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Looking at the Game Market for Holiday 2005 October 26, 2005 It is getting to be that time of year when we thought we would take a break from talking about number crunching/new system forecasting, emerging business models/distribution trends, the Asian game market, and other long-term issues. Instead, this month we are looking at the North American retail market for the rest of the year. The one thing striking about the 2005 holiday season is the diversity of product offerings. There is really no single standout “must have” product. Nevertheless, consumers walking into a retail store in coming months will face a variety of enticing possibilities for ways to spend their hard-earned dollars with the interactive entertainment industry. With so many solid products, consumers will be forced into some tough spending decisions. This month we thought we would try and give a brief lay of the retail landscape for the holiday season. Xbox 360 When it comes to this year’s holiday season it is clear that there will be an inordinate amount of attention on the new kid on the block, the Xbox 360. One thing we can confidently predict is that we will hear a great deal of Xbox 360 bashing about limited supply, weak games, high pricing, etc. In the long term, all the negative criticism, deserved or not, will probably be meaningless to the Xbox 360’s performance. This is just part and parcel of a high profile new system launch. In our view, the goals for the Xbox 360 are to 1) get people looking at the system and 2) get people talking about the system. The launch lineup should go a long ways towards accomplishing those goals. For one, all bases are covered with the 360. There are sports games (mainly from Electronic Arts and Take-Two), extreme sports, racing, an RPG, and of course several violent shooting titles (an Xbox specialty). There is even a great looking platform title in Rare’s Kameo: Elements of Power. The most important feature of the Xbox 360 lineup is that the games look good in retail displays. If the games actually play well that is merely an added bonus. While hard-core gamers snap up initial shipments, the masses will just be getting introduced to the Xbox 360 via what they see in retail displays. Thus, for the launch period, it is more about style over substance. The good news is that, assuming issues with Wal-Mart can be worked out, we think the Xbox 360 games will show very well and will get consumers thinking and talking about saving money for a new system. At the least, the Xbox 360 2005 lineup clearly seems better than that of the PlayStation 2 five years ago. The PS2 launch lineup was dominated by EA’s Madden football title, with SSX and some Take-Two products adding a little diversity. Sony’s sole first-party product was Fantavision, a fireworks title (basically a puzzle game). In other words, the PS2 launch was not a good indicator of what was to come for the most successful console system of all-time. Mission accomplished for the Xbox 360 this holiday season will be building mindshare for the future. PSP The Sony PSP is the most recent example of how perception can be more important than reality for building mindshare for a new system. From a hands-on consumer perspective, the PSP has been a disappointment, both from a software and a hardware ease of use standpoint. However, to the casual observer, the PSP and its games look really amazing. It doesn’t necessarily matter that playing the actual initial games has not been all that exciting. In addition, the beauty of the portable market is that it is possible to improve the hardware and not destroy the user base. Nintendo has done it on several occasions and we fully expect the PSP to have a similar evolution as a platform. Meanwhile, with Grand Theft Auto: Liberty City Stories, the PSP now has a clear sales driving title. However, even this title does not answer our key concern with the PSP: do portable game consumers really want on-the-go versions of their console favorites or are they looking for something a little different and more suited to portability issues? Nintendo DS The Nintendo DS has faced a more challenging situation because its software (with the possible exception of Super Mario 64 DS) has not jumped out at retail with a revolutionary new look. One key title, Metroid Prime Hunters, has been long-delayed and it seems to have taken forever to build up even a basic library. However, the DS has finally built a decent product library of truly unique titles. In addition, with Nintendogs, the DS does finally have a title that looks good on display and gets people talking. For the 2005 holiday season, the Nintendo DS is finally a very compelling system with a good mixture of unique products and familiar names, at about half the price of the PSP. Other standout titles include Advance Wars: Dual Strike, Castlevania: Dawn of Sorrow, Kirby Canvas Curse, Meteos, Metroid Prime Pinball, Trace Memory, Trauma Center: Under the Knife (a surgery sim), and WarioWare: Touched!. The strength of these products is that each appeals to a different audience and takes advantage of the uniqueness of the portable platform. Furthermore, the big hitter this holiday, Mario Kart DS, will highlight the online features of the DS. The Old Systems In terms of overall sales, the bulk of action in 2005 will be with the long-established systems. Of course, leading the way will be the PlayStation 2 which still appears to have all kinds of life left. Nintendo is also doing an solid job of keeping the Game Boy Advance platform alive while trying to migrate users to the DS. The situation is different for the Nintendo GameCube and Microsoft Xbox. Any consumer expecting to buy those two systems better not be expecting too much in the way of unique new titles hitting the market. The new products for the GameCube and Xbox are primarily ports of titles coming out for multiple systems. The situation is worse for the GameCube because many publishers are releasing titles only for the PS2 and Xbox. Third-party publishers are helping give the Xbox pulse, while the main GameCube action is from Nintendo. With the delay of a new Zelda title, the big new GameCube titles are Pokemon XD: Gale of Darkness, Dance Dance Revolution: Mario Mix, and Mario Party 7. Although we are big fans of the strategy/RPG titles Battalion Wars and Fire Emblem, there is really nothing new to compel consumers to buy a GameCube. Keeping the PlayStation 2 alive and well could be the biggest key to Sony’s long-term success. SCEA has a full lineup of its first-party heavy hitters for the PS2: SOCOM 3, Sly 3, Jax X: Combat Racing, Ratchet: Deadlocked, Shadow of the Colossus, sports titles and some exclusive new EyeToy products. There are also some solid third-party PS2 exclusives (mainly from Japanese publishers) like Soul Calibur III, Resident Evil IV (previously only for GameCube), Dragon Quest VIII, Shining Force NEO and We Love Katamari. Heavy hitters Kingdom Hearts II and Final Fantasy XII will wait in the wings until 2006. Of course, as mentioned, most third-party publishers are focused on a multi-platform release approach for their heavy hitters. This is lead by the annual EA sports lineup, as well as updates for popular EA franchises like Need for Speed Most Wanted, SSX On Tour and Burnout Revenge. EA is also once again trying to make the smash PC franchise The Sims a console/portable success with a multi-platform port of The Sims 2. As always, many of the biggest titles are based on licensed properties. Harry Potter and the Goblet of Fire, Peter Jackson’s King Kong, and The Chronicles of Narnia: The Lion, The Witch and The Wardrobe will all be coming to a movie theater and a game system near you this holiday. Classic movies like the original James Bond From Russia with Love and the 70s cult hit The Warriors finally have their own games. There is a new Tony Hawks (American Wasteland), new wrestling games, Star Wars Battlefront II, Sonic spinoff Shadow the Hedgehog, while the True Crime series goes from LA to NYC. About the only big new franchise we see on the horizon is Activision’s Gun. Nevertheless, there look to be some excellent titles to choose from. PC Games Everyone likes to talk about the decline of the PC game market. However, most of this is misperception. The traditional retail publishers have seen their PC game business decline, but the overall business has continued to grow as a new crop of online game publishers has sprung up. Leading the way is Blizzard’s World of Warcraft which should continue to do well, even though there will not be a new expansion until 2006. In terms of new retail online game products there is NCsoft’s City of Villains and Guild Wars, a new retail version of Disney’s Toontown Online and new Everquest/EQ II expansions. Many of the biggest PC franchises are getting new titles. This includes Civilization IV, Quake 4, Age of Empires III, Black & White 2 and Call of Duty 2 (which will also be a key Xbox 360 title). Like the console platforms, the PC is short on original new franchises. The biggest one is probably VU Games/Monolith Productions first-person shooter F.E.A.R. Conclusion As we said at the beginning there are plenty of good products, both hardware and software, to choose from this holiday season. There may not be a Grand Theft Auto: San Andreas or Halo 2 for consumers to rally around, but there are plenty of reasons for consumers to hit the stores with their wallets open. Hurricanes and gas prices may slow things a bit, but the game industry clearly will have a great deal of momentum going into the difficult transition period. As part of our ongoing research efforts DFC Intelligence is delivering monthly briefs on hot topics in the interactive entertainment and video game industry. You (or a colleague of yours) have signed up to receive these briefs. DFC Intelligence’s research services provide detailed strategic analysis of the interactive entertainment industry. A sample of reports on the video game and PC game market include: Worldwide Market Forecasts for the Video Game and Interactive Entertainment Industry Complete five-year forecasts for all individual console and portable game platforms by region (Asia, Europe, North America, rest of world)) through 2010. Also included are PC game forecasts and historical sales figures. The report has several scenarios for future market growth including an analysis and forecasts for new systems from Sony, Microsoft and Nintendo, as well as portable game systems. The Business of Computer and Video Games This report includes an historical analysis, overview of individual hardware system, top-selling games, game genres, consumer demographics, business models, retailer profiles, marketing elements and case studies, industry trends. Market Leaders in the Video Game and Interactive Entertainment Industry This 750+ page report profiles major companies in the interactive entertainment industry. Each individual company report is about 25-50 pages and has an historical background, financial overview, product analysis and a frank assessment of the outlook for that company. The Online Game Market This 660 page report contains a comprehensive analysis of the online gaming market. Includes current sales trends, market forecast, and in-depth company profiles. The Game Market in China This 350 page report contains a complete look at the rapidly growing Chinese game market, including forecasts to 2010, government regulations, market entry strategies, business models, distribution options, game genres and numerous company profiles and case studies.
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