1995 to 2006
The 1995-2001 console cycle was one characterised by strong growth and considerable change. Although the video games market comprised Sega's Saturn console (launched in 1994) and Nintendo's N64 (launched in late 1996/7), the period was dominated by new entrant Sony's 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 Dreamcast console but despite a strong launch in Japan in late 1998, publisher support started to fall and Sega cut its losses, finally exiting the hardware business in 2001.
Sony’s console market dominance continued in the following cycle; PlayStation 2 (launched in 2000) comfortably outsold Nintendo’s new offering (GameCube, launched in 2001) and Microsoft’s debut console, Xbox (also launched in 2001). Whilst GameCube and Xbox were both withdrawn within around 5 years of their launch to pave the way for a new console generation (in keeping with long-held console manufacturer tradition), Sony adopted a radically different strategy. It deliberately kept its original PlayStation business alive after the Western and Japanese launch of PlayStation 2, using price reductions, prescient distribution agreements and its vast software library to appeal to demographic and, in particular, geographic target markets relatively untouched by the console market to date. The results were an effective global shelf life for PlayStation of around a decade, roughly twice the duration of other consoles, and an installed base of unprecedented scale. Besides incremental hardware and software sales, Sony also benefited from establishing extensive global brand recognition and a clear upgrade path to PlayStation 2.
NEW TRENDS
The 1995-2006 period, and the 1995-2001 cycle in particular, also witnessed some significant new trends:
ADULTS THE NEW DEMOGRAPHIC FOCUS
The average age of games players rose considerably at the start of the period. In the UK, PC games players tended to be the oldest with magazine reader surveys suggesting an average age of 27-31 (similar surveys in the US put US PC gamers even older, at around 32-36 years old). However the greatest change was experienced in the console market. PlayStation gamers’ average age was around 20-25. This represented a radical change from what the market was used to. Previous generations of consoles had largely targeted teens and pre-teens and the resulting market was largely geared towards children. We believe this demographic shift was the result of a number of factors:
• A deliberate and highly successful marketing focus by Sony towards club culture and twenty-somethings resulted in a broader social acceptance.
• The advent of detailed 3D graphics and CD-quality sound in PlayStation (and later consoles’) games. The greater graphical 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 were still active games players.
• The increased cost of computer and video games hardware put gaming (certainly at the beginning of the cycle when hardware and software prices were high) out of reach of most children.
The shift away from children and towards adults as the core games audience became the industry standard with Microsoft following suit and Nintendo eventually adopting a similar strategy for its consoles (while maintaining a focus on children for its portable games business).
STORAGE MEDIA SWITCHES TO DISCS
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 CDs and then DVDs. With the ability to store around 30 times more 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 commercial 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.
DEVELOPMENT COSTS AND PRICES RISE
The widespread adoption of CD and DVD media in the mid to late 90s enabled more storage-intensive content such as video, CD 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 pre-rendered cut scenes costing significantly more time and money. This and the continually increasing sophistication and complexity of games development resulted in a significant leap in average development team size and, as a result, cost upon the advent of each new generation of console. Average console games development costs increased around 20 fold from the start to end of this period, putting substantial strain on publishing and, in particular, development business models because such average cost increases were rarely matched by average sales increases.
SHIFT TO 3D NARROWS SOFTWARE RANGE
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. 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.
THE RISE OF THE INTERNET
Before the adoption of the internet by the mass market, multiplayer gaming meant small groups of 4 players in a single location. The internet allowed play against other players more remotely located. Games communities were amongst the first established online and multiplayer gaming support became a standard feature of all new PC games in the early 2000s. Developers also began to use the internet as a testing ground by releasing limited demos of titles online (betas), then adapting the games according to the feedback they receive. The internet also allowed developers and publishers to provide more efficient technical support and to circulate updates and patches (bug-fixing software) more effectively.
The more far-reaching impact of the internet was to enable the introduction of new business models, games genres and supply chains which were to radically change the industry. Massively multiplayer online games, for example, reached critical mass during this period, featuring 24/7 persistent game universes capable of supporting hundreds of thousands of players. Early MMOG successes such as Ultima Online and Everquest began to attract an ever increasing number of new market entrants, most notably Blizzard whose World of Warcraft (2004) obliterated sales records and quickly came to dominate the global MMOG market.
This period also saw the PC games retail market begin to be split between hardcore gamer titles and mass market casual titles and this was echoed online. Simple casual games (such as chess, bridge, solitaire) began attracting a broader demographic and larger user base compared to hardcore online gaming. Although largely advertising driven to begin with, casual games services such as Pogo and Yahoo Games were forced to diversify after the dotcom bubble burst, innovating with new models such as “try before you buy” premium downloads and subscriptions, both of which proved highly successful and underpinned a sustained period of rapid market growth.
Network gaming is covered in greater depth within multiple articles in our Insights.