An Investors-eye View of Gaming: Today’s Perfect Storm
So I’ve caught a ton of crap from various readers, writers, pundits and gamers of all stripes as an outgrowth of my financially and strategically-oriented posts on the big console makers, specifically Microsoft and Sony. I’ve been told I suck because the Xbox 360 and PS3 consoles are great, short-sighted because I just don’t get the long-term strategy and rationale behind Microsoft’s $20+ billion investment in its Home & Entertainment Division, out-of-touch because of my belief that the Japanese market does matter in gaming (much like Iowa matters in a US Presidential race) and superficial and fanboy-ish because I happen to think Nintendo has done a particularly good job with its management of the Wii. Real sorry, folks. I guess I appear as a jaded contrarian in this highly partisan battle, and maybe that’s right. But I’d like to remind readers that my thoughts and analysis are from the perspective of an investor, not a gamer, so for those who take issue with my positions, consider this response to a comment in my most recent post on Microsoft.
First, the comment:
This is a great argument as it’s clear and uses lots of past references. I disagree however.
Again and again, there are people giving all sorts of reasons why
Sony or Microsoft are going to fail this “war” because of this reason
or that.Today you say it’s about the lack of focus on the gaming and a focus
on multimedia and “extra” features. It doesn’t take a hardcore gamer to
enjoy these features, it takes someone who enjoys advances in
technology.I love to find out what my new hardware can do and play around with
it. I like to understand the features enough to use them and most
importantly, I love to be surprised.Nintendo has gone the route of making a console that is easy to
figure out and it’s innovative features don’t take weeks to surface.
It’s all right there out of the box. The controller is what makes this
system different and to say it’s more than that is just wasted words.I own two 360’s and a Wii. I play my Wii like there’s no tomorrow.
The thing with it is, because of the controller, it makes all these
games I’ve seen before new. It makes playing games fun again. Sony and
Microsoft’s big reason for not having my playtime at the moment is that
I’ve played through the games I’ve been anticipating and I’m
anticipating more later.To say that Sony or Microsoft are going to win this war is shortsighted and more importantly it’s completely not the point.
The point of this competition between companies should be to create
better games and push video gaming into a new area of innovation. Well
done on Nintendo’s part for doing so in a manner we’d never expect.I suggest people stop focusing so much bloody attention on what’s
wrong with the systems today and start focusing on what’s right with
them.I love games, gamers used to love games but then the gaming industry
went the way of politicians and mainstream news. Backstabbing and
painting a nightmarish picture of something that is not really so dire.Give up the negative media, tell me something good about any system.
Write a rant about an amazing game. Stop influencing peoples impression of the game industry with such negative press.It’s all about the games, the fun. That’s all.
Caid autobot.
Posted by:
autobot |
April 26, 2007 at 12:01 PM
Then, my response:
Autobot,
thanks for your thoughtful and heartfelt response. However,
unfortunately you just don’t get where I am coming from: I DON’T CARE
ABOUT THE GAMES, THE CONSOLES OR ANYTHING ELSE IN A VACUUM. I CARE ABOUT CORPORATE STRATEGY AND SHAREHOLDER VALUE. PERIOD.Sometimes the joy consumers get out of a product, profits and
corporate strategy are aligned, and sometimes they are not. I am
currently in the camp that they are not at present - with Microsoft and
Sony. So you will not see me comment on the quality or appeal of a
specific game -that is neither here nor there to me. I am most
assuredly not a gamer. But I do care about the user experience as it
relates to branding, image, sales and therefore profits.Sorry if my sensibilities and interests don’t align with yours, but
these are mine quite clearly and this is my blog. So this is what I
have and will continue to write about.Your quote: “The point of this competition between companies should
be to create better games and push video gaming into a new area of
innovation.” NO. As a shareholder, the point of competition should be
to use my superior insight into customer wants in light of my
competitors’ offerings to fashion a strategy and product array to kick
their ass. If helping me make money requires innovation, then
innovation I will do. If not, from a shareholder perspective, who
cares? Nintendo’s box isn’t all whizzy and fancy. The graphics don’t
rock. But man, that thing sells. And THAT is what I care about.Posted by:
Roger
April 26, 2007 at 12:29 PM
No matter how many times I say this, the gamers want to suck me back into a discussion about features, and because of my critical view of the business strategies of two of the three console titans I get labeled as negative. I am negative on their strategies and approaches to the marketplace, from an investment perspective, but not necessarily negative on their products. But this doesn’t mean they will be value accretive for shareholders. I guess taking lots of shots is part and parcel of commenting in an area rife with passionate and loyal users. Or sell-side analysts who enjoy parroting conventional wisdom.
Consider three very interesting news items today, and think about them with respect to some of the stuff I’ve written over the past six months (and even the past two weeks):
1. From PaidContent.org - Microsoft Gunning for Japanese Gamers
Microsoft is hoping that the launch of its Games for Windows Live service in Japan will give PC gaming a boost in that country, which will in turn give a boost to sales of the Xbox console. But since the point of the new service is to connect PC gamers to the Xbox network, the argument seems a bit circular.
If there’s not many PC gamers, then connecting them to the console with the lowest market share isn’t goign to spur a spectacular change. Microsoft’s Xbox hasn’t sold as well in Japan as in other countries.
“Xbox 360 are climing, albeit slowly. In the week ending April 15th, the console sold 2,900 units across Japan, according to estimates from Media Create. In the same week, sales of the competing PlayStation 3 console were 11,948 units, while the significantly cheaper PlayStation 2 hit 12,872 units. The lead remained with Nintendo’s Wii console at 75,759 units,” reports InfoWorld.
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Remember my Failure-in-a-Box post concerning Microsoft, the Xbox 360 and Japan? I had postulated that success in Japan was pretty important for the Xbox 360, and it appears that Microsoft itself shares my view. So to all of you who read my post and who said that Japan doesn’t matter, either as a predictor of global success in console sales in general or Xbox 360 in particular, well, I accept your apology.
2. From Joystiq: Nintendo announces record year, thanks DS and Wii
If you’ve been following our Japanese hardware sales series, or caught last month’s NPD report, or have a pulse and leave the house, you’ve no doubt heard that Nintendo’s DS and Wii consoles are … well, they’re sort of a big deal. How big a deal? The pair are responsible for Nintendo’s “record high” fiscal year, which ended March 31, 2007. The stats:
- consolidated fiscal year revenues of ¥966.5 billion, a 90% increase
- operating profits of ¥226.0 billion, a 150% increase
- 23 million Nintendo DS consoles last year, lifetime sales of 40 million
- 5.84 million Wii consoles in less than five months, “nearly” 29 million Wii games
Now for the projections for the fiscal year which began April 1,
2007:
- consolidated sales increasing nearly 18% to ¥1.14 trillion
- operating profits growing nearly 20% to ¥270 billion
- 22 million Nintendo DS systems and 130 million games
- 14 million Wii systems and 55 million games worldwide (will
that be enough?)Not quite the mom ‘n pop outfit, are they? We’re gonna need a “THEY PRINT MONEY!!!” graphic for these sort of things going forward.
So, remember all those post I’ve written about Nintendo, the Wii and the DS, their success in understanding the pulse of the mass-market and being a shining example of my thesis about the Consumer Era of Computing? Am I really being a fanboy here, or just a sharp-eyed investor looking at business strategy, consumer sentiment, market conditions, and the competitive landscape and distilling an empirical and unemotional conclusion? You be the judge. The proof is in the earnings and stock price.
3. From Reuters: Sony PlayStation creator to retire
The inventor of Sony Corp.’s (6758.T) (NYSE:SNE - news) PlayStation video game consoles, Ken Kutaragi, will retire as chief executive of the Japanese company’s game division on June 19, Sony said on Thursday.
Kutaragi, 56, known as the “Father of PlayStation,” steps down at a time when the new PlayStation 3 has made a weaker-than-expected showing against Microsoft Corp.’s (Nasdaq:MSFT - news)
Ken is a legend. He did tremendous things in his career. But he had more than a few problems with getting the full Sony organization behind the PS3, and certainly didn’t help Sir Howard Stringer with his transition into the CEO slot. I have spent a lot of calories studying and analyzing the culture problems at Sony, and Mr. Kutaragi was one of the main perpetrators of siloed, we vs. they thinking that has contributed to its weak financial performance. It is time for him to move on. Lone rangers have a hard time succeeding in an increasingly complex, multi-dimensional world, and Ken was a leader in this mold straight out of central casting.
So bottom line, gamer or analyst, friend or foe, I am an investor first, second and third. And my healthy cynicism arising from the analysis of Internet information has largely been validated in the offline world. I enjoy the dialogue and debate and appreciate the thoughtful and insightful comments posted on this blog and elsewhere. But to the gamers out there who think I am an a** hole I have this to say: get over it. And if you think of my words as it relates to your 401k and not your gaming persona, I think you’ll find that I’m actually a pretty cool dude.
