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TECH TALK: Gaming: The Business of Gaming

April 3rd, 2001 · No Comments

Video Games are big business. Let us understand how this business works. Games can be played on PCs, via game consoles (examples are Sony’s Playstation, Nintendo’s N64 and GameBoy, Sega’s Dreamcast) or in arcades. The bigger market is via the game consoles. Sony, Nintendo and Sega sell the consoles at a discounted price, and make their money from the games, which are incompatible with other consoles. So, the strategy here is the razor/blade: companies lose money selling the console, and make money and profits from selling the games. This strategy has already claimed a victim: Sega is getting out of the consoles business, and focusing only on making the software. This is the market Microsoft is targeting with its Xbox console.

How big is the pie? Sony’s Playstation consoles have an installed base of about 75-80 million, while Nintendo’s N64 consoles have a base of about 30 million. Both have hundreds of titles written for each of them. Sony and Nintendo generated about USD 11 billion in sales, and over USD 2 billion in operating profits. The total market is estimated to be about USD 15-20 billion, growing at about 15-20% per year.

Why is this so attractive? The feeling is that besides being an immensely profitable business over time, video game consoles can become the hub for all interactive entertainment. As consoles get connected to the Internet, revenue opportunities can multiply in the form of selling monthly subscription services to gaming networks. The Internet represents an opportunity which is only now being tapped into, and opens up the vista of multi-player gaming in a very big way. Another example of the changing world of gaming is Sega’s new game, Shenmue, which was created over 4 years, and cost USD 80 million, and over 350 programmers. Writes Dean Takahashi in the Red Herring:

The player assumes the role of Ryo Suzuki, a young man who must unravel the mystery behind the murder of his father. He explores an entire Japanese city, which is faithfully reproduced down to every detail. Every scene in the game is interactive, allowing the player to go into a convenience store and buy something to eat, or go into the arcade and play a game of darts or ride a motorcycle game. The player can open drawers, make phone calls, and talk to hundreds of characters in the city. All of it is rendered in beautiful 3D graphics with subtle lighting effects that depict everything from snow to leaves falling from trees.

Can you imagine the richness of a Mahabharata or Ramayana brought out in the world of Gaming? Indian mythology which has so far been limited to TV serials and a handful of movies could lend itself extraordinarily well to the creation of Net-based games.

Tags: Tech Talk

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