Sector Insight: Video Games - Platform Potential

Marketing, December 1, 2004 | Go to article overview

Sector Insight: Video Games - Platform Potential


Cheap hardware and a broad range of software have helped video games go mainstream. Jane Bainbridge reports.

THE BACKGROUND

The development of an interactive physical exercise game by Sony in a tie-up with Nike marks the latest step by the games industry to broaden its audience beyond teenage boys. Now titles offer something for everyone, from a female-friendly Pop Idol tie-in to games so violent or risque they attract a film-style 18 rating. Cheap consoles have driven UK penetration to 40% of UK homes, and with next-generation devices set to combine gaming with MP3, DVD and web technology, the video games market is likely to become even broader.

Despite media criticism of video games and their influence on young people, UK sales of leisure software have more than doubled since 1997, according to the Entertainment & Leisure Software Publishers Association (ELSPA) and Screen Digest.

The UK, one of the creative centres of the software industry, is the third-biggest market in the world, behind only the US and Japan. The growth in gaming reflects its transition from an activity indulged in by teenage boys to a pastime of adult consumers, a shift helped by the increasing sophistication of the games.

There are two categories in the video games industry: hardware and software.

Hardware accounted for 52% of the sector's value sales in 2003, according to Euromonitor, with penetration nearing 40% of UK households.

Sony, Nintendo and Microsoft account for 90% of hardware sales in what is a highly concentrated sector.

Sony's PlayStation 2 dominates the market, having sold about 1.6m units in 2003, according to Screen Digest, ahead of Microsoft's Xbox (600,000) and Nintendo's GameCube (400,000). The latter's Game Boy Advance handheld device sold over 1m devices last year.

Sony first entered the market in 1995 with PlayStation, and its marketing has been a major influence in broadening gaming's appeal to older consumers.

PlayStation 2 has enjoyed phenomenal success since its 2001 launch, selling 4.3m units in the UK by the end of 2003, according to Euromonitor.

Platform value

The hardware market is greatly influenced by product development, and sales of consoles tend to slow as new models are anticipated. But according to ELSPA director-general Roger Bennett, there is likely to be an increase in the time between platform launches. 'There is a far greater awareness and understanding of the need to maximise the value available through current platforms and systems,' he says. 'It is more important than promoting the next technological advance.'

Neither Sony nor Nintendo are expected to introduce next-generation hardware until the end of 2005. But while updated consoles are still some way off, there have been some areas of product development recently. Sony introduced EyeToy, a camera device that allows gamers to appear on-screen and interact with game characters. Nokia has also entered the market with the N-Gage, a combined mobile phone, handheld games console and MP3 player, although its high price and limited software range will hinder its efforts to end the dominance of Nintendo's Game Boy in the handheld market.

The Japanese firm introduced Game Boy Advance in 2001 and Advance SP, with a built-in screen light, two years later. But it will soon face further competition - Sony will enter the handheld market for the first time next year with the launch of its PSP, a portable media centre that includes a music player and internet capabilities.

Retail discounts

The console market has seen significant price cuts and bundling deals (where games are included with the console). Their retail prices have tended to fall over time, helping to build console penetration. In November 2003 Nintendo slashed the price of the GameCube from pounds 122 to pounds 79, while Microsoft reduced Xbox from pounds 199 to pounds 129, which it has since cut to under pounds 100. …

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