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)
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)
Mstation Games Review
Fri, 29 Feb 2008
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