There’s nothing quite so boring as an Electronic Entertainment Expo (aka E3) the year after a console launch. The consoles are in the store, there aren’t any more juicy details to share about price, performance, or channel distribution. It comes down to numbers. Who’s selling how many consoles in each region? Based on those criteria, Nintendo seems headed for a good next few years, Microsoft will be okay, and Sony is desperately attempting to avoid disaster.
Nintendo’s E3 press briefing saw Nintendo of America President Reggie Fils-Aime in a good mood. He opened the briefing by saying “I’m Reggie, and I’m happy.” Indeed he had reason to be. After suffering a poor last generation with its ill-conceived GameCube console, Nintendo had a lot to crow about:
According to NPD data, Nintendo was responsible for 69% of US game industry growth in the first five months of 2007.
Nintendo has also found a way to reach coveted female gamers. Excluding Nintendo, US gamers are 80/20 male. Nintendo gamers are 67/33 male. In Japan, Nintendo skews older and more female than in other world markets.
In Wii households 66% of those aged 25 – 49 play the console regularly. And about 50% of men 50 or older have tried the Wii.
Portables are driving much of today’s game growth. 70% of US spending on video games in 2002 was for console hardware and games, 30% for portables. In 2006, it was a 50/50 split. Nintendo’s DS handheld is responsible for the lion’s share of that portable spending.
Game spending by Nintendo buyers is skewing older in the US as well. Traditionally a bastion for young gamers, sales for Nintendo products in North and South America in 2005 was 28% by those 25 or older. In 2007, it increased to 32%. For those 18 – 24, the percentage increased from 15 to 21 % over the same period.
The DS passed 40 million sold worldwide in the first half of 2007. The Wii launched in the fourth quarter of 2006, and is still sold out nearly everywhere. Nintendo promises it will be the number one console in this generation very soon. In the US currently, there are 60 Wii games and 300 DS games available. By the end of 2007, there will be 100 Wii titles and 140 more DS titles.
Microsoft’s E3 press briefing showed the advantage of being first to market with a console. Microsoft’s 2007 game line-up for the Xbox 360, from Microsoft as well as third party publishers, will be very strong. Halo 3, the next version of the top-selling Xbox franchise, will be released September 25, 2007. Other significant launches for the Xbox 360 in 2007 include Grand Theft Auto 4, Rock Band, Project Gotham Racing 4, Mass Effect and Assassin’s Creed.
Xbox 360 has an installed base of 5.6 million in the US, according to NPD. Microsoft has shipped 18.1 million console games since the launch of the Wii and the PS3. There has been $2.4 billion total spent on Xbox 360 hardware and software in the US since the PS3 and Wii. By comparison, Microsoft claims the total spending on the Wii and PS3 in the US over the same period was $2.4 billion.
Microsoft’s great strength in console gaming has been its online presence, particularly Xbox Live. The Live service recently passed the seven million member mark, which includes both free (or Silver) and paid (or Gold) subscribers. VP of Corporate Marketing Jeff Bell predicted that by the next E3 in July 2008 Microsoft will have 10 million Live subscribers. Xbox Live is currently available in 25 markets around the world. Microsoft continues to push its Live Marketplace download service as a revenue generator. This includes Live Arcade, Microsoft’s service devoted to downloadable, casual games, which has seen 45 million game downloads to date. Live Marketplace also includes downloadable television shows and movies. In the nine months that Microsoft has added television and movie titles to Live Marketplace, they have made over two thousand hours of entertainment available, including 500 hours of HD content. $125 million has been spent on movie and television content so far.
To date, the Xbox 360 has seen limited success in Europe, and has had no success in Japan. Its greatest challenge will be to translate the Xbox 360’s US success to other markets.
Sony has been the king of consoles since its launch of the original PlayStation console in 1995. It broke the 100 million console shipped mark with both the PlayStation and PlayStation 2. It will not experience the same success with PS3, its next-generation console. Originally priced at $499 and $599, the console has proven too expensive to replicate the initial success of its PlayStation predecessors.
Sony has made some significant changes in its PS3 line-up since its November 2006 launch. Originally launched with 30 and 60 GB hard drive options, Sony announced last month that it is dropping the 30GB option. In addition, it has dropped the price of the 60GB option by $100 to $499. At its E3 press briefing, Sony also announced the launch of an 80GB PS3 in August 2007 in the US, which will be packaged with the game “Motorstorm” for $599. Presumably, when the 60 GB PS3’s sell out, the 80GB version will become the sole PS3 SKU, though this was not confirmed at E3.
One intriguing offering from Sony is their PlayStation Home service. Home is a virtual world that takes advantage of the PS3’s advanced graphics capabilities to create a rich virtual world with graphically well-defined characters. PlayStation Home launched their Beta testing in April 2007. Sony is on schedule to launch in fall 2007. One of the announced additions at E3 is that the Home client will be able to run on a mobile phone as well as a PS3. Home will also allow the ability to launch PS3 games from within the Home virtual world. Sony is working with third party developers to develop specific lounges within Home for specific games.
The PlayStation Network includes both the PlayStation Store and Home, and includes free game play. Since the PlayStation Store’s November 2006 launch, they have had 2 million users worldwide go online to access the store, including 950,000 in North America alone. The PlayStation store has had 20 million downloads worldwide.
There are 80 games in development for the PlayStation Store through March 2008. Sony PS3 games are increasingly available through both download through the PlayStation Store, as well as on disk at retail. Titles available through both channels will include Echo Chrome, a puzzle game, and SOCOM: Confrontation, the next edition of the popular PlayStation shooter franchise.
The PlayStation Portable (PSP) price was lowered from $199 to $169 in April 2007. Sony claims that weekly sales are up 90% since the price cut. PSP shipments currently stand at 9 million worldwide, well behind Nintendo’s DS. At E3, Sony introduced a new version of the PSP, that is 33% lighter and 19% slimmer that the current PSP, and has improved battery life. New features include the ability to be hooked up to a Bravia HDTV to display the PSP screen. With the addition of Digital Living Network Alliance (DLNA) capability, it is possible to access PS3 video through the PSP from anywhere over a broadband network.
Please see all of In-Stat’s Multimedia Entertainment Equipment research online at:
Last week Sprint and Clearwire announced a well expected joint-agreement to partner with each other on their WiMAX deployments. With the agreement, subscribers will be able to roam between networks. The agreement also calls for sharing in the cost of the network build, a common service offering and a unified brand. The agreement, which still needs government approval, lasts for 20 years with three 10-year renewals. (For a copy of the announcement http://www2.sprint.com/mr/news_dtl.do?id=17520) In-Stat believes this to be a very positive development for these two companies’ WiMAX plans. Three the key benefits are as follows:
Increased Coverage – With this agreement, the two companies will be able to eventually cover 300 million pops or people. Before this each company was only going to have coverage over a fraction of country. This agreement allows for a single service with almost universal coverage.
Expenditure Reduction – One of the big challenges facing both companies was the cost of network build out. This agreement calls for sharing in those costs, and reduces both companies’ overall capital expenditures.
Strengthen Marketing - The two companies plan to jointly brand and market the service. By partnering with Sprint, Clearwire will benefit Sprint’s better known brand. Also partnering with Clearwire on branding could help Sprint to better differentiate its WiMAX service from its existing cellular broadband services.
In-Stat also believes this agreement could facilitate future relationship changes between Sprint and Clearwire. If Sprint decides to spin-off its WiMAX division this could make it easier to form a separate company with Clearwire. Also it could make it easier for Sprint to buy Clearwire in the future. While the final details are yet to be worked out between the two parties, as it appears now, last weeks announcement was a positive step forward for WiMAX in the US.
If WiMAX is your cup of tea, you definitely want to check out “2006 WiMAX Equipment Market Share - Waiting to Sprint,” report #IN0703882WBB, available online at:
Apple’s move earlier this year toward a “DRM-free” model for some songs available at its iTunes store has created a great deal of speculation about the future of Digital Rights Management. Some industry watchers have even gone as far as heralding Apple’s initiative as “the death of DRM.” But what’s the real story?
First some background. In late May, Apple's iTunes Store began selling “DRM-free” songs from record label EMI Group. This means that all the songs from EMI that are now sold on iTunes are available in "DRM-free" versions. Consumers have the option to purchase either an AAC-encoded DRM-free song for $1.29 via iTunes Plus, or the usual version for 99 cents with integrated DRM.
Previously purchased EMI songs can be upgraded to the DRM-free version for 30 cents per song, or $3 per album. EMI artists in the deal include Coldplay, The Rolling Stones, and Frank Sinatra. The deal excludes Beatles songs.
On the heels of Apple's DRM-free initiative, Amazon.com announced that it would also begin offering more than 12,000 songs from EMI in the MP3 format, without any integrated DRM software. Amazon stated that it announce more details closer to the launch date scheduled for later this year.
While these announcements were hailed by a few self-styled consumer groups as "the death of DRM," there are a few points that need to be emphasized:
EMI is the only major record label that has announced support for this initiative. So far, the other leading labels (Sony-BMG, Warner Music Group, and Universal Music Group) have not offered any support for DRM-free digital music products.
Every year the number of music tracks with an integrated DRM solution increases. Whether the tracks are new releases or classic “oldies” being digitized for the first time, recording industry executives emphasize that DRM technologies aren’t going away anytime soon.
While the "DRM-free" term seems to imply that there are no DRM technologies at all on the music tracks, that is not exactly the case. Apple's DRM-free songs still come with embedded purchaser information such as a user name and email address. Apple has refused to comment about how the embedded information is used, although in other digital music files it is sometimes used as a "proof of purchase" tag that allows users to upgrade future song purchases.
So what’s the bottom line? The reality is that DRM is neither dead nor dying. To date, and based solely upon anecdotal information, consumers who shop at the iTunes store still seem to base their purchasing decisions on low prices and a compelling catalog of songs instead of the presence, or absence, of DRM technology. Still, the DRM-free initiative is extremely interesting; both as a business model that could possibly increase revenues and as a potential change in the way that content is protected.
For more information on the DRM-free initiative, and more about the current status of DRM, check out In-Stat’s recently published report “Digital Rights Management Update” (IN0703584CM).
