The Big Questions
With the rise of mobile gaming, gesture-based controls, browser-based games, and an elongated console cycle, the interactive entertainment industry landscape looks drastically different than it did a decade ago. Once-formidable regions like Japan have failed to keep up with development trends, while Korea and China are challenging the conventional perception on how players consume games. Are these innovations here to stay, or are some of them destined to be short-lived fads? We asked industry luminaries to shed light on the big issues that could change the way you play your games.
Once the shining beacon of innovation and creativity, the Japanese game development community has fallen on hard times. Obviously, in the aftermath of the tragic natural disaster the country is dealing with much larger concerns, but the Japanese game market has shown signs of weakness for years now. With three straight years of revenue decline and a global market share that has shrunk from roughly 50 percent in 2002 to a number hovering around 10 percent in 2009 according to The New York Times, the country’s publishers are facing an identity crisis.
So how did Japan lose its edge? Some point to the rigid Japanese business culture, which tends to alienate creativity. Japanese developers were also slow to embrace new console trends like online multiplayer and failed to innovate in genres they traditionally dominated like role-playing games. Japanese role-playing games, outside of a numbered Final Fantasy title, are almost non-existent on sales charts, while Western RPG franchises like The Elder Scrolls, Fallout, Mass Effect, and Dragon Age have taken the lead.
While Japan struggles to gain its footing, competition keeps getting steeper. European and American developers currently dominate the console space, and South Korea and China are now the global leaders in the emerging free-to-play models and in-browser games. Digi-Capital estimates that China’s online and mobile market could reach $18 billion by 2014.
In Their Own Words
Several Japanese industry insiders have spoken out about the country’s current creative crisis. Here are a few select quotes about the gravity of the situation.
"If it’s right for Japan, it’s probably not right for the rest of the world."
– Sony deputy executive president Kaz Hirai
"Japan is at least five years behind."
– Mega Man designer Keiji Inafune
"The designers and to-be-designers in the West have the focus, ambition, and ability to make their dream become true. So it is not the Japanese technology or culture that is losing, we are lacking the motivation."
– Metal Gear Solid creator Hideo Kojima
In a time where Japan needs to diversify and embrace the growing international market, some companies are instead turning inward. Rather than investing the capital necessary to compete on a creative and marketing level with Western juggernauts like Call of Duty and Assassin’s Creed, some Japanese companies are instead pumping out cheaper handheld titles like Monster Hunter that have wide appeal in Japan, but never rise above niche status overseas. Capcom has released 10 Monster Hunter games since 2005, yet it’s only released four games over the same time period in the franchise with the most global appeal, Resident Evil. Two of those were light gun spinoffs for the Wii, and the fourth was a quick and dirty Nintendo DS port of the original.
To former Electronic Arts executive Bing Gordon, this is the wrong approach. "I think there’s a lesson in America of Manifest Destiny," he said. America had excess resources for 200 years – is American success due to democracy or due to excess resources? I’m betting on excess resources.
Japan had excess resources in the ‘70s and ‘80s. They had the newest manufacturing plant in the world, they had to import materials but the materials were all importable, and they had a little Westernization of the culture. They had this blossoming generation that grew up with education and materials, so Japan had 20 years of slack capacity if you will. What every parent of means knows about their kids is they hope the kids work as hard as they did. I think in Japan, they get in this generation gap where the old people try to cling to the old ways and the new people want to create new ways and at the same time there are no excess resources in the system, so all hell breaks loose.
"Japan has no excess resources in the system, and they’ve got a younger generation that wants outdo to their parents. They’re going to have to be more global, they’re going to have to be less insular. They can no longer depend on success in the Japanese market being exportable."
Though many Japanese publishers have had a hard time adopting overseas, its creative leaders haven’t. The exodus of big name talent to new Western partners is astounding. In the past five years, Resident Evil’s Shinji Mikami, Ninja Gaiden’s Tomonobu Itagaki, and Killer 7 creator Goichi Suda have all signed deals with North American partners while their former Japanese employers scramble to fill the creative void. For many of the defectors, it boils down to business. Who can provide the most financial support to their creative vision?
"The business side is not keeping up with investment," the outspoken Keiji Inafune told The New York Times a month before leaving Capcom last October. The decorated developer has an informed perspective, having served the company since the early Mega Man days. "You need to be prepared to invest four billion yen or more on a game and then spend two billion yen more to promote it. But Japanese companies can’t do that. So we’re losing out to the West in terms of investment in games. It’s a vicious cycle, a deflationary spiral. Because you don’t invest, you can’t sell games, and because you don’t sell games, you can’t invest."
Japanese companies don’t necessarily need to look outside the island to find successful examples of growth. Sony and Nintendo have both developed into powerful multinational companies with strong footholds in Japan, Europe, and North America. Each has embraced an international approach to game development, with studios located around the world. Sony’s Santa Monica studio is a leader in the action category with God of War, and Texas-based Retro Studios has successfully revitalized two classic brands for Nintendo: Metroid and Donkey Kong.
Many companies realize the widening creative and competitive gap, and are making moves to better position themselves as global companies. In 2009 Final Fantasy publisher Square Enix acquired European publisher Eidos, which strengthened its Western presence with valuable franchises like Tomb Raider, Deus Ex, and Thief. At the same time, companies like Konami and Capcom are forging Western partnerships and handing the creative control of valuable franchises like Devil May Cry, Silent Hill, and Castlevania to developers overseas. It’s a step in the right direction, but if the companies don’t learn from these partnerships and adapt to the new business realities, the struggle may continue.
“The Japanese game creators have to admit we’re behind the Western games at this moment and try to be humble and learn why,” Inafune told 4Gamer. “Otherwise, we’re not going to be able to start all over again.”
When Nintendo revealed the Wii at the 2005 E3, many jaded journalists laughed it off as a miscalculated gamble and decried its unresponsive controls. After selling over 85 million consoles and seeing Sony and Microsoft subsequently scramble to play catch up with the Move and Kinect, respectively, Nintendo had the last laugh. The Wii is the unquestioned king of the console wars, with the second-place Xbox 360 trailing by over 30 million unit sales.
Though worldwide Wii sales have slowed in the past year, gesture-based gaming is still going strong. Microsoft launched the Kinect this past November and has sold 10 million units thus far. Though the Move hasn’t generated the same hype as Kinect, Sony has shipped 8 million motion controller bundles to retailers and could see a sales spike as more games like Killzone 3 and SOCOM 4 take advantage of the technology.
The hardcore may scoff at the simplistic controls and game libraries dominated by party-oriented titles, but motion-based controls attract new consumers who are intimidated by contemporary game controllers. With two analog sticks, a d-pad, two triggers, and eight buttons on most gamepads, developing the coordination and muscle memory necessary to master a first-person shooter can be as challenging as learning a musical instrument. With the Move, Wii, and Kinect’s straightforward interfaces, anyone can step in and immediately start enjoying the interactive experience. But do these types of interfaces have the staying power to carry over into future consoles, or are they destined for the closet?
Many gamers who prefer gamepads to wands and nunchuks often express worry that gesture-based interfaces will drive game developers to gradually move away from the traditional controller in hopes of appealing to a wider audience. When polling insiders at DICE, a yearly game development summit, none of the developers or analysts we spoke with believed that motion controls represent a serious threat to traditional interfaces.
"Motion-based gaming will always have a spot in our industry, but we still have a long ways to go before it becomes a standard," proclaims EEDAR analyst Jesse Divnich. "At the end of the day, a control stick can do things that are not technically possible with motion games."
Developer Mark Cerny also shared this sentiment, pointing out that for longer games like Final Fantasy, where you are investing upwards of 60 hours, an interface that involves arm waving isn’t ideal. "I think one of the keys is playtime," Cerny says. "The shorter you have the playtime, then the more interesting you can get with it. But if you’re sitting on the couch all day playing I really don’t think you want to be moving even your forearms."
Though gesture-based controls may never become the predominant interface for hardcore games, that’s not to say the standard controller couldn’t stand to learn a thing or two from the Wii, Move, and Kinect.
"I think the more intuitive we can make our controls in games, the better off we are," says former Assassin’s Creed producer and current Ubisoft Toronto studio head Jade Raymond. "I definitely think there is a lot of interesting stuff for gesture controls, and I think the next step will be figuring out how to get that finer tracking of gesture controls."
“I think it will be pretty pervasive eventually,” believes 5th Cell creative director Jeremiah Slaczka. “It will get more refined, and that’s a better thing. The more options you have as a gamer and a game designer, the better, right?”
Since the NES debuted in 1985, Nintendo’s had a notorious relationship – or lack thereof – with third-party publishers. With each subsequent console, Nintendo-published games have thrived while publishers have struggled to reach the success they find on other consoles no matter how well the Nintendo hardware sells.
Former EA executive and current Kleiner Perkins Caufield & Byers partner Bing Gordon chalks this up to the company’s fierce sense of independence. "My sense is that companies have cultures, and Nintendo’s culture has always proudly been ‘we’ll do it ourselves and if everybody else wants to jump on they can,’" he says. "Nintendo’s been about margin and control rather than market share."
No decision has reflected this go-it-alone philosophy more than the debut of the Wii MotionPlus in 2008. When the company announced the controller enhancement at E3, several third-party developers were as surprised as the press – Nintendo never bothered to notify them of the new technology. As a result, the MotionPlus received almost no software support at retail, making it less attractive to consumers.
Dealing with the company’s erratic support has tested the patience of some partners. Speaking to IndustryGamers, Electronic Arts CEO John Riccitiello admitted, "It’s a frustration for all third-party publishers when a platform holder does less to promote third-party content." He also pointed to the company’s less than convincing track record, saying Nintendo has never made a console that’s been "a heavy third-party supporting system. It’s not lack of trying; they start the morning thinking what’s best for their own intellectual property."
But Gordon understands why Nintendo makes the decisions it makes. "If you work with third parties, you don’t have control of your own fate," Gordon says. "Microsoft bought Bungie to do Halo. All it had was Halo and a bunch of crap. When Sony launched the PlayStation it acquired Psygnosis in Liverpool. Commodore Amiga launched with no first party. [Does] having enough first party guarantee success? Nintendo’s got Miyamoto, and he could do a game that could single-handedly drive 10 percent market share, so they got in the habit of retaining control. They never had that awkward feeling of having to depend on other people for their success."
The Third-Party Gap
In looking at the number of third-party games that rank among the top 20 game sales for each platform as provided by the NPD Group, the Nintendo dilemma for those publishers is evident.
PlayStation 3: 16
Xbox 360: 15
As long as Miyamoto is making games for Nintendo it doesn’t have to rely on third-party publishers to find success, but the company is leaving low-hanging fruit on the revenue tree. Good third-party games can increase consumer interest in the hardware, which in turn sells more software. Console manufacturers also receive licensing fees for every third-party game sold. "It really is pure profit," Reggie Fils-Aime admitted to Fortune in 2007. "Third-party games can really determine who wins." So what’s taking so long for Nintendo to develop a cohesive third-party support system?
Recently Nintendo president Saturo Iwata acknowledged the problem during a press conference and pledged to do a better job of supporting its partners going forward. "It is true that the third-party software sales ratio on Nintendo platforms are comparatively smaller," he said. Wii’s third-party software ratio is especially low.
"We need to decrease the concern that only Nintendo software can sell well on Nintendo platforms and third-party software cannot sell in the same volume. We will not make a trend similar to the one found for Wii in Japan now," he promised. "We feel a need to have closer ties with our third-party developers from the beginning."
The company is trying to mend these relationships starting with the 3DS launch. According to Nintendo of Europe’s Laurent Fischer, there are currently around 70 first- and third-party games in development for the emerging handheld.
Nintendo’s lack of third-party support hasn’t helped, but in the eyes of 5th Cell executive director Joseph Tringali, it’s not the only reason publishers rarely find success on its platforms.
"They set themselves up to fail because there’s this juggernaut Nintendo and a lot of the publishers say, ‘We’ll never compete with Nintendo, we can’t do it,’" he says. "It’s like they’re talking defeat into their strategy before they even start, instead of asking ‘What is Nintendo doing and why are they successful?’ Rather than their marketing advantages and point of sale advantages, they make games for their platform and for their audience. A lot of times they have a unique element to it."
When Tringali speaks, publishers and developers should listen. The 5th Cell is one of the few third-party developers that has found repeated success on the Nintendo DS, with Drawn to Life selling 3.5 million units and the Scribblenauts series reaching 2.5 million.
Wedbush Morgan analyst Michael Pachter agrees with Tringali. “The Wii has been a tough platform because most publishers have failed to understand the audience,” he says. “Nintendo has had great success, as it clearly knows its customer. Other games (let’s call them ‘mass market’), like Guitar Hero, dance, and fitness games have thrived. I think that we’ll see more games like these in the future.”
Five years ago, few consumers took mobile gaming seriously. With drastically varied operating systems, technologically limited handsets, and slow network speeds, not many were willing to navigate the sluggish, unintuitive menus to download a title that looked like a stillborn NES game and used the cramped keypad for its interface.
After Apple rewrote the mobile phone playbook with the iPhone, mobile gaming isn’t as intimidating or shallow anymore. Most phones now operate on standardized operating systems like iOS, Android, and the emerging Windows Phone 7 platform that boasts Xbox Live integration. Cell phone technology is starting to rival that of the traditional gaming handhelds. As a result, mobile gaming has exploded.
The Call of Duty of mobile games, Angry Birds, boasts over 40 million players a month, and the success has allowed developer Rovio to collect $42 million from investors and expand further into pop culture. It has sold over two million Angry Birds plush dolls and recently signed a deal with 20th Century Fox to promote the upcoming animated movie Rio with an Angry Birds tie-in game.
"Games dominate mobile apps – games only account for 17 percent of all apps available, but account for more than 50 percent of all revenue generated," said Elizabeth Harz, senior vice president of global sales at Electronic Arts, at the Mobile Marketing Forum. "If you look at Apple’s apps revenue, 75 percent of it is from games."
Tired of hearing companies like Nintendo belittle mobile gaming, Rovio executive Peter Vesterbacka went on the offensive during a panel at the South by Southwest Interactive conference, saying “consoles are really a dying breed” as consumers flock to cheaper mobile experiences like Angry Birds. While Angry Birds is an undeniable blockbuster hit, Vesterbacka’s hyperbolic statement is unfounded considering Call of Duty: Black Ops just became the best selling game of all time and many mobile games still struggle with visibility. He later made a more sensible argument when he decried people calling experiences like Angry Birds “casual games.” He remarked that film reviewers don’t talk about “casual movies,” and said that Angry Birds players can become just as involved as players do with more traditional “hardcore” games.
That number will keep skyrocketing according to Juniper Research. The firm estimates that mobile games revenues will be worth $11 billion annually worldwide by 2015, nearly double the $6 billion recorded in 2009.
With so many people gaming on their phones, is the need for a dedicated gaming handheld waning? After all, why would you carry a PSP or 3DS when you can play entertaining versions of known gaming franchises like Dead Space on your phone?
"The formidable lead enjoyed by cell phones capable of gaming will continue in the years to come with no hint of decline, and their near-universal presence gives them the potential to become a viable competitive threat to dedicated gaming platforms, primarily handheld devices," said iSuppli analyst Pamela Tufegdzic in an August report.
Many publishers like Electronic Arts are making aggressive moves in the mobile space, but not everyone is interested in jumping on the bandwagon. "We don’t view the App Store as a really big opportunity for dedicated games," Activision CEO Bobby Kotick said at Reuters’ Global Media Summit.
Nintendo president Reggie Fils-Aime agrees. "I actually think that one of the biggest risks today in our industry are these inexpensive games that are candidly disposable from a consumer standpoint," he told GameTrailers. "I actually think some of those games are overpriced at one or two dollars, but that’s a whole different story. Angry Birds is a great experience, but that is one compared to thousands of other pieces of content that for one or two dollars I think actually create a mentality for the consumer that a piece of gaming content should only be two dollars."
He could be right. While Wedbush Morgan analyst Michael Pachter doesn’t see handhelds going away, he thinks the best days could be behind them thanks to the cost differential between the mobile and handheld experiences. "I think that the ubiquity of gaming apps and the low price points will be an attractive alternative to far more expensive handheld games, and as more handheld devices like the iPod Touch or Android phones are purchased, many owners will see no real reason to buy a dedicated handheld for gaming," he said. "I don’t think that the NGP or 3DS will approach the installed base of their predecessors unless pricing comes down dramatically."
Though the mobile games are undoubtedly cannibalizing the handheld market, you don’t have to prematurely cancel your 3DS or NGP orders. With Nintendo’s first-party pedigree and Sony’s extensive publishing partners, good handheld games will still come.
"There will always be room for traditional video games, and if anything the mobile and tablet markets are expanding our industry," says EEDAR analyst Jesse Divnich. "YouTube didn’t hurt theater sales, and I fail to see how these emerging mobile and social markets will hinder traditional video game sales. Social and mobile games are just bite-sized snacks of entertainment. Any true gamer realizes that."
Last generation, the PlayStation 2 library couldn’t be beat thanks to a wealth of games that you couldn’t get on the Xbox 360 or GameCube. But with more and more third-party games being produced for multiple consoles this generation, it would make sense that first-party exclusive games become a bigger differentiator when a consumer is looking to purchase a console.
With legendary franchises like Super Mario Bros., the Legend of Zelda, and Metroid, Nintendo has always depended on its first-party titles to make its consoles more attractive to consumers. When the PlayStation 3 released, Sony redoubled its efforts to create compelling first-party games, adding Resistance, Infamous, LittleBigPlanet, and Heavy Rain to an already deep lineup featuring blockbusters like God of War, Ratchet & Clank, and Gran Turismo.
But as this generation of consoles has moved forward, Microsoft has veered from the path and adopted an alternative approach. Nintendo and Sony continue to push impressive first-party lineups, but Redmond’s library is shrinking before our eyes. With Mass Effect going multiplatform this year and several first-party titles failing to produce enough sales or critical acclaim to warrant a sequel, the Xbox 360 is down to a handful of exclusive franchises to draw in consumers – Fable, Halo, Forza, Gears of War, and potentially Alan Wake.
Despite beating the PlayStation 3 and Wii to the market by a year, the Xbox 360 lags behind in first-party retail games.
Xbox 360: 38
PlayStation 3: 57
Despite Microsoft’s slimming exclusive lineup, it is still hanging onto second place in the console wars thanks to many exclusive windows that give Xbox 360 users first shot to purchase enhancements to third-party games like Call of Duty map packs and the Grand Theft Auto IV expansions. Can this approach continue to yield results, or does Microsoft need to expand its portfolio?
"I don’t see Microsoft adding first party capability, but I do see them continuing to invest in third-party exclusive windows," predicts Wedbush Morgan analyst Michael Pachter. "They have enjoyed tremendous success by gaining a three-to-six month advantage, particularly with DLC related on online multiplayer games like Call of Duty, and I expect them to continue to exploit that advantage."
The exclusive DLC windows are profitable because of the rise of importance in online networks as a deciding factor for consumers when making purchases. If your friends are all playing Call of Duty on Xbox 360 because they want access to the newest map packs first, chances are you’re going to choose an Xbox 360 over the PlayStation 3 as well.
"Ten years ago the argument was that the first-party titles defined a console. In 2011, it is all about the differentiating services, such as Xbox Live," says EEDAR analyst Jesse Divnich. "Microsoft will likely continue to secure additional media partnerships to enhance its online services before it invests additional resources to first party titles."
Sony has noticed the effectiveness of these third-party exclusives, and this past year started to cultivate its own partnerships. At the 2010 E3, it announced PS3-exclusive collectors editions for both Medal of Honor and Dead Space 2 that featured content consumers couldn’t get anywhere else. Sony also signed a deal with Valve that allows the developer to use its Steam service to push new content to the PlayStation 3. When announcing the deal, Gabe Newell proclaimed the PS3 version would be "the best version on any console."
With the competition getting tougher for creating exclusive content for third-party multiplatform games, consumers face even more perplexing questions when deciding which console to buy. How much they care about exclusive content windows for their favorite games, where their friends are playing, and first-party titles they can’t play anywhere else will all play a role in the decision-making process.
3D is the Jason Voorhees of entertainment technology. Though it originally debuted and faded away in the ‘50s, like the masked killer it keeps coming back from the dead every few decades. Not even Jaws, the first summer blockbuster series, or Michael Jackson’s Captain EO, the Disney World film that came out during the peak of the pop star’s celebrity, could solidify its footing as a must-see technology. Whenever someone revived the surprisingly resilient tech, it unfailingly receded into obscurity once again.
Then came Avatar. Hailed as a revolution in the technology, James Cameron’s 2009 sci-fi epic shattered expectations, becoming the first film to gross more than $2 billion. Suddenly 3D was hot again, and almost every tech company began fighting to get in front of the line. "3D will sweep the world," Sony CEO Sir Howard Stringer told Wired in an interview last year. "There is no reason we shouldn’t be enormously successful."
We’ve heard that before, but this time data backs the proclamation. From HDTVs and Blu-ray players to handhelds and game consoles, 3D is stretching its reach beyond the silver screen and into our homes. Consultancy iSuppli estimates that shipments of 3D-enabled HDTVs will rise to 78 million in 2015, or around 40 percent of the global flatscreen TV market.
A Brief History of 3D Gaming
Arcade game SubRoc 3D debuts, which uses a special eyepiece to create 3D effects.
Western Technologies releases the Vectrex, the short-lived console that features 3D support.
Square creates 3D WorldRunner and Rad Racer for the NES, which both include a pair of anaglyphic glasses.
Sega releases the SegaScope 3D add-on for the Master System. Only eight games support it.
Nintendo introduces the disastrous Virtual Boy console, which is discontinued in less than a year.
Sony goes big, offering 3D support in over 10 PlayStation 3 games.
Nintendo releases the 3DS handheld.
"I think it is a technology that’s coming," Ubisoft’s UK marketing director Murray Pannell told Eurogamer. "We can’t ignore it. It’ll start slowly this year. But, like HDTV, I wouldn’t rule out the fact that this will be installed in everyone’s living room in three years time, and for us to be in a position to have content that could really look absolutely amazing in 3D."
But as the technology currently exists, 3D may not be as attractive to consumers as the manufacturers hope. A recent Nielsen Survey found that while many potential TV buyers are impressed by the 3D technology, they are still turned off by the price, lack of content, and being forced to wear glasses to enjoy the experience. Half of the survey participants said the glasses were uncomfortable, and a mind-boggling 89 percent of respondents were turned off by the glasses because they restrict them from performing any other tasks. It’s an annoyance to remove your glasses every time you want to make eye contact with someone in the room or check your phone for sports scores.
As the technology becomes ubiquitous, the hope is that many of the exorbitant costs associated with a full 3D experience (the television, Blu-ray player, console, and glasses) will likely fall, and the technology could evolve past glasses.
"I think we’re in early days here," says Mark Cerny, the legendary game developer who has worked on everything from Marble Madness to Uncharted: Drake’s Fortune. "If 10 billion dollars of 3D televisions are going to be sold, do you think you’ll still have to wear glasses to see a 3D image? I don’t think so. They will find a way."
Even if they appreciate the concept, some people can’t enjoy 3D due to eye strain or medical issues. ABC News reports that up to 12 percent of Americans may have some degree of stereo blindness, which is the inability to track depth properly. That’s a large part of the population to leave on the sidelines.
Then there’s the issue of value. Is 3D as transformative an experience as the marketing would have you believe? While some developers like Guerrilla Games and Crytek think it can be, not everyone agrees.
"I don’t personally think 3D is always a better experience," says BioWare co-founder Greg Zeschuk. "It’s very different than when you’re looking at standard definition versus HDTV. I watch a lot of soccer, or football. When you have to watch a game in standard definition you go, ‘Oh, my God. This is horrid.’ It sticks with you and it’s painful. I go, ‘Well, do I really care if the guys pop out of the screen a little bit or it seems like there’s depth?’ Not really."
Zeschuk is not alone. While Nintendo, Sony, and Ubisoft are positioning themselves as leaders in 3D gaming, both Microsoft and Electronic Arts are taking a more conservative approach. Of the several industry insiders we spoke to, most had mixed feelings about 3D becoming a game changer.
"It’s an enhancement; it’s not a solution," echoes fellow BioWare co-founder Ray Muzyka. "Can it affect gameplay? That’s actually, I think, the crux."
EEDAR analyst Jesse Divnich believes that 3D will eventually be everywhere, but he also doubts it will have an impactful role in the future of video games. "3D penetration will be no different than say the penetration of the picture-in-picture feature," he says. "Eventually costs of production will be so minimal that it becomes a standard in all televisions. However, much like picture-in-picture, its frequency of use may be minimal."
In the interim, you may want to avoid spending thousands of dollars on 3D-enabled technology for your home entertainment center. Unless you’re an early adopter who craves new technology, it’s wise to wait until prices drop, a universal standard develops, or a few Avatar-sized hits prove 3D won’t lose its pulse again.