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The 1995-2001 cycle was one characterised by strong
growth and considerable change. Although the video games market comprised Sega's 32 bit Saturn console (launched in 1994) and Nintendo's 64 bit N64 (launched in late 1996/7), the period was dominated by new
entrant Sony's 32 bit PlayStation. Learning from the failures of others to break the Sega/Nintendo stranglehold, Sony garnered widespread developer and publisher support as well as generating notable consumer
hype before launching its console in 1994/5 at an unprecedented price/performance level. Sega reacted by lowering the price of its console but the Playstation had built up too much momentum and, from an early
stage, it was clear that Sega would struggle to match the growth of its rival's machine. The Playstation quickly established a lead in the video games market outselling Sega and Nintendo's offerings by a vast
margin. Sega re-entered the market with its 128 bit Dreamcast console but despite a strong launch in Japan in November 1998, publisher support lost momentum and Sega exited the hardware business in 2001.
New Trends
The 1995-2001 cycle also saw the emergence of some significant new trends:
Consumer Profile
The average age of games players
rose considerably during the period. In the UK, PC games players tended to the oldest with magazine reader surveys suggesting an average age of
27-31 (similar surveys in the US put US PC gamers at around 32-36 years old). Playstation games players came next with an average age of around 25-20 (console user average ages begin high and tend to fall from there) with Nintendo the youngest at 18-15. We believe this was the result of a number of factors:
- A marketing refocus by Sony with greater emphasis towards club culture and "twenty-somethings" resulted in a much older initial
PlayStation userbase than pervious consoles had achieved and this resulted in a broader social acceptance.
- This was, in no small part, helped by the wider appeal of games that the advent of detailed 3D graphics and CD-quality sound
brought. The greater verisimilitude of games software (in particular driving and other sports games) allowed people to more easily associate with gaming experiences.
- The fact that the first generation of teenage games players in the early 1980s were then in their 20's and many are still active
games players.
- The increased cost of computer and video games hardware putting gaming (certainly at the beginning of the cycle when hardware and
software prices were high) out of reach of many children.
We believe the average age of PC games players will
continue a pattern of approximate 1 year growth per year whilst PlayStation games player average ages will continue to fall towards the mid-teen level. New console launches result in the demographic cycle
beginning again so PlayStation 2/ Xbox and to a lesser extent Game Cube gamers will start in the mid/late 20s.
Storage Media
The standard software storage media for
video games made a significant step change during the period from the silicon-filled ROM cartridges of the MegaDrive and SNES days to compact discs. With the ability to store around 30 times the amount of data
than even the largest cartridge and with a per-unit cost of around 20p-50p compared with per-unit cartridge costs of up to £25, CDs represented not only a major technological step forward but also changed the
dynamics of games publishing. The dramatic reduction in inventory risk that CD-ROMs represented made publishers far less susceptible to market swings such as that experienced in 1994 when many distributors and
publishers had to write off vast quantities of expensive, unsold stock and some went under as a result.
The late 90s saw the introduction of DVD technology in the games industry. PlayStation 2, Xbox and Game
Cube all use DVD technology or variations thereof and the PC market is slowly following suit. DVDs cost around 50p-£1 to replicate (this is expected to fall with increasing volume) and can store around 6 times
the amount of a CD-ROM.
Costs and Prices
The widespread adoption of CD-ROM
enabled more storage-intensive content such as video, CD-Audio quality sound, and pre-rendered computer images and animations to be included in games titles. Production costs, as a result, spiralled as
developers tried to outshine competitors with cinematic style plot development and time and money intensive pre-rendered cut scenes. That combined with the continually increasing sophistication and complexity of
games design resulted in a leap in average development team size and, as a result, cost. Typical development costs per title rose to between £300,000 to £1m from £100,000 to £400,000 and by the end of 2001 had
reached between £1m and £2m.
In contrast to the rising costs of CD and DVD-ROM based games, there was intense retail price competition during the cycle but margin pressure has been taken by retailers, and
has had little impact on wholesale prices for publishers.
Software
Software styles changed with the rapid
developments in computer graphics hardware and software. The emphasis shifted from 2D to 3D especially in video games software, as a result of the inclusion of dedicated 3D accelerator chips within console
hardware. This was mirrored in the PC industry where 3D accelerator cards became a de rigeur part of PC games players' kit and typically provided (and continue to provide) visual quality far superior to that of
existing video games machines. The popularity of software genres (i.e. types of game) narrowed with competitive sports/racing games and violent fighting and shooting games becoming by far the most popular. The
period also saw the rise of licensing and the increased importance of game brands and franchises, such as Electronic Arts' EA Sports range of games. These have become a critical part of games publishers' growth
strategies because not only do licences have broader appeal but they tend to be cheaper to exploit on an ongoing basis and have more predictable (and often longer) sales profiles.
A very significant
new trend in the US and UK markets during the period was the segmentation of the PC market into consumer and gamer titles and the development of a different market dynamic to each. Gamer titles are those aimed
squarely at the hardcore games player who has a high disposable income but is also highly discerning. This market is very hits-driven and quality-led as a result and as soon as anyone develops a successful new
type of game a slew of "clones" follow whilst the original developers/publisher milk the newly grown brand for as long as it is commercially viable. The gamer market has represented the bulk of the PC games
market since the market's inception at the beginning of the 90s but began to lose considerable ground to the consumer market during the latter half of the cycle. Consumer games titles differ in that they are
either brand-led (eg Who Wants to be a Millionaire, Monopoly), appeal to a radically different demographic (eg Barbie, the Sims) or can be easily associated with a popular past-time (eg hunting). Quality is less
of an issue at this stage of this emerging market and will not become a factor for the foreseeable future as the demographic to which they appeal cannot differentiate (and arguably is not interested in
differentiating) between high quality and low quality product. All the examples given above are represented in products that have sold in excess of 1m units each -
something only a handful of hard core games achieve over their lifetime. In addition, the absence of the quality issue gives them a vastly improved shelf-life and has resulted in the emergence of discount stores (such as Walmart) as significant players within the US games industry.
The Rise of the Internet
Despite the rapidity
with which the internet rose to prominence, online games communities were amongst the first established and internet multiplayer gaming support quickly became a standard feature of all new PC games. Developers
also began finding the internet a useful testing ground by releasing limited demos of titles, then adapting the games according to the feedback they receive. The internet has also allowed developers and
publishers to provide more efficient technical support and to circulate updates and patches (bug-fixing software) more effectively.
Most importantly though, the internet has begun to introduce new business
models, games genres and supply chains. Massively multiplayer games which feature 24/7 persistent game universes and are capable of supporting hundreds of thousands of players have proven particularly successful
with their subscription-based revenue model and disintermediation of physical distribution and retail. Interestingly whilst some publishers have publicly decried the internet's ability to generate profitable
sales, those publishers that currently run massively multiplayer services are investing heavily in new projects and by the end of 2001 there were approximately 50 persistent world games in development in the
West.
Much as the PC games market began to be split between hardcore gamer titles and mass market consumer titles, so too did the online games market with simple parlour games (such as chess, Bridge, Poker)
attracting a broader demographic and larger user base compared to hardcore online gaming.
One other model introduced during the cycle was rentable, streaming games. Streaming technology allows broadband users
to play full, commercial games without the need for CD or DVD-ROMs. Despite some early technical problems, streaming games is now a viable distribution means although it will need deeper support from games
publishers before it can start making serious inroads into the physical distribution games business.
Network gaming is covered in greater depth within Thinkpieces and the publishing business.
To 2001+
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