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Fri, 29 Feb 2008

That blu-ray thing

No Hollow Victory

It's been a long time since any industry pundit was willing to bet on the success of Toshiba's HD-DVD, but the protracted war over the future of high-definition content delivery continued regardless. Staggering and limping its way through a litany of awful sales figures and high-profile studio defections, HD-DVD was the zombie format - struck with lethal blows from all sides, but refusing to fall down and stop twitching all the same.

This week brought merciful respite, and the end, when it came, was swift. Months of horrible news for HD-DVD snowballed into an unstoppable force after its studio support crumbled just before January's Consumer Entertainment Show. A month and a half later, Toshiba has finally pulled the plug - cutting the format's life support off and consigning it to history's gallery of noble technological failures.

The reason for HD-DVD's continued staggering across the battlefield, mortal wounds notwithstanding, has been well aired by now. Although ostensibly a Toshiba-backed format, HD-DVD's most staunch ally in the past year has been Microsoft. Its HD-DVD add-on for the Xbox 360 accounts for around a third of total sales of HD-DVD players, and there have been credible reports that the format's studio support was being propped up by co-marketing deals funded from Microsoft's expansive purse.

Microsoft's objective in all of this was simply to prolong the agony of the high-definition format war. Divide and conquer has been a strategy that has served Microsoft well over the years, and its ambitions with regard to high definition content are very clear. Although it sells technology used by both the Blu-Ray and HD-DVD formats, Microsoft's hope is that consumers will ultimately spurn both formats in favour of downloading HD content - preferably through Microsoft's own services, like Xbox Live. If achieving that means fermenting a format war that damages consumer confidence in both sides, so be it.

So just how much damage has HD-DVD's zombie act done to the prospects for high definition disc formats? Has it bought enough time for HD downloads to become a realistic prospect for consumers, or even for the concept to start to take root in their imaginations?

I'm not convinced that it has. Blu-Ray's victory comes early enough not to be a pyrrhic one - and there are strong signs to suggest that although downloads are beginning to earn their place in the HD content market, there will be at least another healthy generation of disc-based distribution before the world is ready to go entirely digital.

The problem which HD downloads face is simply that the market is not yet ready for them. Broadband connections even in relatively developed countries like the United Kingdom simply aren't up to the speeds required for multi-gigabyte downloads of movie content. Although speeds of 25 and even 50 megabits are advertised by some providers, the reality for UK consumers is that their broadband probably runs at somewhere between 2 and 5 megabits - and much, much lower in certain areas. With some notable exceptions, much of the rest of the world is in the same boat; the reality of broadband lags behind its promise.

Consumers, too, aren't quite ready for download content. I don't doubt that they will be, and sooner than many pundits believe - the attachment to physical products is not remotely as strong as some high street retailers and content publishers would like to think, as the incredibly fast transition from CD to music downloads is proving. However, we're simply not quite there yet, and it certainly doesn't help that few consumers are sporting home networks and properly configured media servers, replete with large hard drives, in their living rooms. Equally, it doesn't help that while consumers may be prepared to shed their attachment to physical products, they're still not going to give much ground on the question of ownership - and rental models where movies "time out" after a certain period, or can only be watched a certain number of times, are likely to prove to have very narrow appeal.

This isn't to say that HD downloads won't form a part of the video content market going forward - indeed, I suspect that the landscape of the next ten years will be much more varied than the DVD-dominated market of the last decade. Downloads, existing DVDs and Blu-Ray will all have roles to play in this market - but the important news for Sony, and arguably for the games industry as a whole, is that Blu-Ray certainly does have a role in this landscape, and a very important one at that.

Challenges remain, of course; Blu-Ray's prices need to come down, both for hardware and software, before it can seriously start challenging sales of DVDs, but already figures for the uptake of key Blu-Ray titles are encouraging. Most of all, it's clear that Sony's "trojan horse" strategy has worked. With over ten million PS3s sold through, Blu-Ray's installed base from that console alone was more than ten times the total HD-DVD installed base - and even if many of those users don't buy too many Blu-Ray films, it still represents a very healthy potential market for the format.

It's not fair, perhaps, to say that Microsoft's gambit has failed. If Blu-Ray had become established a year earlier, it would have been a serious blow to the Xbox 360, and to Microsoft's ambitions both in downloads and in videogames. On the other hand, Sony can heave a sigh of relief that the damage done has been fairly limited - and can undoubtedly expect a major boost both for PS3 sales and for its share price off the back of Toshiba's capitulation.

It's also worth noting that for the media market as a whole - from consumer electronics through movies to games - the final end of HD-DVD means the end of a major source of confusion over high definition. Spurred on by strong sales of HD television, 2008 can at last become what every year since 2005 has been predicted to be by various analysts and commentators; the long-delayed year when high definition finally takes its place at the head of the table.

(gamesindustry.biz)

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Tue, 05 Feb 2008

Behind the biz curtain

A Question of Size

It's not terribly long since THQ looked like one of the best growth prospects in the publishing sector. With a new commitment to quality, a determination to build new IP and a strong pool of publishing and management talent, the company's stock was cautiously tipped as a grower - and it's certainly not an assessment I'd have disagreed with. The acrimonious divisions that developed between the publisher and the WWE wrestling body from whom many of its successful franchises had been licensed seemed to have been a wake-up call for THQ regarding its reliance on externally owned IP, and the future looked bright.

Now, I remain a firm believer in THQ's abilities as a publisher - and I think that games like STALKER and Company of Heroes have done a great deal to boost the value of the brand among gamers. By no means is it time to start writing obituaries for the firm. However, it's tough to spin this week's news in a positive light.

THQ has been forced to can a pair of racing franchises - Juiced and Stuntman, both of which the firm acquired from other publishers with a view to expanding its market share in racing - alongside a pair of unannounced titles, the PS3 SKU of the upcoming Frontlines title, and the PS2 SKU of the new Destroy All Humans game. In total, the firm expects to suck in around $27 million in charges related to the cancellations - and to close an entire studio, Concrete Games, which was working on an unannounced title.

It's tempting to see this as a crisis for THQ, which has also just downgraded its Q4 expectations due to game delays, and reported the underperformance of licensed titles Ratatouille and Conan. However, a wider view reveals that it's not just THQ that's facing trouble. This malaise extends to almost every mid-range publisher in the market.

Tomb Raider publisher Eidos is perhaps the most high profile victim in recent weeks. Talks with a takeover suitor collapsed, and with it the firm's value on the stock market - followed promptly by the resignation of the company's top management. It's worth noting that the management themselves only arrived at Eidos after a takeover, having manoeuvred plucky British publisher SCi into position to take over its larger rival only a few years ago.

One company regularly mentioned as a potential Eidos suitor is Midway - another mid-level publisher, big enough to run franchises like Unreal Tournament and John Woo's Stranglehold, but unlikely to give the big boys of the market any headaches in the near future. Midway, too, is struggling to some extent; it hasn't posted a profit since 1999, and has had to rethink its publishing strategy for 2008 in the face of the weak reception for its titles this year.

These companies are the publishing B-list - they sit somewhere behind Electronic Arts, Ubisoft and their ilk, but have well-established sales, distribution and marketing operations, strong relationships with buyers and media, and enough muscle to sign promising titles from top developers. So what's going wrong?

Well, in each instance, there's a rather different set of factors contributing to the individual problems of that publisher - but I think those problems may, to some extent, be symptomatic of a change which is being forced into the industry by the next generation transition. Put simply, as games get more expensive for developers, publishers and consumers alike, the challenges of managing huge teams and huge budgets mount up - and it gets increasingly hard for a mid-level company to compete with the industry's giants on a level playing field.

This happens to every media sector at some point in their history. How many big film distributors are there? Break it down by removing the child companies (such as Columbia Tristar and MGM, both of which belong to Sony Pictures) and you end up with about five or six corporations controlling the lion's share of the market. Music is even more centralised - what was once a thriving market of small publishers has been centralised into four major corporations.

The cost and risk of being involved in the games business took a huge step up when the Xbox 360 and PS3 arrived, and the problems faced by mid-level publishers could be the early symptoms of a major storm that will only be weathered by firms with sufficient scale to survive.

Big companies face problems with being nimble and able to react, and they often have difficulty controlling their costs - just ask EA, whose development costs have grown at a rate far faster than its revenues in recent years. However, they can also offer better deals for developers, better incentives for distributors and retailers, and more lavish PR to attract media coverage. They can better afford to take risks, can more readily absorb losses from unsuccessful products, and their promise of higher salaries, better benefits and more job security often attracts the cream of the crop in terms of staff.

Such advantages spell problems for mid-level companies - and they certainly make it foolhardy to try and compete on a level playing field against them. Witness how badly Take Two was stung when it tried to challenge EA's dominance of sports titles a couple of years ago. THQ's attempt to hurl its racing franchises against the might of Burnout and Need for Speed hasn't resulted in such a public defeat, but it's unlikely to sting any less for that.

What can smaller firms do, faced with this situation? They have, I suspect, two options in front of them. They can do what small companies in music and movies do, and focus their efforts on original IP and niche markets - taking risks on artistic products that could win a discerning audience, or focusing on titles with a proven market that's too small for EA to bother with.

The second option is, perhaps, more attractive - but might be even harder to implement. That option is to get bigger, and the only way to do that quickly is through mergers and acquisitions. Activision Blizzard isn't the first merged firm to be created to try and achieve scale in this market, and we doubt it'll be the last - and for the likes of THQ, Midway and Eidos, deals like that could be crucial to their future survival.

It's unlikely that any of the people who run mid-range publishers are unaware of these pressures. Backroom discussions about mergers or direction changes are undoubtedly ongoing at most of them right now. The questions I'm wondering about is whether 2008 will be the year of industry mergers and acquisitions; and if not, whether 2009 will be too little, too late.

(gamesindustry.biz)

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