All fair play?

Privacy breaches, hardware flaws and console sale decline – is the computer games industry facing it annus horribilis?

Privacy breaches, hardware flaws and console sale decline – is the computer games industry facing it annus horribilis?

Only six months in to 2011, and it’s clear that it is not
the year for the computer games industry. Of the three biggest players –
Microsoft, Sony and Nintendo – one is currently mired in a breach of security
data unprecedented in size and scale, while another faces declining sales and a
new product that is not selling as planned. For the supposedly recession proof
industry, there’s suddenly big trouble.

Once a side sector of the wider toys and games industry, it’s
only the naïve who discount the impact of the video games industry on the wider
economy. In 2010, AggreGame estimated that the video game sales and development
industry valued at around $1.89bn. Approximately 500 million games were sold
worldwide, with big name brands such as World of Warcraft and Halo also
bringing millions of players together online. Big games now outsell Hollywood
blockbuster movies upon their release while generating the same level – if not
more – fan hysteria. So when there’s a problem in the industry, it’s more than
just child play.

The recent interception of up to 100 million users’ data –
including worryingly banking information – from Sony’s PlayStation network is a
bitter blow not only for the games giant (who estimate to have lost $2bn
in lost revenue) but for the whole industry. Online gaming has proved a massive
boom industry for all parties involved, from the specialised subscription games
services to internet companies able to sell premium rate internet lines to
ensure that gamers get the fastest experience possible.

That online security has not kept pace with gaming
developments is not surprising – it’s far easier to sell new technology and
game developments than improved security. Yet for Sony to have to be playing
catch-up to ‘amateur’ cyber hackers so publicly (and as news reports suggest,
repeatedly) reminds us all that our precious personal information is rarely
safe online. Will this damage the gaming industry in the long run? Maybe not,
yet the cost of ensuring security is likely to rise and consumers will likely
be the ones paying for it.

This, in part, is the reason why the gaming industry has
done so well. Driven by hype, peer pressure and demand, gaming
fans are always willing to pay heavily for new games and developments. Take the
release of the recent Microsoft Xbox Kinect, a motion sensor that allows gamers
to interact with the screen through movement. This novel add-on costs
approximately half the price of the console, with games costing half as
much again. Therefore, a Kinect
and two games later, and gamers have already spent as much as their initial
outlay on the console. And this bill only escalates as more and more games are

A case of supply and demand. What appears
worrying is that for some companies this dynamic is changing. Nintendo launched
its groundbreaking Wii console in 2006. It was the first mainstream console
to use movement as part of the player interface. Demand was unsurprisingly
immense and it remained a big seller for several years, with over 86
million consoles shipped as of March of this year. Yet with other consoles
matching or bettering its unique selling point, the Wii is struggling. The flow
of new games has turned to a trickle and sales have dropped thanks to news of a
new console in the pipeline.

The problem for Nintendo is where to take it next;
technology has not come far enough to make major advances outside of
graphics, speed and a few online novelties. Worse still, its most recent new
development, the 3DS – a hand-held gaming console with 3D visuals – has failed
to sell as hoped with some users complaining of nausea. With
the global economic downturn having seen R&D budgets slashed across nearly
every industry, it is hard to see how a gaming company could come back from a
bad selling product.

This was arguably the fate of former top dog Sega. Having
dominated the games market for most of the early 90s with its Mega Drive
console, the company fell victim to tough competition from Sony and Nintendo
with the release of its follow-up consoles the Saturn and Dreamcast and an
expensive law suit from one of its games developers. With the former of the two
consoles first released in 1995 and the latter taken out of production in
2001, Sega went from a major console designer to a games designer for other
platforms in just six years – against nothing tougher than hardware competition.

This tough example illustrates the importance of USP and
branding in the gaming world. The Wii has sold incredibly well despite
performing less graphically compared well to its counterparts. Equally, Sony’s horrendous security breach will cost them large sums potentially, yet in the long run may not be quite as damaging as fans continue to flock
to the unique games the company offers through its consoles.

Yet with all the major competitors having had their consoles
on the market for some time with no definitive plans for replacements, its
equally possible a new console could emerge. The evolution of smartphones, and
particularly the iPhone, has posed some challenge to the console industry
already. They’re cheaper, more portable and arguably more prevalent with some
impressive graphics. Were a smartphone to come out that could send game
visuals to a computer or television screen while also being used as a
controller, it could conceivably overthrow the conventional console market.

With such concepts or better maybe not so far away, it’s
clear that developers and manufacturers will have to remain incredibly vigilant
in terms of their designs. Given the events of the year so far, this task will
likely prove all the harder.