A brief and instructive history of video games
I am interested in different business models and decided to briefly retell the history of video games. From this story, you can catch some patterns in the battles of different platforms, to try to predict where this all leads in the future. The same laws apply to the music business, publishing, cinema and a number of creative industries. I hope it will be useful.
Back in the 70s, the first game devices for televisions appeared. In the 75th Atari released the first toy Pong (table tennis). At 76m they were sold for about $ 200M. Somewhere in 76-77 there was a sharp decline in the cost of semiconductors. Atari released Atari 2600 - the first device with a replaceable cartridge. This allowed changing the cartridges to play different games. At 77m, industry sales were about $ 420M.
Many other players flocked to the market, and each had its own set-top devices and cartridges for them. A curious fact - 2/3 of sales took place on holidays and weekends.
Atari has successfully implemented the strategy of "vest" (distribute razors and make money on the blades). They managed to sell consoles more than anyone and eventually became the market leader. Major sales were through large retail chains. There were about 1500 games under their platform.
')
The victory was not long. In the years 82-84, people stopped buying consoles. The market was just filled - everyone who needed it, had already bought it. Manufacturers in warehouses and in retail have accumulated a huge amount of unsold both game cartridges and consoles - they had to be sold at bargain prices. Turnovers from $ 3 billion fell to $ 100M - Atari went bankrupt and was absorbed by Warner.
After the industry collapsed in 1984, everyone decided that video games were a passing fad. All but Nintendo, which decided to enter this market. They made several correct conclusions:
- Altari poorly managed assortment and flooded the market with low-quality games. Without examining the demand. In short, overproduction was created.
- There were many games, but they were all similar to each other and the quality did not develop, respectively, people did not have any motivation to buy the next 101st game.
- Finally, they were positioned as "computerized toys" - which are prone to recessions and sales in the holidays.
In 1985, Nintendo entered the market with the 8-bit prefix NES (Nintendo Entertainment System). They also adhered to the gillet strategy (low margin iron and high margin games). But here's what the cunning one came up with:
- They became a monopolist of cartridge production and tightly controlled the number of cartridges in circulation. To avoid overproduction and subsequent dumping prices.
“We supplied each cartridge with a chip that blocked all third-party non-Nintendo applications.”
- Some of the games they developed themselves, some licensed from independent game developers.
- Strived for diversity and attracted the best developers, at the same time limited the annual release of games.
- And Nintendo forced developers to buy some of the cartridges forward (!). So that they are responsible for the quality of the final product, and not just for the software.
- First started in New York. They tested the market there. And then they started an aggressive national company with the game "Super-Mario".
- Focus done on children. The children persuaded their parents to “buy us a piece that you can play in Mario!”. I also whined in childhood.
In 1990, in every 3rd house there was a Nintendo prefix (about 30 million) and the company's turnover exceeded $ 3 billion.
In 1990, Nintendo dominated the market. It would seem, how can someone else go to this market? Nintendo followed a closed architecture strategy, just like IBM and Apple. The platform was not allowed to third-party manufacturers. Like Apple, they built the entire business model on complete control: hardware, distribution channels and third-party developers for their system.
But Nintendo missed several important factors that gave way to a new player:
“Independent software developers were not very fond of them: Nintendo took a high commission, demanded quarterly certification, limited production (so that there was no overproduction) and forced them to buy back some of the cartridges.
- Retail also disliked Nintendo, as they worked "without returns" - all costs of return went to retail chains.
- And finally, the technology has stepped forward and they, like a very large company, did not have time for them.
In 1989, Sega launched a 16-bit prefix called Genesis. She worked on the Motorolla 68000 processor. And it gave better graphics, speed and sound compared to the 8-bit Nintendo. They started looking for game developers for their set-top box. And of course, a few disgruntled by Nintendo (including EA) agreed to make applications for them. Sega began to quickly build distribution channels. And many retailers also agreed - to reduce dependence on Nintendo and increase their product range.
But their games were not better with the point of view of users. Sega continued to search for the hit - in the end they became Sonic Hedgehog (Sonic hedgehog)
In 1991, during the summer holidays, they brought the game to the market and lowered prices. The game was for older children and was faster and cooler than Mario. As a result, their sales soared from a few hundred thousand in the 1990s to $ 5M in the 1992s.
Nintendo, too, did not stand still and released a 16-bit system (Super NES) for their 8-bit games. In 1993, both players occupied 75% of the video game market with a turnover of more than $ 5.3 billion.
In 1993, Nintendo and Sega had excellent positions. But there were a few "but":
- Iron producers needed to adapt to different platforms.
- The same is with game manufacturers that are able to make "hits". The software began to take an increasing share of the profits, while the iron gradually became cheaper. The average check of the average game was about $ 60, and sales of more than 1 million pieces were considered a hit.
In 1995, several large companies planned to launch 32 and 64 bit consoles: Nintendo, Sega, Sony, Amiga.
- The industry flourished and grew steadily at 12% per year. The video industry has generated profits of more than $ 6 billion, which is more than Hollywood.
- Trends were such that by 2005, about 50% of households in the United States should have game consoles.
- The key was access to capital - without it it was impossible to start something. The cost of producing a single product was $ 200-400k, and for 32bit ones, the higher was about $ 2-5M.
- According to the time, a typical project took about 15 months (9 months - game development, 1 month - testing, 1 month - approval from the platform, 4 months - production of cartridges, etc.)
- It was also very expensive marketing (mainly through retail stores). About $ 10M was spent on the promotion of Mortal Kombat.
- The PC game market was relatively small and occupied about 15% of all sales. Sega and Nintendo applications were not available on the PC. High cost of switching between platforms. There are games on the CD-ROM.
The production of games was very similar to the production of films. In Hollywood, 3 major laws of the film business have long been formulated:
1. Costs are fixed and forth. Regardless of whether it is a blockbuster or not - the money is spent ahead. Production - 20M, marketing - 7M, others -3M. Regardless of how much later the film will bring.
2. The law of the blockbuster. 4 out of 10 films discourage costs. 5% of films bring 50% of revenue.
3. No one knows anything. In the sense of nothing is impossible to predict.
Growth in sales of the video game market, usually associated with the release of a new generation of consoles. On average, 1 time in 5 years. Sales of consoles and games are closely related. Usually a certain coefficient of mutual sales was derived.
- A few months before launch, manufacturers began to announce the release of a new console.
- Usually the novelty came out at a higher price. After about 1-2 years there were price wars between competitors.
- At 3-4 year of war faded, the price of the console reached its minimum.
- In the 5th year, again, everyone was waiting for a new console.
Sega and Sony launched 32 bit consoles in the 1994m. In the 1995m, Nintendo introduced a 64 bit prefix. Sony became the dominant player by the 2000s.
A new round began in 2000m, when Sony presented the PS2 - a 128-bit platform. The PC games market reached more than $ 1 billion in 2001 m. The main software suppliers were 4 companies (64% of the market), including EA. Unlike the consoles market, the PC market developed much faster - a new processor appeared every quarter. For example, in 2002, some computers were equipped with 2 GHz and 512 MB of memory, while on consoles there was still a processor around 300 MHz. Plus PCs were connected via the Internet. Plus, the PC market was more attractive to developers.
Back in 1991, network games such as Doom, Duke Nukem appeared. Next came online games. Next game on the portals. In 2006, about 114 million people played online and about 23 million through the console.
Developing multiplayer games is naturally more expensive than single-player games. The task in such portals is to keep the interest of users. To do this, constantly added new content to the game. Many started a $ 10-20 subscription model for unlimited play time. For example, the game EverQuest (from Sony) generated more than $ 5M per month from 400 thousand subscribers with a margin of more than 40%. Online games demanded more investment ahead than ordinary games + server + support. There are online console games. Xbox launched “Xbox Live” in 2002m. We spent about $ 2 billion on the development of this network. We planned to sell the service by subscription for $ 50 per year.
In 1999, Sega with its console (Dreamcast) after several previous years of losses (due to competition with Sony and others) decided to leave the console market and become a software developer for the same Sony and others. + Focused on the production of arcade games.
In 2008, the video game industry reached $ 21 billion. For comparison, here are the sizes of related industries for the same period in the United States:
- Music market - $ 10.4 billion
- Cinema - $ 9.5 billion
- Books - $ 35.69 billion
- DVD - $ 23 billion (purchase - $ 16 billion, rent - $ 7 billion)
At the same time, such a large game maker like EA (Electronic Arts) suffered losses of more than $ 1 billion per year. From what?
- The price of game development has grown (about 10M then increased to 25M)
- Sales of games and the desire of people to pay - fell. (the game cost $ 60 on average, and sales on average 150 thousand pieces - which did not cover the costs)
- There are a lot of free games on iphone
- They missed with a selection of hits. Underestimated wii (Nintendo)
In 2008, Apple launched the AppStore. And now any developer could create his own game in a matter of days and place it for sale. Moreover, these games were in a mobile phone, which is cheaper and more convenient. The EA began to cut wages. Reduced 16% of employees. EA decided to enter the market of mobile games and social network games through the purchase of other players.
The second platform that began to undermine the video game industry is Facebook. Games in social networks grew explosively, gaining an audience of several million people literally in a matter of months after launch. EA decided to enter this market by buying Playfish for $ 400M (2nd largest game developer for social networks after Zinga)
Nevertheless, the video game market as of 2013 is feeling pretty good. Here are the main figures for the world:
- AppStore turnover is $ 22 billion.
- Turnovers of games in Facebook - $ 24 billion.
- Retail turnover (drives through stores) - $ 20 billion.
- The video game market as a whole is estimated at $ 58 billion.
The main consoles by the number of sales: PlayStation (Sony) - 77 million units, Xbox (Microsoft) -77.2 million units, Wii (Nintendo) - 99.8 million units.
Major game developers in terms of turnover: Activision Blizzard - $ 4.99 billion (“Call of Duty”, “World of Warcraft”), Electronic Arts - $ 3.79 billion (“Battlefield”, “Madden NFL”), Take-Two Interactive Software - $ 1.22 Billion (“Grand Theft Auto” and “Borderlands”), Ubisoft -1.26 Billion Euros (“Assassin's Creed”, “Just Dance”)
By the way, the recently released GTA V game brought $ 1 billion in revenue to its creators in just 3 days after launch - thereby setting a new world record for video game sales.
As can be seen from this instructive story, the main battle is played out between: users, manufacturers of hardware (consoles) and game developers.
People (users) consumed and will consume entertainment content. And they try to do it for free, due to which they kill the platform:
- First, they buy both the content and part of the platform (game + console). This allows you to grow a new platform (PlayStation or Sega)
- Then they pay only for the game (they don’t pay for the platform itself) and want the platform for free (AppStore, Facebook)
- Then people want the game for free, agreeing only to the built-in purchases (freemium). For example, the game “Farmer” on Facebook
- Then people want to do for free at all. At the same time watching ads. (Free games with ads)
- This leads to poor quality content (as good content providers have gone where they pay) and an abundance of annoying ads. Further advertising model has nowhere to fall. The platform is still alive, but there is more and more advertising in it and people are more and more dissatisfied with it. (Facebook, Twitter, Google)
- This leads to the need for new high-quality content. This is usually possible only on some new technological platform. This is where the opportunity for the emergence of a new platform. For example Google Glass. And it all starts in a new way.
If we talk about trends, then judging by the numerous sources they are:
- The virtual reality. She once tried to appear, but the technology was weak, now apparently it was time to reappear.
- Additional screens, control of the game on TV via iPhone, etc., what wii did
- Google Glass, glasses, etc.
- OpenSource game development
- Augmented Reality
- Games in the "cloud"
in general, the following big companies should grow up here somewhere.
I gained a lot of information from cases when I was studying at Stanford, especially from Electronic Arts cases. They can be bought here somewhere for $ 7 per case.
Also thanks to Wikipedia and Reuters .
Something I took from my blog about business models.
1975-1985 The rise and fall of Atari
Back in the 70s, the first game devices for televisions appeared. In the 75th Atari released the first toy Pong (table tennis). At 76m they were sold for about $ 200M. Somewhere in 76-77 there was a sharp decline in the cost of semiconductors. Atari released Atari 2600 - the first device with a replaceable cartridge. This allowed changing the cartridges to play different games. At 77m, industry sales were about $ 420M.
Many other players flocked to the market, and each had its own set-top devices and cartridges for them. A curious fact - 2/3 of sales took place on holidays and weekends.
Atari has successfully implemented the strategy of "vest" (distribute razors and make money on the blades). They managed to sell consoles more than anyone and eventually became the market leader. Major sales were through large retail chains. There were about 1500 games under their platform.
')
The victory was not long. In the years 82-84, people stopped buying consoles. The market was just filled - everyone who needed it, had already bought it. Manufacturers in warehouses and in retail have accumulated a huge amount of unsold both game cartridges and consoles - they had to be sold at bargain prices. Turnovers from $ 3 billion fell to $ 100M - Atari went bankrupt and was absorbed by Warner.
1985-1990 Era of Nintendo
After the industry collapsed in 1984, everyone decided that video games were a passing fad. All but Nintendo, which decided to enter this market. They made several correct conclusions:
- Altari poorly managed assortment and flooded the market with low-quality games. Without examining the demand. In short, overproduction was created.
- There were many games, but they were all similar to each other and the quality did not develop, respectively, people did not have any motivation to buy the next 101st game.
- Finally, they were positioned as "computerized toys" - which are prone to recessions and sales in the holidays.
In 1985, Nintendo entered the market with the 8-bit prefix NES (Nintendo Entertainment System). They also adhered to the gillet strategy (low margin iron and high margin games). But here's what the cunning one came up with:
- They became a monopolist of cartridge production and tightly controlled the number of cartridges in circulation. To avoid overproduction and subsequent dumping prices.
“We supplied each cartridge with a chip that blocked all third-party non-Nintendo applications.”
- Some of the games they developed themselves, some licensed from independent game developers.
- Strived for diversity and attracted the best developers, at the same time limited the annual release of games.
- And Nintendo forced developers to buy some of the cartridges forward (!). So that they are responsible for the quality of the final product, and not just for the software.
- First started in New York. They tested the market there. And then they started an aggressive national company with the game "Super-Mario".
- Focus done on children. The children persuaded their parents to “buy us a piece that you can play in Mario!”. I also whined in childhood.
In 1990, in every 3rd house there was a Nintendo prefix (about 30 million) and the company's turnover exceeded $ 3 billion.
1990-1995 Sega market entry
In 1990, Nintendo dominated the market. It would seem, how can someone else go to this market? Nintendo followed a closed architecture strategy, just like IBM and Apple. The platform was not allowed to third-party manufacturers. Like Apple, they built the entire business model on complete control: hardware, distribution channels and third-party developers for their system.
But Nintendo missed several important factors that gave way to a new player:
“Independent software developers were not very fond of them: Nintendo took a high commission, demanded quarterly certification, limited production (so that there was no overproduction) and forced them to buy back some of the cartridges.
- Retail also disliked Nintendo, as they worked "without returns" - all costs of return went to retail chains.
- And finally, the technology has stepped forward and they, like a very large company, did not have time for them.
In 1989, Sega launched a 16-bit prefix called Genesis. She worked on the Motorolla 68000 processor. And it gave better graphics, speed and sound compared to the 8-bit Nintendo. They started looking for game developers for their set-top box. And of course, a few disgruntled by Nintendo (including EA) agreed to make applications for them. Sega began to quickly build distribution channels. And many retailers also agreed - to reduce dependence on Nintendo and increase their product range.
But their games were not better with the point of view of users. Sega continued to search for the hit - in the end they became Sonic Hedgehog (Sonic hedgehog)
In 1991, during the summer holidays, they brought the game to the market and lowered prices. The game was for older children and was faster and cooler than Mario. As a result, their sales soared from a few hundred thousand in the 1990s to $ 5M in the 1992s.
Nintendo, too, did not stand still and released a 16-bit system (Super NES) for their 8-bit games. In 1993, both players occupied 75% of the video game market with a turnover of more than $ 5.3 billion.
1995 - 2005. The impact of the Internet and the PC market.
In 1993, Nintendo and Sega had excellent positions. But there were a few "but":
- Iron producers needed to adapt to different platforms.
- The same is with game manufacturers that are able to make "hits". The software began to take an increasing share of the profits, while the iron gradually became cheaper. The average check of the average game was about $ 60, and sales of more than 1 million pieces were considered a hit.
In 1995, several large companies planned to launch 32 and 64 bit consoles: Nintendo, Sega, Sony, Amiga.
Major industry trends in the 95th:
- The industry flourished and grew steadily at 12% per year. The video industry has generated profits of more than $ 6 billion, which is more than Hollywood.
- Trends were such that by 2005, about 50% of households in the United States should have game consoles.
- The key was access to capital - without it it was impossible to start something. The cost of producing a single product was $ 200-400k, and for 32bit ones, the higher was about $ 2-5M.
- According to the time, a typical project took about 15 months (9 months - game development, 1 month - testing, 1 month - approval from the platform, 4 months - production of cartridges, etc.)
- It was also very expensive marketing (mainly through retail stores). About $ 10M was spent on the promotion of Mortal Kombat.
- The PC game market was relatively small and occupied about 15% of all sales. Sega and Nintendo applications were not available on the PC. High cost of switching between platforms. There are games on the CD-ROM.
The production of games was very similar to the production of films. In Hollywood, 3 major laws of the film business have long been formulated:
1. Costs are fixed and forth. Regardless of whether it is a blockbuster or not - the money is spent ahead. Production - 20M, marketing - 7M, others -3M. Regardless of how much later the film will bring.
2. The law of the blockbuster. 4 out of 10 films discourage costs. 5% of films bring 50% of revenue.
3. No one knows anything. In the sense of nothing is impossible to predict.
Growth in sales of the video game market, usually associated with the release of a new generation of consoles. On average, 1 time in 5 years. Sales of consoles and games are closely related. Usually a certain coefficient of mutual sales was derived.
Typical console life cycle
- A few months before launch, manufacturers began to announce the release of a new console.
- Usually the novelty came out at a higher price. After about 1-2 years there were price wars between competitors.
- At 3-4 year of war faded, the price of the console reached its minimum.
- In the 5th year, again, everyone was waiting for a new console.
The end of the generation of 32/64 bit consoles.
Sega and Sony launched 32 bit consoles in the 1994m. In the 1995m, Nintendo introduced a 64 bit prefix. Sony became the dominant player by the 2000s.
A new round began in 2000m, when Sony presented the PS2 - a 128-bit platform. The PC games market reached more than $ 1 billion in 2001 m. The main software suppliers were 4 companies (64% of the market), including EA. Unlike the consoles market, the PC market developed much faster - a new processor appeared every quarter. For example, in 2002, some computers were equipped with 2 GHz and 512 MB of memory, while on consoles there was still a processor around 300 MHz. Plus PCs were connected via the Internet. Plus, the PC market was more attractive to developers.
The phenomenon of online gaming
Back in 1991, network games such as Doom, Duke Nukem appeared. Next came online games. Next game on the portals. In 2006, about 114 million people played online and about 23 million through the console.
Developing multiplayer games is naturally more expensive than single-player games. The task in such portals is to keep the interest of users. To do this, constantly added new content to the game. Many started a $ 10-20 subscription model for unlimited play time. For example, the game EverQuest (from Sony) generated more than $ 5M per month from 400 thousand subscribers with a margin of more than 40%. Online games demanded more investment ahead than ordinary games + server + support. There are online console games. Xbox launched “Xbox Live” in 2002m. We spent about $ 2 billion on the development of this network. We planned to sell the service by subscription for $ 50 per year.
In 1999, Sega with its console (Dreamcast) after several previous years of losses (due to competition with Sony and others) decided to leave the console market and become a software developer for the same Sony and others. + Focused on the production of arcade games.
2005 -HB Social networks, AppStore, mobile games
In 2008, the video game industry reached $ 21 billion. For comparison, here are the sizes of related industries for the same period in the United States:
- Music market - $ 10.4 billion
- Cinema - $ 9.5 billion
- Books - $ 35.69 billion
- DVD - $ 23 billion (purchase - $ 16 billion, rent - $ 7 billion)
At the same time, such a large game maker like EA (Electronic Arts) suffered losses of more than $ 1 billion per year. From what?
- The price of game development has grown (about 10M then increased to 25M)
- Sales of games and the desire of people to pay - fell. (the game cost $ 60 on average, and sales on average 150 thousand pieces - which did not cover the costs)
- There are a lot of free games on iphone
- They missed with a selection of hits. Underestimated wii (Nintendo)
In 2008, Apple launched the AppStore. And now any developer could create his own game in a matter of days and place it for sale. Moreover, these games were in a mobile phone, which is cheaper and more convenient. The EA began to cut wages. Reduced 16% of employees. EA decided to enter the market of mobile games and social network games through the purchase of other players.
The second platform that began to undermine the video game industry is Facebook. Games in social networks grew explosively, gaining an audience of several million people literally in a matter of months after launch. EA decided to enter this market by buying Playfish for $ 400M (2nd largest game developer for social networks after Zinga)
Nevertheless, the video game market as of 2013 is feeling pretty good. Here are the main figures for the world:
- AppStore turnover is $ 22 billion.
- Turnovers of games in Facebook - $ 24 billion.
- Retail turnover (drives through stores) - $ 20 billion.
- The video game market as a whole is estimated at $ 58 billion.
The main consoles by the number of sales: PlayStation (Sony) - 77 million units, Xbox (Microsoft) -77.2 million units, Wii (Nintendo) - 99.8 million units.
Major game developers in terms of turnover: Activision Blizzard - $ 4.99 billion (“Call of Duty”, “World of Warcraft”), Electronic Arts - $ 3.79 billion (“Battlefield”, “Madden NFL”), Take-Two Interactive Software - $ 1.22 Billion (“Grand Theft Auto” and “Borderlands”), Ubisoft -1.26 Billion Euros (“Assassin's Creed”, “Just Dance”)
By the way, the recently released GTA V game brought $ 1 billion in revenue to its creators in just 3 days after launch - thereby setting a new world record for video game sales.
Findings. What's next?
As can be seen from this instructive story, the main battle is played out between: users, manufacturers of hardware (consoles) and game developers.
People (users) consumed and will consume entertainment content. And they try to do it for free, due to which they kill the platform:
- First, they buy both the content and part of the platform (game + console). This allows you to grow a new platform (PlayStation or Sega)
- Then they pay only for the game (they don’t pay for the platform itself) and want the platform for free (AppStore, Facebook)
- Then people want the game for free, agreeing only to the built-in purchases (freemium). For example, the game “Farmer” on Facebook
- Then people want to do for free at all. At the same time watching ads. (Free games with ads)
- This leads to poor quality content (as good content providers have gone where they pay) and an abundance of annoying ads. Further advertising model has nowhere to fall. The platform is still alive, but there is more and more advertising in it and people are more and more dissatisfied with it. (Facebook, Twitter, Google)
- This leads to the need for new high-quality content. This is usually possible only on some new technological platform. This is where the opportunity for the emergence of a new platform. For example Google Glass. And it all starts in a new way.
If we talk about trends, then judging by the numerous sources they are:
- The virtual reality. She once tried to appear, but the technology was weak, now apparently it was time to reappear.
- Additional screens, control of the game on TV via iPhone, etc., what wii did
- Google Glass, glasses, etc.
- OpenSource game development
- Augmented Reality
- Games in the "cloud"
in general, the following big companies should grow up here somewhere.
References to sources:
I gained a lot of information from cases when I was studying at Stanford, especially from Electronic Arts cases. They can be bought here somewhere for $ 7 per case.
Also thanks to Wikipedia and Reuters .
Something I took from my blog about business models.
Source: https://habr.com/ru/post/202004/
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