ONLINE GAMES CAN BOOST CONSOLE SALES, REPORT SAYS

The group said “connectivity opens up new content possibilities to console owners… Respondents indicated that the ability to rent, buy and download games online were highly favored as features they would pay for. Those surveyed were also interested in buying additional weapons, vehicles and characters.” Pidgeon said: “Digital distribution of content is advantageous to everyone in the gaming food chain, from the independent developer to the publisher trying to squeeze out every last bit of revenue from a title. Retailers and rental outlets, however, should be concerned about new distribution schemes as they may be left out when publishers and manufacturers can deliver content directly to consumers.”

Despite the mostly upbeat forecast for online console games, Zelos said they still faced “a significant barrier: U.S. gamers overwhelmingly play alone, and well over half of those surveyed said they never play online with friends or strangers.” In addition, Pidgeon said: “Increased broadband penetration and ease of use with wireless connectivity will increase adoption of online gaming, but negative experiences caused by poor customer service, mismatched competition and bad player behavior will cancel out technical improvements. Responsive troubleshooting, effective skill matching and curtailing cheating or abusive players will remain the real challenges in providing successful online gaming.”

Zelos also suggested in its report that “console manufacturers take advantage of the record industry’s need for additional revenue channels, as a natural synergy exists between games and music. Twenty-five percent of gamers surveyed said they would pay for the ability to rent, buy and download music and movies online.” Pidgeon said: “Music and film industry executives would do well to broker deals with console manufacturers and game publishers to access alternative marketing and distribution channels. Our results show that network- connected videogame consoles may succeed where manufacturers of computers and set-top boxes have failed to deliver the fabled home media server to the entertainment system.”

The report also predicted there would be “no major shakeup this holiday season: With 18% of 1,000 console gamers indicating they plan to acquire a PlayStation 2 console, and 14% expecting to purchase or receive an Xbox by the end of 2004, this year’s holiday buying pattern will not dramatically impact the market share of major vendors.” Zelos also said it expected “that Nintendo may erode Microsoft’s lead due to increased GameCube sales spurred by the decision to cut prices.”

Offering a further upbeat outlook for Nintendo, Zelos said in the report: “With over 26% of respondents claiming to use Nintendo’s handheld Game Boy Advance (GBA) and 35% using older home consoles such as the original Sony PlayStation, these systems have a more substantial addressable market than the Xbox or GameCube. While the market potential of games for older consoles is deteriorating rapidly, handheld consoles provide a promising opportunity for 3rd-party publishers.”

Gloom about Nintendo’s future has dropped significantly, in fact, ever since the company cut the price of its GameCube to $99.99 in late Sept. (CED Sept 25 p3) and saw a sales surge on the console (CED Nov 5 p3). DFC Intelligence said in a recent report that interviews with various game industry executives indicated the “consensus seemed to be that Nintendo lacked leadership and a clear strategy and was in danger of becoming a nonplayer in the videogame hardware race” (CED Oct 23 p3). But DFC Pres. David Cole downplayed the significance of the consensus, saying that “we have been doing these reports since 1997 and people are always harsh towards Nintendo… Personally, I don’t think it means much. The GameCube has had a weak performance and so people bash the person that is down. It doesn’t necessarily say anything about the potential for future performance.”

Comments in the DFC report weren’t attributed to specific executives. But Electronic Arts Vp-Corporate Communications Jeff Brown, who was among those interviewed by DFC, apparently was in the minority when it came to Nintendo bashing in the report. Brown said after the report was released: “Rumors of [Nintendo’s] death are greatly exaggerated. If you look at the numbers for Japan and Europe and then factor in the bump they're getting with the recent price cut, you [must] figure that they're either even or very close to” Microsoft’s Xbox. Besides, he said, “I always push back when people say that whoever comes in 3rd loses. That’s like saying ABC should get out of the business because they're number 3 in the [broadcast TV] network race.”

At least before the GameCube price cut, some game industry observers said they believed Nintendo would wind up not coming out with another console. That opinion was rampant despite the Japanese game giant’s consistent statements in recent months that it would indeed ship a GameCube follow-up at about the same time as Microsoft and Sony shipped Xbox and PS2 follow-ups in 2005 or 2006. But Harris Nesbitt Gerard analyst Edward Williams said in a report last month that “we expect Nintendo to take one more stab at console hardware” after GameCube. He said Nintendo’s next console was “likely to address some of the key shortcomings of [GameCube], including DVD playback capability.”