In the past few days we’ve heard about Sony posting record losses amounting to around $6.4 billion for the fiscal year that ended in March. This news coupled with the drop in game and hardware sales of around 25 percent for the month of March compared to last year has created a pretty depressing economic outlook for gaming. While at first it may look pretty bad, I wanted to tell you why the outlook seems bad and how Sony and Nintendo can begin to regain some lost ground.
One of the complicated aspects of being a game-journalist is not only understanding games, but also understanding economic issues that affect the industry. I would like to cover a few issues that are playing a big role in the depressing numbers we’ve been seeing lately. I’m not going to throw a bunch of numbers at you for the purpose of this article, but suffice it say that the game industry is down compared to years past. Sony is doing exceptionally poorly with Nintendo posting losses as well. If you are worried about Microsoft then don’t, since they are actually doing pretty well.
There are a few reasons why Sony is taking the brunt of of the losses with Nintendo also suffering, so let’s start with one of the main reasons.
2011 was not a good year for Japan
On March 11, 2011 the most powerful earthquake ever to hit Japan erupted about 70 miles east of the coast. It was preceded by several very large foreshocks and followed by hundreds of devastating aftershocks. The Tohoku earthquake along with it foreshocks and aftershocks created powerful tsunami waves that crashed into the Eastern coasts of Japan, flooding and destroying major population and economic centers along the coast. The tsunami damaged eleven nuclear reactors on the eastern edge of Japan. The Fukushima Daiichi nuclear disaster resulted in the complete meltdown of three nuclear reactors. Nuclear fallout from the event was detectable for 60 to 70 miles around the plant. In total, around 16,000 people were killed in a few days following the earthquake.
Japan’s economy has yet to recover from these events and Sony is no exception. The disaster hurt many of their manufacturing plants. A few of the factories were essentially destroyed and many of the workers died. A full year after the event, Sony is still struggling to rebuild.
For an entire year following the disaster the Japanese yen was on pretty shaky ground, requiring direct government intervention to help create some stability. This created even more economic issues for Japanese companies. Fortunately for Nintendo, their manufacturing plants and employees escaped unscathed, but a fluctuating Japanese economy was still causing damage to Nintendo’s bottom line. So both Nintendo and Sony are still dealing with the economic effects of the earthquake and Sony is also having to try and rebuild its manufacturing after many of their factories suffered damage and hundreds of their employees were killed.
The generation that would never end
I would like to begin this segment by pointing out that the Xbox 360 launched in November of 2005, the Wii in September of 2006 and the PS3 in November of 2006. This is an incredibly long console generation and it looks like we won’t be seeing the next one until 2013 or possibly 2014. While there may have been a few slight improvements to our consoles, we are essentially playing games on the same machine we had at launch. At this point everybody who wants a console has one and doesn’t feel compelled to buy another.
When a new console comes out people who owned the last generation buy it. At this point though people don’t need to buy new consoles, because they have the same one they bought a few years ago and it still plays new games. One of the slight improvements was that consoles are a little better built than they were when they were originally launched. The infamous red ring of death plagued the first few versions of the Xbox 360, but most of that was fixed and now the RRoD happens far less frequently. With the longevity of this generation, hardware sales have plateaued and are now declining. There has been little inclination toward buying a second console and almost no reason to buy a third. Only a handful of games are system-exclusive and most of those are on the Wii, the cheapest console on the market. If you’re a PC gamer, then generally you haven’t needed to spend much to upgrade your rig, because developers are still building games that will run on consoles and the console has the same hardware as an older PC. Most PC gamers look toward Steam as their major place to get games and Steam doesn’t just focus on the big-name titles. Steam has an excellent library of arcade/indie titles which demand less processing power and still offer wonderful gaming experiences
The bottom line is that until someone makes most gamers buy a new console to play the latest Call of Duty, we will continue with the system we are on at this point.
Casual gaming and mobile gaming
Has anyone been to Popcap Games? Have you been sucked into the Facebook gaming scene where the most popular title is an agricultural simulator? I really haven’t spent much time doing these things, but I see that this is an incredibly large group of gamers who do nothing more than play a game in a browser window. Do you have Tetris on your phone? I bet you have Angry Birds. These are all gaming outlets that used to be reserved for real gaming devices. Getting a game on a PC involved buying it at a store and installing it. Now it’s on the screen in a few seconds with almost no initial monetary commitment and a few minutes of your time. If you have a phone then you might even have an app that finds games for you. Ipads are gaming devices themselves. My father had an Assassin’s Creed game on his Ipad! I didn’t know they made an Assassin’s Creed game for the Ipad. The strange thing though was that he got it for free. When half the things we carry around with us play games on top of a real practical function then it’s no surprise the handheld gaming market is crashing. There is contradictory information about Nintendo and the success of its 3DS. Most of it may be coming from Nintendo themselves in an effort to put a positive spin on the handheld. They have been able to sell lots of them, but it looks like they intended to sell lots more. They quickly slashed the price of the device and they are now posting continued losses after finishing out 2011 with a $625 million net loss for the past nine months. Sony isn’t faring much better and stares disaster in the face with their PlayStation Vita. Sales numbers plummeted almost immediately after the launch of the handheld.
Ultimately, in the past few years gaming has become too easily accessible for too little a price. Owning a console or a gaming rig gives you access to AAA titles, but many popular games are available through browsers or mobile devices that are cheaper than their game-oriented competitors. You don’t need a current-gen console to play games for a few hours a week and you especially don’t need a gaming rig to play Bejeweled. Casual gaming has created an entirely new breed of gamer, but many gamers who would’ve owned a console a few years ago are simply settling for Mafia Wars or Plants vs. Zombies and that’s fine, but don’t expect those gamers to show up for all the AAA games and don’t expect them to drop $250 on the PlayStation Vita.
Stupid mistakes can add up
For a few years now, we’ve had Nintendo, Microsoft and Sony vying for the top. Each has been chasing different business models, pursuing different goals and trying to make us as excited as they are about their new thing. At the moment though, Nintendo and Sony are in trouble. This could turn around and fix itself, but these gaming giants need to play smart if they want to stay in the business. They’re losing mobile gaming and not to each other.
Nintendo fans haven’t seen much to purchase for their Wii that really interests them in a while. Nintendo just finally released Xenoblade stateside after two years despite all the awards and praise it received. One of their most popular and anticipated titles of 2011, The Legend of Zelda: Skyward Sword, was released the same day as The Elder Scrolls V: Skyrim, anybody with Google could’ve told Nintendo that was not going to go well. These are mistakes that Nintendo can’t afford. This is coming after that incredibly confusing and dismal showing of their new Wii U thing. Is it a tablet? Is it a console? Is it a peripheral? I’m still not sure.
Sony had a poorly-handled hacking scandal in April, only one month after being nearly drowned in the tsunami. Over 77 million users may have had their personal data compromised and Sony knew about it for almost a week before telling anyone. In the past few days we’ve heard Sony is doing a terrible job of working with BioWare on approving their Mass Effect 3 Resurgence event. If you play Mass Effect 3 on the PS3 then you are out of luck. Sony has refused to cooperate on several occasions now and PS3 gamers have lost another event. Mass Effect 3 is the one brilliantly bright spot on the list of dismal spring sales and Sony is mucking it up. Mass Effect 3 fans are a pretty hardcore bunch, Sony. Don’t mess with them. They’ll send angry pastries to your office and donate money to charity just to show how pissed at you they are. Whatever BioWare wanted should’ve taken top priority.
Competition is good
This is competition and this is why you should be happy. With all three major competitors trying to get your money, you’re in a good place. They keep each other in check. I’m old enough to remember when Nintendo ran the world of gaming during the late 80s and early 90s and while a lot of great games were made, they were made by Nintendo’s rules. Competition is a good thing. It keeps the PlayStation Network free. It keeps the Xbox Live Marketplace from charging ridiculous money for silly avatar stuff. It makes Nintendo release Xenoblade in North America. It encourages Valve to create Steam and it gives them the crazy idea to open Steam up in Russia, where piracy is king. If Nintendo and Sony are really interested in staying in the console business then they are going to have to really push for customer loyalty. They are going to have to take risks and try to bring gamers to their camp and I like the sound of that. A few years ago I thought there was no way we could have three major consoles competing alongside PCs, but I’m glad they did as well as they did for so long and gamers have been the ones benefiting from it. I’m glad we have this competition and I hope Sony and Nintendo get their acts together because as much as I like my Xbox 360, a world run by Microsoft scares me.
Update: After missing out on several Mass Effect 3 events, on April 27 Sony and Bioware sorted out their issues with ME3 events, giving PS3 gamers the ability to participate in ME3 events. Better late than never.