-time high of 55 million games sold in 1989, when eight-bit games hit their peak.
The biggest beneficiaries of the video game boom, of course, are the Japanese video game manufacturers.
Sony is the leader because of its strength not only in the United States but in Japan and Europe as well. The company says it is now producing 2 million units a month of its PlayStation, more than any single consumer product in its history.
Left out of the boom has been Sega Entertainment, which took the market lead during the last video game boom in 1993 with its Genesis machine. This year, Sega will be lucky to get 4% of the market.
But the consoles are the low-margin razors. The real profits, the razor blades, are in the games. And here too, the Japanese game makers rule.
Michael Wallace, analyst at New York-based UBS Securities Equity Research, notes that Nintendo accounts for 50% of all games sold for the Nintendo 64. Just a little over a year after releasing Nintendo 64, its 64-bit console, Nintendo has five software titles that have sold more than a million copies each.
Sony, the consumer electronics giant that was dismissed as an outsider when it first introduced its Playstation two years ago, has been proven equally adept at developing game software. Three of the top six best-selling titles on the Playstation are from Sony Computer Entertainment.
Competition has been good for the consumer, driving game machine prices to $150, a sharp discount from the $250 price tag of two years ago.
Nintendo, which initially priced much of its software at $70 a cartridge, recently cut software prices by 15% or more in order to generate stronger sales.
And to encourage developers to build more titles for its system--Nintendo offers only 43 titles for its system against Sony’s 300. Nintendo promises it will have 100 titles available by the end of next year.
