Last week on my trip to Tokyo one of the industries we looked at closely was computer games. I am no expert on computer games and can honestly say that I have never even played one. I suppose I did while away the hours in pubs back in the 1970’s playing that primitive Atari ping pong game. I may also have had a go at Space Invaders. But after that the long line of games from Donkey Kong to Pac-man to Super Mario to Tomb Raider to Grand Theft Auto have all passed me by. But it’s a fascinating industry, now bigger than the cinema business, and it continues to develop in new and intriguing ways.
Games have been developed for playing on computers as long as there have been computers but it wasn’t until the 1980s that separate consoles were developed for these. At first these were small handheld devices like Nintendo’s Gameboy but later Nintendo and its main rival Sega developed generic consoles on which a variety of games could be played and so separate businesses of games developing and publishing emerged. Sony launched its PlayStation in December 1993. It had been the brainchild of Ken Kutaragi and he was encouraged by Norio Ohga who had had a dreadful falling out with Nintendo with whom previously Sony cooperated over using the CD format in games. Nintendo then worked with Philips and Ohga-san suggested that Kutaragi should set up a new company with the help of Sony Music. Most other senior Sony executives at that time were not impressed by this new venture.
In Europe I was then reporting to Ron Sommer, President of Sony Europe and he asked me to put together a paper explaining why our sales companies should distribute PlayStation in Europe. I did so arguing that we were the custodians of the brand, we managed the distribution, we already had organisation and infrastructure in place, our service network would be able to repair the sets and a whole host of other arguments. I was probably wrong on every count and fortunately Sony Computer Entertainment Company as it was now known set up its own operation with some very talented executives. These people understood that this was not like a traditional Sony hardware business like TVs or radios where the objective was to sell the set and then wait a natural cycle before selling a replacement. The money was in the publishing. It was more like the famous Gillette razor blade model where you sell as many systems as possible at the lowest cost you can afford and then make your money out of the millions of razor blades that are designed to fit the system.
Sony has sold hundreds of millions of PlayStation consoles but has also developed a very successful publishing business. Some of its games are developed by its own staff and some are developed by other publishers and there are also countless freelancers trying to get the next big hit. It is essentially a talent business and like any other talent business, football, movies or managing money the rewards for success can be huge. One such star is Hideo Kojima who first created the “Metal Gear” stealth video game in 1987. It featured a nuke-wielding mecha (large robot) called “Metal Gear” and a sneaky special-forces soldier named “Snake". Between 1987 and 1999 Kojima worked on four “Metal Games”. Between 2000 and February 2012 he released approximately 20 “Metal Gear” branded games. For some of these he only acted as producer and like a movie business churning out episodes in a franchise he had built a studio with an army of games developers, but unlike the movie business he never forgets these are things you play not watch. Indeed we have now got to the point where movies can be based on computer games such as Tomb Raider.
The computer games market has now caught up with the fact that most Japanese have mobile handsets connected to the internet. In fact of 132 million handsets in Japan, 70% are connected to a 3G network. While games for consoles are ever more sophisticated with high quality graphics games played on smart phones are much simpler. They are usually free to play but the users like to pay to own virtual goods that enhance their enjoyment. If it’s a collection game, just like old fashioned cigarette cards, a rare card can charge a premium. If it’s a fighting game the players can buy more sophisticated weapons. Because it’s online games can be played against total strangers with no cause for concern. Many of the games players are adult and may be using the game to pass the time on their long commutes to work by train. It’s a business that is growing fast.
One of the big publishers is Konami, a long-time producer of various games. They are seeing a big shift from packaged games to mobile and consequently believe that in five years’ time the console may have disappeared which would be bad news for the likes of Sony and Microsoft, but would make no difference to the publishers. Indeed they may prefer it as the development time is shorter and the feedback from the market is immediate. As soon as they have a hit they will put more resource behind it and work on maximising the income and then the follow-up. There is no physical production involved and revenue is shared with the network operator and the platform.
Despite its many problems Japan continues to innovate in a surprising number of ways. It is still one of the foremost nations in terms of its inventiveness. In 2011 Japan’s net royalties and license fees hit an all-time high and so its leadership in technology is contributing to world economic growth. But it is also innovative in other ways and this new trend in social games is another example of a business that arguably could only have started in Japan.
Copyright David C Pearson 2012 All rights reserved