Imagine finding out in April that the newest “Spider-Man” or “Shrek” movie is suddenly being removed from the summer schedule.
That’s the magnitude of the shock to the vidgame industry last month when Take Two Interactive disclosed that “Grand Theft Auto IV” — the latest installment in what’s arguably the biggest non-sports franchise of the modern vidgame era, and the first available on both Sony and Microsoft consoles — had been delayed from October to early next spring.
It was just the latest development in a topsy-turvy year for the vidgame biz. On one hand, growth has been boffo. As of July 31, total industry revenue for the year is $7 billion — up an astounding 43% in the U.S., according to the NPD Group. That puts the domestic box office’s 11% growth to shame.
But vidgame growth has come in surprising ways. Most notably, Nintendo has surged from a virtual also-ran just two years ago to No. 1, as huge sales for its Wii and DS proved that consumers are choosing low price and accessibility over high price and power.
Sony, meanwhile, is struggling more than any time since it launched PlayStation more than a decade ago. Despite a small boost from a price cut, its PS3 has lingered for almost a year in third place behind Microsoft’s Xbox 360 and the Wii both domestically and overseas. And the weak performance is having an impact on Sony’s bottom line. In the quarter ended June 30, the company blamed a $237 million loss in its vidgame unit entirely on the PS3, which is not only selling poorly, but losing money on each unit sold.
But the first eight months of any year for Sony or Nintendo are, by and large, prologue. Fall is for the videogames biz what summer is for the movies: the time of year with the biggest revenue potential, and thus the biggest pile-up of high-profile titles, released one on top of the other.
Gamer website IGN’s research arm had predicted that “GTA IV,” Microsoft’s “Halo 3,” and the latest installment of Electronic Arts’ “Madden NFL” would together account for one-third of all sales of new games for consoles in the second half of 2007.
After the announced delay, Take Two revised its projections for the fiscal year ending Oct. 31 and admitted it had been expecting the game to bring in $200 million to $275 million in revenue in just its first two weeks.
As the industry prepares for the fall to get a huge, and earlier than usual, kickoff when Microsoft debuts “Halo 3” on Sept. 25, insiders are still sorting through the repercussions of losing one of the season’s biggest games.
But it’s clear the effects will be felt far beyond Take Two’s bottom line.
n Sony, which sold a disappointing 1.6 million PlayStation 3’s in the U.S. and went from industry leader to underdog, already faced a tough fall with few high-profile franchise titles. “GTA IV” was easily the console’s biggest game. Most industryites interviewed for this article predicted the “GTA IV” delay would hurt PS3 sales even more than the Xbox 360.
n Microsoft has had a mixed year. Sales of the Xbox 360 have been mediocre, staying ahead of the PS3 but well behind the Wii and even the company’s own guidance to analysts (a trend that wasn’t helped when Microsoft had to admit in July that a big portion of its consoles are defective and need repair). On the other hand, console makers count on game sales for a large portion of their revenue and Xbox 360 owners have proven to be the industry’s most rabid players, buying games at a faster rate than those with a Wii or PS3. Now, with no “GTA” in the mix, the pressure is on Microsoft’s self-published “Halo 3” to play an even bigger role in propping up Microsoft’s vidgame biz, which the company pledged would be profitable for the first time ever in the current fiscal year.
n With sales of its Wii booming and the DS continuing to dominate the handheld gaming market, Nintendo is in an enviable position. And because “GTA IV” was not going to come out on the Wii, the Japanese vidgame giant won’t be directly impacted by its delay. But many Wii owners are new to the hobby and not as ready to keep spending $50 per game after the initial $250 investment, as its lower attach rate (number of games sold per console) than the 360 demonstrates. Nintendo has several high-profile games set for release this holiday season, including “Super Mario Galaxy,” “Wii Fit,” and “Super Smash Bros. Brawl” and it’s an open question whether they’ll stand out among the deluge of other big games, even with the Wii’s superior install base.
n Other third-party publishers, such as EA, Activision and Ubisoft, are hoping that at least some of the money that was going to be spent on “GTA IV” will come their way. But because that game’s delay was so unexpected, none have time to move up the release of their game to the October timeframe that they had previously ceded to Take Two. Huge titles like “Call of Duty 4,” “Assassin’s Creed,” “Stranglehold,” “Mercenaries 2,” and music games “Guitar Hero 3” and “Rock Band” will all be fighting for “GTA IV’s” share.
When it comes out next spring, most industryites expect “GTA IV” to sell about as well as it would have this October. But Take Two stock plunged 16% on news of the announcement and still hasn’t recovered, despite an uptick following enthusiastic critical reception to its new game “Bioshock.”
All media companies are hit-dependent, of course, but the videogame biz is especially so, with a few franchises dominating the industry and many publishers having only one or two of them. That pushing back a game can impact Take Two so severely only demonstrates to other publishers how important it is to try and diversify their lineups, lest they be punished as severely as the “GTA” maker.
“You can’t iron out all volatility, but a real stand- alone company should do well at all times and really well when it releases a big hit,” notes Take Two chairman Strauss Zelnick, who is trying to rebuild the company following an accounting scandal.
It’s a mantra that most in the vidgame industry pledge, but few are willing to follow. Though it is publishing the new sci-fi title “Mass Effect” and has numerous third-party products for its platform, Microsoft has centered much of its PR and marketing for the past year around “Halo 3” and “GTA IV.” With the disappearance of the latter game, the tech giant’s fall is dependent, in large part, on one game.
“They used to have two things to talk about and now they just have one,” says Sony Computer Entertainment’s marketing VP Peter Dille, in a dig at his competitor.
That’s one more high-profile exclusive, many might note, than Sony has in its 2007 lineup. More by circumstance than choice, Sony has only a handful of mid-tier exclusive sequels, such as the latest “SOCOM Navy Seals” and “Unreal Tournament” games, for the PlayStation 3 this fall.
It will rely in large part on a bunch of original properties developed internally, including “Lair,” “Heavenly Sword,” and “Uncharted: Drake’s Fortune.” If one of them hits big, Sony could have a surprisingly strong season. But if they don’t, it will be forced to wait until 2008, when highly anticipated exclusives like “Metal Gear Solid 4” and “Killzone 2” finally come out.
Perhaps most importantly, industryites say the 360 will likely benefit more than the PS3 from whichever third-party titles sell well. Given its sizable advantage over the PS3, a difference that will only grow after “Halo 3,” industryites say gamers are much more likely to buy titles like “Guitar Hero,” “Rock Band,” “Call of Duty 4,” and others for the 360. Also helping Microsoft: Since the PS3 debuted a year later, many developers still aren’t comfortable with adapting for Sony’s hardware. Games like “Madden NFL ’08” perform better on the 360 as a result.
Because previous “GTA” games were PlayStation 2 exclusives and the franchise was associated with Sony’s brand, many believe it was the only third-party game that would have moved a significant number of PS3s off the shelves.
“Sony definitely has the most to lose as a result of” the ‘GTA’ delay, says a senior exec at one third-party publisher. “If I were them I’d be very aggressive on price and trying to find ways to differentiate the PS3 version of our games, because the 360 is currently better positioned to take advantage of most of the fall’s big games.”
In an industry with two- to three-year production schedules, many are already looking to fall 2008. Though few games have been specifically announced, a similarly big slew of 360 and PS3 titles are expected. The difference, execs say, may be that the Wii will finally have a lineup to match.
Unlike this year, when only Nintendo is ready with some big games for its console, third- party publishers, many of which didn’t expect the Wii to take off as fast as it has, will by and large have lineups just as robust for that console as the other two.
“Our near end strategy is, where it makes sense, to do Wii versions of our broad franchises and we’re making a second priority of developing in Wii-specific games.” says Vivendi Games CEO Bruce Hack, setting a goal many of his competitors share.”Everyone knows they need to make games which take advantage of the Wii’s unique features to succeed.”
That Wii-enthusiasm can be seen at numerous publishers, including EA, which set up a separate “casual games” division that will focus in large part on games for the Wii.
Publishers are also hopeful that by developing for the Wii they’ll be able to diversify their portfolio and take more risks, since games for Nintendo’s console can cost as little as $5 million, as opposed to $15 million or more for PS3 and Xbox 360 titles.
There’s no way to know, of course, just what impact a broad array of Wii games will have on the market next year. But Sony and Microsoft are both hoping that, even without “GTA IV,” they’ll come out of 2007 with the momentum to stand the heat.