Loot: Dispatches From the Console Wars Newsweek.
Now that Playstation 3 and Xbox 360 are both on the market,
publishers, developers,
analysts and
gamers are trying to figure out one thing: which of these two powerhouses is going to come out on top? (We'll address the Wii separately.) Microsoft has an early lead thanks to its yearlong head start. But is that enough to be the winner when all is said and done? Maybe not.
Though Microsoft has already come down from its original claim that it would sell 10 million XBox 360 units before Sony shipped a single PS3 (the company now says it's confident it will sell 10 million units by the end of the year),--the fact remains that Microsoft has only sold through to consumers a little over 3 million units in North America, 1.4 million units in Europe/PAL, and 400,000 units in Japan and other regions. In its first 11 months on the market in North America, as Deutsche Bank analyst Jeetil Patel observed in a recent report, the 360 has only moved more than 300,000 units once--during its launch month of November 2005. By contrast, the standard-setting PS2 dropped below 300,000 units only once during its first 17 months on the market.
Though Microsoft remains committed to its goal, to hit the 10 million mark by December 31, the company must, in the face of all of the PS3 and Wii hype, convince gamers to purchase 5 million Xbox 360s during the next two months. And they have to accomplish this without the benefit of Halo 3, which won't ship until sometime in 2007. “Frankly, we never believed that number,” says Sony Computer Entertainment America's vice president of marketing
Peter Dille of Microsoft's shifting target. “But I think we were the only ones that didn't. How can they possibly get to 10 million based on their
run rate when they're not even outselling the original Xbox?”
Good question. Considering that 65-70 percent of Xbox 360's global sales take place in North America, with only a dwindling contribution from Japan, it's all but certain that Microsoft's stated goal is out of reach. The most optimistic analyst, Wedbush Morgan's Michael Pachter, originally predicted that Microsoft would sell 400,000 units in October. The actual figure? 218,000. Nevertheless, Pachter stands by his Xbox 360 forecasts for November (750,000-1 million) and December (1.5 million-2 million), and possibly more if gamers who can't find a PS3 or a Wii decide to substitute a 360.
At the aforementioned 70 percent ratio of North American sales to overseas sales, that figure would get Microsoft fairly close to its goal. But based on past data, it seems unlikely. Elevation Partners managing director John Riccitiello, who was previously the president of Electronic Arts, quickly did the math in his head during an interview with Level Up and predicted that based on historical trends, Microsoft would only get to around 8 million units by the end of this year. “They're going to need a marketing event to hit that number,” he says.
Many industry observers are puzzled as to why Xbox 360 hardware sales haven't kept pace with the strong software sales of games like Call of Duty 2 (Activision); Fight Night Round 3 and Madden NFL 07 (Electronic Arts); Ghost Recon Advanced Warfighter (Ubisoft); Dead Rising (Capcom); and Saints Row (THQ). In fairness, Microsoft had well-documented supply problems with the Xbox 360 during holiday 2005, which they finally resolved by May. They have widespread availability, a year's lead time, and a $299 entry-level version--which has the same initial price as both the PS2 and the original Xbox. Yet despite those advantages, 360 sales are still trailing by a good margin not only the historical sales of the PS2, but are also lagging those of the original Xbox. Why? Here's what some of the industry's top execs told us a few weeks back.
“That question comes up a lot,” says Laurent Detoc, North American president of the French games publisher Ubisoft. “The software has done really well, but it has not driven hardware as much as people expected. It's the question a lot of retailers have been posing. When you talk to retailers, who are selling more software year-over-year in June, July and August, but not necessarily raising hardware expectations for the rest of the year, it's because they're not seeing the hardware follow the software trend yet.”
“Quite frankly, there may be consumers that are frozen,” says Sega of America vice president of marketing Scott Steinberg. “They're waiting for PS3 to launch and staying on the sidelines before making a purchase decision about which one to go for. And it could easily be the old technology FUD factor; fear, uncertainty and doubt that's in folks minds. They don't want to necessarily buy the first platform that launches. They want to wait until they're on equal footing and pick the one that they think is going to be the best.”
That's echoed even more strongly by Frank Gibeau, executive vice president at Electronic Arts. “Nobody wants to be stuck with the wrong machine. There's a lot of buzz and hype around the PS3 and the Wii coming out. 360 is not hurting from innovation or hardware availability or title availability. It's just hurting from the fact that people are taking a wait and see approach until all three are on the market and then they can choose.”
Gibeau adds: “It's what happened a little bit last year and it's happened in prior cycles. It just happened a little earlier this time because the price points are so high on the hardware. I'd expect that with all three in the marketplace in November, the collective thinking of the gamer community can start talking about 'who's better' and 'who's worse.' Then you'll start to see the momentum get deployed.”
But Elevation Partners' John Riccitiello disagrees with his peers on the quality of the software thus far. “There's been some good games on the 360, don't get me wrong, but there haven't been enough to really get people unearthed from their current Xbox or their PlayStation 2.” He contrasts the situation heading into 360's second holiday with the PS2's second holiday in 2001. Led by what he colorfully terms a “murderer's row” of hit games "Grand Theft Auto III, Final Fantasy X, Metal Gear Solid 2 and Devil May Cry "the PS2 rocketed to November-December sales of 2.9 million units. Of the 360's major holiday software titles "Microsoft's Gears of War, Ubisoft's Rainbow 6: Vegas and Splinter Cell: Double Agent, THQ's WWE Smackdown, EA's Need for Speed Carbon "all are expected to do well, but few expect them to have the collective hardware impact of the PS2's four musketeers.
Riccitiello continues: “The best I've heard about anything that's shipped so far is 'It's just like the last gen stuff, looking better.' Unless by and large I'm looking for a graphics improvement, I don't have anything new yet. And frankly, in the absence of anything new, the fact that Microsoft is doing 210,000 units a month in North America is pretty good. There's half a dozen spectacular reasons to buy the Xbox 360 in the next 12 months, and that will cause a sales spike.”
As the battle is joined, Microsoft execs are smart enough to understand that they've got some weaknesses to shore up in their Xbox business. And they've been working overtime to do so, primarily by securing as many exclusive third-party games or exclusive content deals as possible. Electronic Arts' FIFA and Konami's Winning Eleven soccer games, which are both popular in Europe/PAL territories: exclusive through Fall 2007. Take-Two's Bioshock, an Ayn Rand-meets-Jules Verne first-person shooter than won many plaudits at the Electronic Entertainment Expo in May 2006. The next installment of Ubisoft's Splinter Cell. Downloadable content for Grand Theft Auto IV. All locked up by Microsoft corporate vice president Peter Moore, his indefatigable team, and Uncle Bill's bottomless wallet.
Moore's job, however, was made easier by the fact that for the greater part of this year, PlayStation chief Ken Kutaragi hadn't finalized the business terms for independent publishers on the PS3. And without that, he was reluctant to greenlight any expenditures on Western third-party exclusives. In previous generations, Kutaragi's slowness hadn't been much of a problem because the first two PlayStations launched in Japan 8-12 months ahead of North America, leaving plenty of time to nail things down with Western publishers. But with the PS3 launching in North America just a week after Japan--and a year after a fiercely competitive Microsoft--Kutaragi's tardiness became a major issue.
We've learned that Take-Two and Rockstar Games were interested in continuing their longtime relationship with Sony, in which they premiered their Grand Theft Auto games on PlayStation platforms exclusively for 6-12 months before bringing them to other systems. Also, Ubisoft was interested in making Assassin's Creed, due in stores next spring, exclusive to the PS3. But neither company's top executives--all extremely important figures in the games industry--could get an answer from Kutaragi. PlayStation's Japanese headquarters was effectively radio silent, and without Kutaragi's signoff, the normally independent American and European branches had no authority to reach agreements on the exclusives they believed could be valuable to the PS3 cause.
While Kutaragi dragged his feet, Microsoft's top brass called these third-parties almost daily, asking each of them, “What would it take for you to publish these games on 360?” Finally, the executives could wait no longer, and both Take-Two/Rockstar and Ubisoft cut deals to make their games available on Xbox 360 as well as PS3. None of the 3rd party executives we spoke with would address the matter directly. One source, who asked for anonymity because of the sensitive nature of these negotiations, says “I do have to give Microsoft a lot of credit for going after titles and doing whatever they can to generate third-party support. They've been magnificent in this generation.”
SCEA executives were no more eager to address these charges head-on. “I don't want to get into confidential discussions with another company,” says Tretton, “but there was interest on Take-Two's part to bring Grand Theft Auto onto Xbox platforms. We wouldn't encourage them to do that. The interest came from them.”
When asked whether Sony's resurgent strength as a console games publisher was pushing the company to shun exclusives, Tretton denied it. “We're the only company in this industry that's got development resources and talent that have established Number one hits on all three continents,” he says, which is true, since the bulk of Microsoft's studios are in North America and Europe, while Nintendo's are concentrated in Japan.” We really feel like we're well positioned to contribute platform-defining games from a first-party standpoint, and we're not dependent on third-party community to the degree that a Microsoft would be. That being said, you would be crazy to say that you would never entertain or not welcome exclusives. It's just a question of how deep into your pockets do you have to reach to secure that? Desperation breeds deep pockets. Confidence breeds the opposite. When it makes sense, you do the deal. When it doesn't, you pass.”
Linear Mode
