Games Nostradamus

I thought it would be interesting to share the following article from Forbes magazine with you.  It’s an insightful report into the losses at Sony directly related to PS3.  In 2 years Sony have lost $3.3 BILLION.  I haven’t looked into the details of the filing to see if the losses include R&D, which would have been capitalised.  Regardless of R&D, what this loss illustrates is that the cost of developing the next generation of consoles..whether it’s Xbox 3 or Playstation 4 is simply too prohibitive.  Don’t kid yourselves into thinking that this is just Sony’s problem.  There is no doubt that Microsoft will also be losing substantial amounts on Xbox 360.  I would be utterly thrown if they haven’t lost at least $1 Billion and most likely more than that.  Nintendo are most likely an exception to this rule, but despite it’s success the Wii isn’t technically a “next generation” platform.  It’s more of an evolution of GameCube than something new (and hence costly).

So what does this all mean for the future…

1. Firstly, the current generation of consoles will need to have a longer life cycle.  Typically the console manufacturers gain from economies of scale and cost reductions through integration of components over the life of a console.  This normally is reflected in a lower price point at retail (demand is highly price elastic !) as well as eventually dulling the distinction between the economic impact of selling the razor )(i.e. the console) vs the razorblades (the games)  In other words they lose less money (and maybe even make a small profit) as the console enters the later years of it’s life cycle.  Just look at how the original Playstation morphed into PSOne and carried on making good profits for Sony long after PS2 was available.  Only last year PS2 sales ( a vastly different looking box today from the one that was launched in 2000) still accounted for 47% of Sony’s sales in Europe.. A different example of a company getting this WRONG was Microsoft.  The original Xbox couldn’t be reasonably cost reduced as it was over designed and relied too heavily on “off the shelf” components that couldn’t easily be integrated.  So Microsoft simply stopped selling it when 360 was launched….the result was they lost about 4 years of the life cycle of Xbox 1 which would mean they could NEVER recoup their investment in the original Xbox platform.
2. Secondly, if there is truly an effort to design a next generation of consoles underway at Sony, Microsoft or Nintendo, then I doubt of any of them will rush this to market.  Robbie Bach (head of Xbox at MS) as good as said this last week in an interview.  My best guess is that you may well see upgrades and tweaks to the existing consoles…they may even get re branded, but they will essentially be the same consoles with the same capabilities as the current generation.
3. The true next generation will be multi purpose devices.  The ONLY hope I see for the “console” industry is to merge functionality with other set top devices such as DVD recorders, satelite receivers and, in the case of Microsoft…inevitably the PC.  Doing this will allow them to merger R&D expenditure, strive for large scale integration of diverse parts and ultimately to keep prices at a profitable level by offering you, the consumer, the “value” benefit of this integration.   The current generation of consoles does some of this, but it’s fairly half hearted.  Microsoft, for example would be horrified if the Xbox 360 was a great value PC that made it easy for you to run your household on Linux…so they deliberately limit the design in this respect.  Unless they want to blow $2 Billion or more on another generation of consoles, then they MUST find a solution for this and similar dilemmas.  Similarly Sony don’t want to kill the Blu-Ray DVD player business today, so they don’t promote PS3 as a great DVD playback solution.
4. The real next generation will also need to have a broader range of paid for services.  i.e. not just games.  Sony and Microsoft will edge away from Nintendo here.  They have the financial muscle and the key  relationships to develop content related business models.  Both of them already have plans in place to promote movie downloads to you consoles….this is just the start…I can see telephony services (not just Skype….you could have a full home switchboard with voicemail and call management options) In my home today I have an IP based telephony system.  At the heart of it is a box that is not technically much different to an Xbox360…it’s the software on the box that manages most of the functionality that my phone system delvers.  Music of course will be inevitable, but what about Art as a download ?? (Bill Gates personally owns one of the world’s largest digital art and photographic archives !)  The era of interactive digital entertainment is still in it’s infancy !

In conclusion,  I’m saying that there will be a next generation…but they won’t be “Games Consoles” they will be intercative entertainment centres, integrating both existing and new technolgies.  The se devices may well continue to be subsidised, but form a much wider range of paid for content.  The console is dead, long live interactive entertainment !

Gaming
PlayStation Poorhouse
Mary Jane Irwin, 06.23.08, 11:15 PM ET

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Burlingame, Calif. - Like a biblical litany, Sony has repeatedly recited a list of games that it believes will make 2008 the year of the PlayStation 3. However, the company will need more than a good year to climb out of the hole it’s in with the console.

The PS3 has cost the Japanese electronics giant $3.3 billion since its launch in late 2006 because of “strategic pricing” under which it sells the console at a loss, according to the annual report filed by Sony (nyse: SNE - news - people ) with the U.S. Securities and Exchange Commission on Monday. “Even if the platform is ultimately successful, it may take longer than expected to recoup the investment, resulting in a negative impact on Sony’s profitability,” the report said.

PS3 has had a difficult time gaining footing in the market thanks to the popularity of the Wii and the head-start the Xbox 360 got with its launch in 2005. Worldwide sales of the PS3 have totaled 9.24 million. Meanwhile, Microsoft (nasdaq: MSFT - news - people ) has sold over 10 million Xbox 360s in the United States alone.

Videogame console manufacturers follow the razor and blades strategy: Sell your consoles on the cheap and reap profits from software royalties. The problem: Sony’s machine is a mighty expensive razor–the basic model retails for $399. “The console is still too expensive for the masses,” Wedbush Morgan analyst Michael Pachter said by e-mail. “A recession isn’t going to help HDTV or Blu-ray sales.”

Sales started picking up in January, which was the first month the PS3 outsold the Xbox 360, according to market research firm NPD Group, thanks to Toshiba (other-otc: TOSBF - news - people ) tossing in the high-definition format towel on HD DVD (the PS3 doubles as a Blu-ray player).

Gran Turismo 5 Prologue, however, only managed 224,000 units sold in its first two weeks on store shelves in April, according to NPD. While Grand Theft Auto IV, which launched April 29, fared much better with a million copies sold in the first few days, it didn’t help Sony sell more PS3s as expected. (See “Consoles’ ‘Grand Theft Auto’ “)

It’s too soon to tell how the PS3’s highly anticipated Metal Gear Solid 4 will impact June sales.

The year may not even be at the halfway mark, but Sony’s luck will have to change if 2008 will end up the year of the PS3. It will now have to rely on its cast of anticipated holiday hits, such as Resistance 2 and LittleBigPlanet, and the launch of Home, its oft-delayed virtual online community, to drive sales.

There’s always 2009.

One of the challenges with Augmented reality games is how to delver a semi-realistic sensory experience as part of the scenario. I have often struggled to imagine how a player would navigate through a level by simulating walking or even running between “experiences” (note I’m deliberately trying not to use traditional game references such as “levels”).

I recently read about the “CyberCarpet”. The clever fellows at the Max Planck Institute have created an 11 TON device that effectively provides a multi-dimensional virtual walkway. They’ve coupled this with a virtual reality headset and a “virtualised” Pompeii. “Players” can go for stroll round a virtual world based on a reconstruction of Pompeii.

For more detailed information look here

I’m not suggesting that this is coming to “World of Warcraft” in the next release…but remember my focus here is to look at trends and technologies that may impact Video Games at least 5 years from now. Today we are already seeing interesting “Augmented Reality” devices on a small scale becoming mass market …just look at the success of Nintendo’s Wii Fit, for example.

I feel pretty confident that we will see adaptations of CyberCarpet technology that are commercially viable within 10 years and that this, combined with the approaching commercialisation of other virtual reality devices such as “3D Video Goggles” (see previous posts) has the capacity to unleash a new and immersive gaming experience where the player can more fully participate in the game itself.

One of the areas that I believe could have a fundamental impact on the future of games is “Augmented Reality”. The simplest possible explanation of what “Augmented Reaility” means is to think of it as “Virtual Reality” (where the user is immersed, usually via some kind of goggles) in a 3D world plus “Real World” elements”. In Virtual Reality, the world is entirely computer generated, whereas in Augmented Reality the real world is combined with computer generated objects.

The ultimate expression of Augmented Reality is the movie “The Matrix”, though nobody is suggesting for one moment that you need to start thinking about whether you need to take the blue pill or the red one

Augmented reality has a long way to go from the research lab before it can be seriously considered as “mass market” technology. The following picture of an AR researcher gives more than a clue as to why !

Augmented Reality technology has moved on a long way in recent years and is in commercial use in a number of areas such as car design and aircraft construction. I intend to write a lot more about how this technology can and will be applied to games in the not too distant future.

Needless to say there are also military applications for this kind of technology and the attached article from “Wired” magazine last month caught my eye and I thought I would share it with you.

Pentagon: ‘Augment’ Reality with ‘Videogame’ Contact Lenses (Updated)

By Noah Shachtman March 20, 2008 | 4:21:00 PMCategories: DarpaWatch, Gadgets and Gear

A limiting factor to untethered, augmented and/or mixed reality applications is the bulkiness, power consumption, cost, limited resolution and limited field of view of head-mounted displays. DARPA seeks to leap beyond incremental, evolutionary enhancement of head-mounted display technologies to a see-through contact lens on which images can be displayed. This information might be command-and-control information, not unlike information provided to players of first-person, shooter-type videogames or synthetic entities and effects in a live training environment.

But all kinds of questions remain — from manufacturing to power to wireless data transfer. Even basics, like which display technologies would be used, remain. Maybe lasers, DARPA suggests. Maybe light-emitting diodes. Or maybe something else entirely will give troops this videogame vision.

The materials behind real-life invisibility cloaks could even factor in, sorta. DARPA is talking about spending $3 million next year on “transparent displays” — and you’d certainly want your Halo 3-esque contacts to be transparent. The key to those displays would be “metamaterials,” the strange substances that can bend certain frequencies of light around them.

UPDATE: As Jimmy points out in the comments, University of Washington researchers are already working on a similar gadget — a contact lens assembled with functional circuitry and LEDs. Pop Mech reports:

Potential uses include virtual displays for pilots, videogame projections and telescopic vision for soldiers. A working prototype of a lens-embedded antenna that draws power for the device from radio frequencies has also been created. The next steps are to build a version that can display several pixels — and then to test it on a person.

The UW team uses a technique called self-assembly to manufacture the eyewear. Researchers dust a specially designed contact lens with microscale components that automatically bond to predetermined receptor sites. The shape of each component dictates where it attaches.

I recently wrote an article for a fairly obscure Video Games blog. There were several questions that they asked me to respond to and one of them was to comment on where I thought video games were heading in the next 5 to 10 years. For convenience the next 2 posts contain copies of the original articel.

Firstly, I was surprised by how intensely I got involved in writing what should only have been a few words on the topic.

Secondly I was even more surprised to see how widely my views were distributed once they were published.

At first I was amused that so many games websites carried their edits of the same article…anyone would think I had a PR team working round the clock to get this much publicity, sadly not. Then I started to realise that the games industry seriously lacks a hard core of people who look at the appropriate technology trends, the business, the history of the industry and combine this with current and predicted consumer trends to create any sort of long term vision for the industry. There are plenty of few folks who enjoy producing forecasts based on current sales patterns, but they rarely extend their thinking beyond a 2 to 3 year time line horizon. That’s why I believe that my few words received so much attention…they were filling a void.

That’s why I’ve decided to start this blog, so that I and other people I know in the games industry can have a forum to air thought provoking ideas about the long term trends and the future of this $25B industry ! I hope to provoke debate and inspire further thought and discussion on the key topics.

Welcome to Games Nostradamus.

	BY Zee SalahuddinMarch 19th, 2008
	Interview / YoYo Games CEO Sandy Duncan (Part I)

Industry Interview

Sandy Duncan has been in the industry for a very long time. Throughout the years he has held a variety of positions, including spearheading the Xbox European business for Microsoft. His experience in the industry notwithstanding, Sandy is a self-proclaimed hardcore video gamer. “Video Games are in my blood,” he says.

In fact, when Sandy took a 2-year hiatus from the industry to try something new, he couldn’t keep up the facade for long. He ended up returning to the field, this time with a thirst to go above and beyond the norm. Thus was founded YoYo Games, a social platform that allows users to create casual video games to be played, judged, voted and showcased on the site. Within the first 8 months of launch, YoYo had surpassed over 10,000 video games uploaded, an immense feat in of itself.

We had a chance to talk to Sandy at length and get his views on YoYo Games (Part I), and the future of video gaming (Part II). Be forewarned however, insightful as Sandy is and impressive as his career may be, he has but one fundamental flaw: He is an Arsenal fan!
That VideoGame Blog’s Zee Salahuddin (TVGB): Your Linked-In profile states 16 years of experience at Microsoft, including handling the vice president’s role for Xbox Europe. What elements from your work at Microsoft precipitated the creation of YoYo Games in 2006?

Sandy Duncan (SD): I’ve always liked games. I really got into it heavily initially on PC when games started to use 3D graphics in an exciting way. My favorite games at the time were Descent and Doom (the very first, shareware version!) I got into console gaming with the launch of Playstation, though my favorite console of all time is Dreamcast … I still like to play the original versions of Soul Calibur and Crazy Taxi!

I set up and ran the Xbox European business for Microsoft. Although we launched in 2002 in Europe, I started on the project in 1999. It meant I spent a LOT of time getting to know the games industry, not just in Europe. I traveled a lot to Japan and the US as part of that. By the end of all of this work Video Games was in my blood. I tried doing other stuff for 2 years, but I always wanted to find a way back into Video Games…not as easy as it sounds when you’ve already had one of the best jobs in the industry in Europe!

In 2005 we were paid by a VC firm in London to do some research for them…we liked our research so much that we decided to “do something about it” and so I started working on the plans for YoYo in April 2006.

TVGB: What were some of the other factors that inspired you to create a social platform for budding casual game designers?

SD: To be honest we started out on a very different path looking to become a publisher of casual games. Then we noticed YouTube. In June 2006 YouTube was just starting to get big and people were starting to talk about “user generated content “and “Web 2.0” was becoming a buzz word. We could see the potential of the “YouTube” model in games …but couldn’t figure out how to make it easy to create games. Then by chance one of our Directors at YoYo (James North-Hearn) is also the CEO of Sumo Digital who are one of Europe’s top games developers. The top programmer at Sumo is a guy called Jacob Habgood who had just finished writing a book with Mark Overmars called “The Game Maker’s Apprentice”. It was a match made in heaven! This was early October 2006. We moved pretty quickly to close a deal with Mark and within 4 months the first (Alpha) YoYo Games website was up and running. We launched the full (Beta) site in late April 2007.

TVGB: It was announced on January 21, 2008 that in a mere eight months, the website reached a record 10,000 game uploads, making it the premiere repository of user-generated games. What were the critical success factors that contributed to this unprecedented level of achievement?

SD: Our first challenge was to win the confidence of the Game Maker Community. Game Maker has been around since 1999, so there were already thousands of people using it. Luckily for us there wasn’t any truly great place for the community to post the games they had developed and get them reviewed and most importantly played. I won’t say we didn’t make any mistakes, because we did. But getting a site with a simple method of uploading your games and making it easy for casual visitors to play them was the key. We added the “Instant Play” feature to Game Maker in September 2007, which meant you didn’t have to download the game before you could play it and from there on the number of visitors took off. If you have almost 1 million people coming to the site every month, then there is plenty of incentive for the Community to keep writing and uploading new games as they have a readymade audience.

TVGB: Technology has advanced tremendously over the years. Video games are becoming increasingly sophisticated across all verticals including storyline, innovation, graphical eye-candy and intuitively original game play. Since Game Maker allows users to do as they please, could this result in a flood of mediocre, half-thought-out games that may reflect poorly on YYG?

SD: Not every video on YouTube is a “LonelyGirl15” and not everyone on Facebook has 10,000 “friends”. One of the well-understood “features” of social networks is called “The Long Tail”, which means that even the less popular content gets an audience. Even the 5000th ranking game on YoYo gets more than 20 plays every month. For a lot or developers that’s very, very rewarding. Like all social networks our community contributes not just the content, but also makes a very significant contribution by rating and reviewing games…so people who come to the site who just want to find the best games will not be disappointed as they are easy to find.

TVGB: What are some of the measures in place to counter such issues, if any?

SD: Much of the work that we will put into the site development in the next few months will be focused on making sure that the best games are even easier to find. At the same time we have ambitious plans to offer more free packages of development content (Sounds, Backgrounds, Sprites etc) which will be available to anyone. This will help ALL of the developers. We will also offer the best guys some personal support later this year and ultimately we will spend money on the best games to help “polish” them ourselves. None of this has been formally announced, but we’re working on it.

TVGB: Game Maker is in its seventh release. What is planned for the near and distant future for YoYo Games? Will you offer much more advanced platforms that add several additional malleable layers of complexity for gamers to mould into content? Are there any plans to release commercial games at this stage?

SD: Game Maker will develop in 3 ways.
Firstly we are working on a version for the Apple Mac. This will be available in Beta around April time.

Secondly we are re-writing the “Runner” in C++ (currently GM is written in Delphi) which will give us several advantages, primarily portability. Our vision is for Game Maker games to be running on non PC platforms such as phones, portable devices and Consoles. For example, Apple’s announcement of the iPhone SDK last weekend was very exciting for us.

Finally we will start work on Game Maker 8 this summer. You won’t see it until 2009, but multi-platform support will be a key feature. We may also do something about a compiler around the same time.

TVGB: Who do you see as your primary competitors?

SD: Today there is really only one other website who are in this space. They’re a bit bigger than us, but they are purely a flash site which means that you can’t play the games offline and there is little prospect of seeing the most successful games being played on other platforms.