Gamers Push Pause
Delays and shortages put console sales on hold, leading major software makers to lay off workers
The company best positioned to take advantage of a Sony slip is Microsoft. More than 3.2 million of its Xbox 360s ($400 and up) have been sold worldwide since its U.S. launch last November, the company says. That number undoubtedly would be higher, but Microsoft couldn't keep pace with demand during the holiday season.
The Xbox Live, the online gaming service Microsoft packages in tandem with the console, already has been a hit. More than 10 million items--simple games, video clips, game enhancements--have been downloaded from the subscription-based Xbox Live service, Microsoft says. Much of that activity has been fueled by the popularity of casual games, like Geometry Wars, that can be played beginning to end in a few minutes, rather than the more sophisticated head-to-head competitions between players around the world for which the hardware was built.
Competitor. A third video console, the Wii (pronounced "wee") from Nintendo, will make its formal debut at the E3 convention. Slated to go on sale this fall, it aims to take advantage of the company's reputation for innovative games (Donkey Kong, Pokemon, Nintendogs), not the high-powered technology favored by Sony and Microsoft. For example, the Wii's controllers will be motion sensitive so players can wave an arm to move in a game rather than push a button with a thumb. The Wii also is expected to be more affordably priced, around $250.
The uncertainty in the hardware market as gamers wait to see which system will best suit their tastes has had a heavy effect on the software companies that make games for the consoles. Electronic Arts, the industry's largest third-party developer and maker of the perennially bestselling Madden football series, laid off 5 percent of its staff (more than 300 people) shortly before announcing a 31 percent drop in third-quarter profits in February. "We underestimated the impact of consumers sitting on the sidelines," Electronic Arts CEO Larry Probst said then. Last week, the company's shares fell 7 percent after it announced an equally bleak outlook for the new fiscal year. Other heavyweights, including Activision and Midway, have been similarly hard hit.
These transition game woes are not unprecedented: Electronic Arts did lay off about 200 workers in the spring of 2001, during the switchover to the Xbox, GameCube, and PS2. The difference this time is that the advancing technology of the PlayStation 3, Xbox 360, and Wii means that software companies have to spend more money developing games that deliver the best action and graphics. And they're likely to have to redevelop the same game so that it takes advantage of each system's unique capabilities. "It used to be that for 10 to 15 percent of the PlayStation 2 budget, you could move from one platform [device] to the next," says Rob Kotick, CEO of Activision, maker of the Tony Hawk and Spider-Man games. "This time around it's a completely different experience. It's a much more expensive process than in the past." The average video game now costs more than $20 million per title to produce, according to Bear Stearns estimates.
Away from the console market, there are some bright spots in the industry. Online games for personal computers such as NCsoft's City of Heroes and Blizzard's Worlds of Warcraft--which now has 5 million subscribers--are proving that large audiences will pay monthly fees of $10 or more if the game is good enough. This PC game audience could be bolstered by the arrival of Microsoft's new Vista personal computer operating system (though Vista's release has been pushed back to early next year). Games played on cellphones also are catching on, as the devices now have the display screens and processing speed to play quick games, says Scott Rubin of Namco Networks, which offers the classic Ms. Pac-Man arcade game for mobile phones. Just as that title has endured through all the changes in video games, the industry is expected to overcome its current woes. In a few years, the industry may even be able to--in the words of the Black Eyed Peas--"pump it."
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