No, I am not mistaken; I feel, beating within my chest, an
objective heart. How, then, does it happen that I find myself so often in
opposition to those who proclaim themselves the exclusive representatives of
objectiveness?
Yet we must understand one another. Has ‘objectiveness’ two
opposite meanings?
For my part, the gulf is created by those who define
objectiveness by Context of Industry and others who define objectiveness
by Context of History. If one sees the world through the prism of
‘Industry’, one sees three consoles standing before us and says, “Quiet you, we
must gauge the three systems’ shadows equally and fully without putting one
above the other.”
It is as if, walking alone, a crowd of protestors appeared
and surrounded me. Carrying torches and pitchforks, each issues a complaint:
“Why do you worship Nintendo so?”
“Are you a viral marketer?”
“Stop being a tool for a huge corporation!”
“Don’t be so biased against Sony and Microsoft!”
“Who are you to not bow in the brilliance of our analyst
overlords?”
“Why do you mock so freely?”
“You babble nothing but just marketing.”
Gentlemen, you surprise me! You say you want discussion but
then attack people who say different things than you. You say you desire insight
but then dismiss it as mere ‘marketing’ talk. You say you want to read something
different but then result to ad honinem since character assassination is
easier than thinking.
No, don’t look away like that. You said you wanted a
revolution! And now when seeing a true gaming revolution, you guys want to
stop it so it doesn’t interfere with ‘the old way’. Hypocrites! All of you!
Hypocrites!
Taking one of the torches, I waved it in front of the
mob’s faces.
The first game designers carried the torch and passed it on
from generation to generation. But you no longer want to carry the torch any
further. No. You want to just sit in one place and make the flame bigger,
brighter, and more beautiful.
“It is our way,” cried one in the crowd.
Another: “Walking in the dark carrying the torch may light
new paths we have never considered, but it is risky. One wrong step and one of
us might fall off a cliff!”
“You must consider that we have explored the lows and highs
of the gaming world. All there is left is to refine, beautify, and unite to make
bigger towers of existing genres.”
What are you, mob? You do not represent the spirit of the
early gaming designers. You do not even represent gamers.
“We are The Industry.”
Ahh, that explains it. And you say that I am a menace.
“The worst of any kind. You utter things that no one would
say in The Industry. You are arrogant, mocking, and are not accountable for your
words.”
‘Wilt thou whip thine own faults in other men?’ proclaimed
Shakespeare in Timon of Athens. Your words are like lashes but who
exactly are you lashing? Come, mob, and follow the torch.
I walked up the hill and the crowd followed.
Now, at the top of this hill, what do you see?
“The mother tree…”
“…that represents all of gaming.”
Look closer. What do you see?
“How big it is!” quivered one fellow.
“Look how large its money fruit is!” excitedly said
another.
“It is magnificent!” they said together.
It is dying, gentlemen.
“Nonsense!”
“You speak Nintendo propaganda!”
“The tree has never been healthier! Look how much prettier
the leaves are compared to last generation.”
Yes, but dying trees still sprout new leaves every spring.
In everything to do with life, most directions do not change until there is a
considerable amount of pain. The difference between a bad analyst, as well as a
bad investor, is that the bad analyst confines himself to the visible
market; the good analyst takes into account the market that can be seen and
those markets that must be foreseen.
Yet this difference is tremendous; for it almost always
happens that when the immediate consequence is favorable, the later consequences
are disastrous, and vice versa. When it follows that the bad investor pursues a
small present profit that will be followed by a great loss to come, while the
good investor pursues a great profit to come, at the risk of a small present
loss.
The same thing, of course, is true of health and morals.
Often, the sweeter the first fruit of a habit, the more bitter are its later
fruits: for example, debauchery, sloth, prodigality. When an industry is
impressed by the market that is seen and has not yet learned to discern
the markets that are not seen, The Industry indulges in deplorable
habits, not only through natural inclination, but deliberately.
This explains The Industry’s painful evolution. Ignorance
surrounds it at the cradle; therefore, The Industry regulated its acts according
to their first consequences, the only ones that, in its infancy, it can see. It
is only after a long time that it can learn to take account of others. Two very
different masters teach this lesson: experience and foresight. Experience
teaches efficaciously but brutally. It instructs The Industry in all the effects
of an act by making it feel them, and The Industry cannot fail to learn
eventually, from having been burned itself. The Atari Crash was one such burn
that The Industry learned not to ever experience again.
After being burned by the rude teacher of experience, the
subject then tries to replace it with a gentler teacher: foresight. While
there are many differences between Sony, Microsoft, and Sony, the biggest is
that Nintendo knows the experience of an industry crash.
“Oh no, not this again.”
“Please, someone stop him.”
“We must save our ears from this ‘crashing industry’ talk.”
Are you so dazzled that the leaves from the Gaming Tree are
now high definition? Old timers, the ones you no longer care about, have noted
that each passing year the new leaves are fewer and less intense. Youngsters see
only the gigantic trunk, the bright green colors, and do not understand the old
timer shaking his head sadly. New games come out all the time but, like
photocopying a copy, their surprise and energy is fading. Make no mistake, that
tree is dying.
“Then explain our growing revenue.”
I note you did not say growing profitability. Every product
on the market, from the handhelds to the consoles, is more expensive than their
predecessors.
“Then why do analysts say we keep growing?”
Who wants to invest in a stagnant or shrinking market? It
is easier to attract investors and capital when a market is perceived to be
growing by leaps and bounds.
“But hundred millions of Playstation 2s have been sold!
Mainstream success!”
Sony’s system is the first globally dominating system.
Global mentality didn’t really exist in the 80s, do not forget. But in the
markets it has been in, the success has been no different than in previous
generations.
“But look at those rising sales!”
Look at that rising population growth. And you also forgot
to consider multiple console ownership.
“Lies!”
If it were lies, then the Playstation 3 would be the best
selling system, and the Wii would be in stock. The tree is dying but, for the
most part, has remained stagnant.
“That is enough.”
Oh Industry, do not forget, that video games are only one
form of interactive entertainment. New forms of interactive entertainment will
appear and would eventually choke off the Gaming Tree. What appears as
inconsequential vines can gather and choke. It is not that gaming is dying,
though it might as well be since it isn’t growing. The problem is that something
else will come out and could replace gaming.
Many Contexts
Bad analysis is like a swimmer jumping, laughing, and
splashing in the shallow end of the beach. As bad analysis flows freely on
message boards, like mental diarrhea, and strangely somehow gets slurped up to
appear in some journalist articles, the creators of bad analysis consider
themselves dressed in the robes of Wisdom herself. They do not realize they are
engaging in Retard Rodeo. However, a good analysis is like a swimmer going out
to the sea and diving to and from the depths. The bad analysis may attempt to
follow but only end up drowning in the deeper waters.
Bad analysis is concerned only with content. It is someone
saying that console A has these features and console B has those features that
console A has these games and console B has those games.
Good analysis is concerned only with context. The Blue
Ocean Strategy, for example, is a very different context than the context in
which Sony or Microsoft think. Even Sony and Microsoft share different contexts
in how they view their products. To pursue content is to merely be educated, but
to pursue context is to become wise. Those who only see content will craft their
analysis in such a way to glitter like a shiny cut stone, that doesn’t
illuminate anything, but lets the person sparkle. Those who only see context
will have their analysis reflect like a mirror, that reveals much, but the
person isn’t felt.
The problem with thinking in terms of content is how
limiting it is. It perceives objectiveness only on one plane while context
considers all planes (especially as they intersect into one another).
Stealing from Kiyasoki’s Cashflow Quadrant, I have
devised a quadrant that displays the contexts for console analysis.
C | P
_____
J | I
C = Consumer
J = Journalist
P = Publisher
I = Investor
Let us examine these in greater detail.
Consumer Context
Consumers include current gamers and non-gamers. It
includes anyone who purchases and consumes the game products.
On a purely content perspective, consumers perceive
objectivity as what each system offers for fun versus its costs and hassles.
The Consumer Context is attracted to fun. Often,
consumers will buy a game the reviewers hate. There is something about that
product that makes it ‘fun’ to the consumer in some way. Consumers do not take
gaming seriously and do not view the products as ‘art’. They lean to whatever
amuses.
Journalist Context
Journalists include our merry band of reviewers, reporters,
and recorders as well as those few readers who are on the Internet all day
absorbing all the details. A best way to describe this journalist context would
be industry observers (consumer context does not keep up with the ‘industry’).
While the other two contexts observe as well, they are active movers and
shapers. Journalists, despite thinking they are, do not move the industry. They,
like consumers, are still outside it.
On a purely content perspective, journalists perceive
objectivity in giving each of the three systems equal attitudes or, rather,
non-attitudes. Therefore, when someone has an attitude about a system, the
person is sneered at as a ‘fanboy’. If the person writes well, he is condemned
as ‘viral marketer’. This is why you won’t see journalists have ‘attitudes’.
However, they will reserve all their ‘attitude’ angst for proclaiming what is
and what isn’t ‘art’ in video-games. If the game matches their metric of ‘art’,
then the journalists get together and tell everyone to buy the game (despite it
being fun or not). If a game does not match their metric of ‘art’, they will
sneer it (even if it is fun).
The Journalist Context is attracted to conflict.
Consider a journalist (enthusiast or mainstream) interviewing a talking head of
a console company. They will zero in on the conflict and, if there isn’t any,
will generate it. When they talk to Sony, they ask, “Hey, your system isn’t
selling well! Your competitors are beating you! What are you going to do?” When
they talk to Microsoft, they ask, “Say, what is with all this talk of your
system failing?” Microsoft would deny it. But after Microsoft announced the
three year warranty and confessed to the design flaw, they thought this would
resolve the matter. They obviously don’t know journalists whose primary interest
is finding conflict. N’gai Croal said Microsoft should recall their Xbox 360s.
Other journalists keep scratching for they have no interest in letting a good
conflict like Xbox 360 system failure go away. As for Nintendo, remember the Wii
strap problem? Reporter: “Mr. Reggie, people are injuring themselves! Look at
this bloody hand! And look how it smacked the dog! Is your system killing
kittens!?” But after that, the template for finding conflict with Nintendo
was, “What about the hardcore gamers? Is Wii leaving them behind?” Always
remember that the news is not what happens. News is packaged, marketed, and sold
like any other product. Every writer knows that stories require conflict so, in
order to write stories, journalists (of any industry) gravitate towards conflict
and, if biased, generate it.
Publisher Context
Publishers are the decision makers who, like a digital
Caesar, give thumbs up or down on new projects and can kill current projects.
They decide when a game will ship, if a game will go multi-platform, or if a
game will remain exclusive. They set the budgets to the games and decide whether
to risk or not.
For the Publisher Context, I will throw in the developers
as well. Whether they are grinding away burning the midnight oil to meet a
deadline or have time to come up with something creative depends largely on the
publisher.
Publishers, naturally, want leverage over the platform
holders (rather than the platform holder having leverage over them). They want a
competitive market where one system doesn’t clearly dominate. Naturally, they
believe everything revolves around third parties. And, just as naturally, they
want their chance to shine. Best seller lists are meaningless since profit
matters more. But everyone wants their ‘baby’, their game to be on the best
seller’s list. When they complain that “Only Nintendo games sell on Nintendo’s
systems”, what they are saying is that on a Nintendo system is not that their
game won’t sell. It won’t be in the best seller’s list for the platform (which
is dominated by Nintendo). (The book industry was so annoyed that “Harry Potter”
books dominated the New York Times best selling lists that they made a new
children’s books list to exile the “Harry Potter” books. Ever notice how
frequently the ‘weeks’ on the best seller list is listed on book covers despite
the low sales of the book industry in general? That best seller list has become
a trophy. The point is that game publishers have a similar desire for that
trophy.)
From the Content Perspective, publishers are platform
agnostic. Whatever system has the high install base will be where they
concentrate their efforts.
The Publisher Context is attracted to profit. Large
installed base means increased profits. Cheap development cost mean increased
profits. Moneyhats to keep a game exclusive can mean increased profits.
Investor Context
Investors do not invest in companies. Rather, investors
invest in the people inside those companies. These are the real movers and
shakers. They are all financially free. Those who think that just because you
have stock or have 401k makes you an investor, well you aren’t. If you have a
job, you’re not an investor. In fact, investors joke that job stands for “just
over broke”.
Investors are funny people. They like to keep themselves
invisible to the public eye while controlling their industries. Take a look
right now at all the products around you. Or on your next drive, look at every
shop you pass. All of these products and stores had someone invest in them.
From the Content Perspective, investors will view the
systems clearest in terms of winning or losing. If it helps their brand and
shows improvement from previous generation along with profits, they consider it
winning. If it goes backwards, well, they do not.
The Investor Context is attracted to trends. When
the Wii took off, publishers got a call with investors on the other end saying,
“What are you guys doing about the Wii!?” One of the jobs for the analyst is to
isolate the trends for the investors. One of the reasons why so much analysis
revolves around technology is because that is the easiest to see trends.
Collisions between the Contexts
The Consumer Context will play favorites with the consoles.
They will say, “I like this console the best. It has the most entertaining
experiences.” The Journalist Context will disagree (as they cannot afford to
play favorites). The Publisher Context will also disagree as their priority is
profit so they must remain console agnostic.
Another collision is the concept of art in video games.
Journalist Context bottles their attitudes to pour it on what they perceive to
be artistic video games. They will put up special feature stories just because
they perceive the game has a high art value. The Consumer Context will only care
if the game is fun (which results in many of these ‘artistic’ games bombing in
the market). Publishers only care what sells, and Investors care to see what
will sell in the future. A past example of this would be the universal
journalist praise for Prince of Persia: The Sands of Time. The Video Game
Critic, aka Dave (videogamecritic.net) memorably reviewed the game by saying,
“Either some Ubisoft marketing hottie has been sleeping with all the reviewers
(except me, alas), or paying them under the table to write favorable reviews for
their games (more likely). Well, it's time somebody set the record straight on
the horrendously overrated Prince of Persia. Don't get me wrong, technically the
Sands of Time is beyond reproach, with seamless graphics, fluid animation fluid,
flawless sound, and controls far more forgiving than most platform games. But
unlike most other critics, I judge games in terms of how enjoyable they
are to play (I'm funny that way). Prince of Persia feels like the most perfectly
programmed mediocre game there ever was.” When games come out that do not focus
on ‘art’ such as Wii Sports, journalists will be confused by the game.
Consumers are not confused and perceive it as one of the finest video games
ever. Publishers interpret it that new cash cow, complete with bells, has
appeared at the slaughter house named “Casual Gaming”. Investors interpret it as
a trend to influence all of gaming.
Have you ever read a game review and realized that the
reviewer is not talking to the consumer but with the publisher? Do you remember
the different reactions the announcement of the PS3 price got at E3 2006?
(Investors, Journalists, and Publishers remained optimistic while Consumers
said, “Hell no!”) Think of how the different contexts collided with the Wii
itself. Consumers flocked to it while journalists and publishers remained
stunned. Investors who foresaw this by jumping on Nintendo became wealthy.
Where do analysts fit into all this? They are supposed to
be on the outside observing all the contexts. An analyst will speak to each
context differently. To investors, analysts will offer over-expensive reports.
To journalists, analysts offer analogies and ‘gut feeling’ quotes. To consumers,
analysts often offer arrogance. It is best to think of objectivity in terms of
context. A journalist’s definition of objectivity is different than a
consumer’s. And both of those definitions of objectivity are different to the
investor or publisher context.
The Court of the Industry
A theater appears, and Malstrom beckons the readers to
take their seats.
“Welcome, friends! I have heard that guilty creatures
sitting at a play have, by the very cunning of the scene, been struck so to the
soul that they see their own malefactions. For the past, though it has no
tongue, will speak through the inky puppets I have placed on this stage. They
will represent The Industry, adopt their boisterous poses, and sit in a setting
I have placed from the mothballs of history: the Royal Courts of the 15th
Century. What you shall see is Iwata walk in, make his pitch about a new world
to gain riches, and The Industry laughing at him.”
“What!” cried a reader. “Is there no offense in this? Shall
you turn our beloved analysts and industry figures into sock puppets for your
amusement?”
“Goodly sir, they are already sock puppets. What should it
matter if, in my own article, I decide to hold the strings for one moment? Fear
not, for I will not be putting words into their mouths as they routinely put
words into consumers’ mouths. Everything a known figure says is an actual
quote and referenced below.”
“But can’t you make your own content? Why steal their words?"
“But sir, to quote one is plagiarism, but to quote many is
research. Now, any more complaints?”
“I desire popcorn.”
“Don’t we all? All right, stage hands! Dim the lights!
Start the show!”
The lights brightened and The Industry sat on thrones of
gold. Journalists juggled The Industry’s burps and passing of gas while
entertaining the nobles and peasants for they are The Industry’s jesters. As the
Seventh Generation started, talk began but around one game: World of Warcraft.
Pachter had the loudest voice. “Warcraft is so good
and so good-looking that it got this immediate attraction; everybody who would
ever consider playing an online game said, 'This is the one. I gotta try it.'
And what'll happen is inevitably, like the health club model, after you pay your
30 bucks a month for 3 or 4 months and you only go once a week, you realize it's
not worth it and you split. That's what will happen with Warcraft ... I think
it's going to roll back to a million. I'm not predicting it's going to happen in
three weeks; I'd guess it has a half-life of 6 months to a year.”
A journalistic jester spoke up, “Can you elaborate,
Pachter? You are the fluff of my stories.”
Pachter continued: “I don't think there are four
million people in the world who really want to play online games every month.
World of Warcraft is such an exception. I frankly think it's the buzz factor,
and eventually it will come back to the mean, maybe a million subscribers. It
may continue to grow in China but not in Europe or the U.S. We don't need the
imaginary outlet to feel a sense of accomplishment here. It just doesn't work in
the U.S. It just doesn't make any sense." (1) “At the end of the day, we don’t
play games for social interaction … We play games to escape.”
Soon, the discussion in The Industry began to buzz about
the upcoming seventh generation of game consoles.
“Strategy Analytics, what do you have to say about the
market?”
“Microsoft's head start will give them the market share
lead through 2007, but Sony will win in the long run with almost 60 percent of
the market by 2012. Sony's 121.8 million PS3s will dwarf Microsoft's 59.7
million Xbox 360s in this console generation.”
A journalist asks, “What of Nintendo?”
Everyone in The Industry laughed. “The Nintendo Wii is
almost a non-factor. It will only have 23.3 million units sold through 2012.”
(2)
UBS analyst Michael Wallace joined the discussion.
“Nintendo’s Revolution will be its last console; it's a two-horse race right
now." (3)
Everyone in The Industry nodded. Daiwa’s Maeba said, “PS3
will likely hold the top share in the next-generation console war, but the lack
of launch titles are one of the factors that may affect its sales in 2006. The
Blu-ray drive won’t be as strong a sales point as the PlayStation 2’s DVD drive
though. The PS3 will be priced around $343 and, at the highest, the Revolution
will be priced $250. When The PS3 comes out, Microsoft will have dropped the
price on the Xbox 360.”
Mefibaugh agreed. “The PlayStation 3 will have half of the
market in the worldwide console war by the end of 2006, followed by the Xbox 360
at 30 percent, and the Revolution at 20 percent.” (4)
A group of robed figures hopped up on stage and began
swaying as they chanted:
“Every analyst has a mouth;
“an arrangement rather neat.
“Sometimes it is filled with wisdom,
“other times it is filled with feet!”
“Who are they!?” demanded a reader.
“Why,” I replied, “they are the Chorus. Sway, Chorus,
and continue your chanting.”
“Between two reps, which flies the higher trope,
“Between two discs, which hath the deeper bit,
“Between two screens, which bears the better pixel,
“Between two marines, which doth the most bald,
“Between two games, which hath the more mature blood,
“We have perhaps some shallow spirit of judgment;
“But in these swells and breaks of market’s wave,
“Good faith, their words mark their coming watery grave.”
A journalist asked, “But what of The Industry in the East?
What does Nomura Securities have to say?”
Yuta Sakurai stood up, nodded, and said, “The PS3 will sell
71 million units by 2011 compared to an estimated 40 million units for Wii.
Hardcore gamers will probably prefer the raw power of PS3. And for all the
positive vibes right now, the Wii isn’t expected to outsell the PS3.” (5)
“What are your views on this, Michael Pachter?”
Pachter stood up, opened his mouth, and stuff fell out.
“PS3 will command the greatest market share for the next generation. But this
console cycle will be a dead heat, and each manufacturer will have sufficient
market share to generate significant profits.”
“Really?”
Pachter nodded. “Notwithstanding the efforts of the three
console manufacturers to deliver compelling exclusive content, we expect the
ultimate outcome of the console wars to be decided by the motion picture
studios. Should the studios embrace Sony’s Blu-ray standard for
high-definition DVDs, we think Sony will gain an insurmountable advantage over
Microsoft; should the studios embrace Sony rival Toshiba’s HD-DVD format, we
think that Microsoft can maintain its first mover advantage and will dominate
software sales for years to come.”
The Industry whispered and buzzed among each other. “Oh
that Pachter!” one gasped. “He is so wise!” orgasms another. “Oh, keep talking
Pachter! Tell us more!”
Pachter continued, “We expect the dominant console at the
end of the next cycle to be Sony PlayStation 3, primarily due to our assessment
that Sony will win the high definition DVD format war. Ultimately, we see Sony
winning the console war with 36% of the market, with Nintendo capturing second
place at 34% and Microsoft finishing third at 30%. These estimates do not
include market shares in Japan, which we expect to be dominated by Nintendo (51%
through 2011) and Sony (44%).” (6)
“And you, Research And Markets?”
The think tank spoke, “The Sony PlayStation 3 is expected
to win the console war in the long term with an install base of around 75
million globally by 2010. The console is not expected to dominate as much as its
predecessor, the PS2, due to late launch issues in the PAL region and the early
lead of Microsofts Xbox 360.” (7)
The Chorus began swaying, left and right, and chanted:
“You wonder what they drink,
“As such nonsense does begin,
“They stop to think
“and forget to start again!”
“But what about the success of the DS Lite?” asked a
curious journalist.
"I did not expect the DS Lite to be a phenomenon that it
is," Pachter conceded. "I thought that it would be like a replacement device, as
opposed to something people thought was really cool. Much like the Game Boy
Micro was just a replacement device, and never really did much. ... It's not
that much different. I mean, I guess I need to take a tape measurer out and
measure it. ... I don't even know how much less it weighs. It's not that much of
a difference. Yes, it does fit in your pocket. ... They took it from being a
little bulky to checkbook-size."
Pachter was flabbergasted by the success of the DS Lite. "It shocked me, when
[the NPD] said the numbers. I was shocked at what the sell-through was two
months in a row. ... But I just... I don't know. I mean I was shocked that it
sold essentially a million units in two months. So, that alone is responsible
for my increase in forecasts on the DS,” (8)
“But don’t you think things are bad to horrible for Sony
with that conference at E3 2006?”
Pachter replied: "I can't really recall seeing anything
that was 'bad' or 'unfortunate,' except for the booth babe ban...”
Everyone in The Industry burst out laughing. “Oh, that Pachter!” “He should be a
comedian!” “So hilarious!”
"I don't think things are bad for Sony at all. The press really got this
wrong: The 'cheap' version of the PS3 has the same 20GB hard drive and same
component HD cable connectors as the 'expensive' Xbox 360. For $499, consumers
get something that is essentially comparable to the Xbox 360 plus the
ability to play HD movies. We'll see if Toshiba offers a peripheral this
Christmas that is cheaper than it's lowest priced HD-DVD player
(currently $429) out of affection for Microsoft. I sincerely doubt it.”
A reader commented, “It sounds like Pachter has faith in Sony.”
“Shhh,” I told him. “Let us listen to Pachter talk about his mommy.”
“My mom now knows that Sony is launching a console, and she knew about the
360 last year. She would not have known but for the hype surrounding E3." (9)
The journalist turned toward Business Week. “What do you
make of this generation?”
The droid representing Business Week turned and spoke,
“Investors like Nintendo's chances. The company's stock is up 74% since April,
and its quarterly results released in July were robust thanks to the DS. For the
three months through June, Nintendo's sales rocketed 85%, to $1.1 billion, while
operating profit increased almost eightfold, to $248 million. A weak yen helped,
but a tripling of DS sales to 4.54 million units was the biggest factor behind
the better-than-expected results.
“Few expect truly dedicated gamers to
choose the Wii over the PS3 or Xbox. And ultimately, the advantage may go to
Sony. Yuta Sakurai, an analyst at Nomura Securities in Tokyo, expects the PS3 to
sell 71 million units by 2011, compared with 40 million units for the Wii.
Microsoft, meanwhile, is planning a stripped-down version of the Xbox without a
hard-disk drive and other accessories that will cost about $250 in Japan, where
the U.S. software maker has endured disappointing results. There's also a
danger that the Wii could cannibalize sales of the DS,
which has been a smash hit with casual gamers thanks to its user-friendly design
and titles such as New Super Mario Bros., Nintendogs,
and the Brain Training for Adults series.” (10)
A journalist ran in. “Everyone rise! He is coming!”
The reader elbowed me in the ribs. “Who is he talking
about, Malstrom?”
“The only smart analyst...”
“It is Sir Dreadlocks!” they exclaimed.
N’Gai Croal did his charming smile, and everyone threw
questions at him. Eventually, he held up his hands and answered:
“The Wii will likely dominate,” he began. “In Japan,
publishers like Konami are even more bullish. ‘I would use the dominance of the
DS in Japan to predict the future for Wii, since the vision for Wii is similar,’
says Michihiro Ishizuka, president of the company's game division. Okasan
Securities analyst Masashi Morita believes that in addition to capturing
nongamers, Nintendo can even win back some of its lapsed fans with the Wii's
built-in support for the company's vast library of classics.” (11)
“What do you say to that, David Cole?”
David Cole laughed and replied, “Despite its reputation for
being old school, Nintendo has quietly been one of the most innovative major
game companies in recent years. The new Revolution controller definitely fits
the innovative bill. My 13-year old son really got his interest aroused, he
said ‘this is crazy, they are using a remote control to play games.’ We will
have to reserve full judgment until it is tested with actual games. However,
the concern with something new like this is that it will appeal mainly to an
enthusiast crowd and alienate the mass market who can be very reluctant to
change their comfortable game playing habits.” (12)
“Now listen to this,” I told the audience. “The
following quote is from May of 2007!”
“And what do you think, Analyst Van Baker of Gartner Inc.?”
“The Wii’s appeal is primarily to casual gamers, and
there's a serious question about how long casual gamers will stay engaged with
the platform. It wouldn't be surprising to see them lose interest after a
relatively short amount of time.
“…The Wii in a couple of years is going to look like old technology with low
resolution, slow performance. People may not be accepting of that.” (13)
“And now,” I told the audience, “one of my favorites!”
Anita Frazier, industry analyst, of the NPD Group stood up
and protested too much:
"Price is definitely a factor, but not as much as is content. I've long been
a believer that it isn't any particular technical capability that will win this
next console battle. The story continues to be content."
“What means this, author?” asked a reader.
“Stick analysts in the same room and, behold, as each strives to be seen
as the smartest.”
“You and your stick figures do import your arguments.”
"You shall know by this: the players cannot keep counsel; they'll tell all."
“Will they tell us what this show means?”
“Oh yes, or any show that you’ll show them. Do not be ashamed to show,
they’ll not shame to tell you what it means."
“Sigh. I prefer the chorus to your mutterings. I will listen to the play.”
“Interestingly, at 68 percent, backwards compatibility was listed as the
second most important factor. This could be a disadvantage for Microsoft's Xbox
360, which only features limited compatibility with certain original Xbox
titles. The PlayStation 3, however, can play most of Sony's back catalogue of
PS1 and PS2 titles. And Nintendo's Wii will play GameCube games in addition to
games from older Nintendo systems, if downloaded via the Wii's Virtual Console.
"What I gleaned from the feature section is that 'has the games I want to
buy' and 'backward compatibility' were both very important, which again
indicates that GAME content is at the center of consideration for system
purchase. All the other bells and whistles might be icing on the cake, but the
industry cannot lose sight on the fact that compelling games are what drives
sales. So, yes, with that feature being very important, to the extent that any
of the three systems has challenges in the content area, that could definitely
impact the next-gen race."
“Poor lass!” I let out. “Is content the secret to this generation or
context?”
A journalist stood up and unfurled a long scroll that rolled down the floor.
Clearing his throat, he began:
“This is the NPD report! The report also found that males and those under age
35 appear to be the most passionate about the overall features of the next
generation systems. Heavy Gamers, as classified in the NPD's Gamer Segmentation
report—those who spend the most time and money on video games—‘are more likely
than all other segments to emphasize the importance of these systems having
appealing game titles, backward compatibility, wireless controllers, Wi-Fi
capability, and the ability to play online.’
While the PS3 was tops for people looking to buy just one new console, among
the Heavy Gamer segment the Wii garnered slightly more purchase interest than
Sony's platform (79 percent vs. 70 percent). We made the assumption that perhaps
this was driven by price, since Wii is the least expensive and these gamers are
already spending more than anyone else.”
Frazier disagreed with that conclusion as she interrupted the reading of the
NPD report. "Again, I think it's about content. Keep in mind that our
segmentation study revealed that a good portion of heavy gamers are kids &
teens. Nintendo has some great proprietary content that is attractive to and
suitable for these heavy gamers that aren't necessarily playing 'mature
content.' So I think it's less about price for the heavy gamer group, and quite
a bit about the great games (e.g. Zelda) that these heavy gamers enjoy
playing." (14)
“So why did you include that quote, Malstrom?”
“NPD analyst says content will define the winner. All
hardcore gamers and analysts afterward disagree and will keep saying, ‘Price!
Price!’”
“Tell us what you think, President of Enterbrain (which
publishes Famitsu).”
"I believe there will be big sales (for the Wii)
from the very beginning. I feel this growth will slow a little from the third
year, but altogether the sales will exceed 10m units," he said. (The figures are
based on an Enterbrain survey of 2500 people in Japan.)
"The impressive feature with the PlayStation
3 is the outstanding graphics and outstanding price," he said.
Hiroshi Kamide, director of the research
department at KBC Securities Japan, jumped in to say, "Nintendo has not had a
successful machine for the last 10 years, so for us analysts it is quite
difficult to imagine a scenario where Nintendo is actually going to win. But
for me right now, especially in Japan at least, Nintendo does seem to have the
upper hand." (15)
A journalist stood up in the middle of the room and said, “It is concluded.
If the Wii is successful, it would be like an aberration. The future will be the
PS3 and Xbox 360. To the analysts, it was not a matter of if, only a matter of
time.”
Suddenly, the room was invaded by Yankees. “We are the Yankee Group of
analysts,” they said. “The Yankee Group predicts that the PS3 will capture 44
percent of cumulative console sales in North America by 2011, with 30 million
units sold. Microsoft is expected to sell nearly 27 million units, taking up 40
percent of the market, while the Wii is forecasted to sell a little over 11
million units, accounting for just 16 percent of the market.”
The firm also was excited over the growing relevance of digital distribution
through next generation consoles. Yankee analyst Michael Goodman commented,
"With a growing installed base of connected consoles, content owners are
beginning to recognize the potential video game consoles offer as a distribution
channel. Additionally, these platforms will serve as a strong medium for
advertising, validating the growing market for in-game and around game
advertising."
The Industry bubbled with anticipation over the upcoming ‘next gen’ systems
(not the Wii). They were excited over in-game advertising, of HD displays, of
Blu-Ray and HD-DVD discs, digital distribution, and online fees.
As the Industry buzzed, the Chorus hopped on the stage to say:
“How far their plans may pierce we cannot tell;
”Striving to better, they do hurt what's well.”
Ed Barton finally stood up and said,
“PS2-style dominance will not be repeated in the next generation hardware
market: we anticipate that competition will be far more intense with market
shares split on a territorial basis. PS3 will have the dominant market share in
2010 with Wii in a distant third.”
A screen appeared behind him and his graph appeared.
“Keep in mind, reader,” I whispered, “that this report and graph appeared
in February of 2007!”
Click, dear reader, oh click and have a LOL.
A journalist asked, “Don’t you think the Wii will do better than that?”
“Listen reader as the great analyst does his work!”
“We cannot forecast the Wii. I think that the non-gaming
story is potentially an exciting one, and that the comparison to the GameCube is
an instructive one, in that the GameCube also started incredibly well, but you
have to take a view of what's happening more than a few months out of the
starting gates.
"As market forecasters," Barton admitted, "it's very hard to take a view on a
new strategy which is effectively what Nintendo are executing with the Wii.”
“O God! These analysts are flim-flam men. What good are
they if they cannot take in new strategies? An analysis for a rearview mirror!”
“You are too hard on them for none could account for
such Wii success.”
“Too hard? Their job is to think and become Cassandras
with graphs. It would be honest if they said, ‘Ouch, that Wii, for Nintendo has
suddenly made us have to work for once in our lives. No longer can we sit like
truffles on a stump, drawing charts, and keep saying, ‘Sony wins!’’. Is there no
offense in it?”
“How do you mean?”
“They aren’t even trying. They just say, ‘We cannot
analyze one third of the entrants!’ Good job, I don’t think that is what people
are paying them… to declare their ignorance.”
“But you must admit that is not often.”
“A wise reader! We should note Barton’s feint for
prosperity. We may be old men before we note another analyst proclaim they
cannot analyze something.”
"But we need to see publisher support going forward," he
added, "and over 2007, going into 2008, maybe there'll be various tipping points
with publisher support on various big exclusives. We've already seen things like
Dragon Quest going exclusive on the DS, but if we see those kind of
tipping points on the Wii, we'll have to amend our view, clearly. But at
the moment, this is the view we're taking."
“I wish I could amend my school tests as analysts do
their reports! Even when they are wrong, they will re-write themselves being
right!”
“It is their way.”
“Then who is the fool? The analyst for being making
graphs of market’s hiccups and sneezes, us for listening to them, the journalist
for putting them in their stories, or those who fork over money to have the
‘analysis’?”
“I believe it would be those parted from their money.”
“And the wise would be the market that did the opposite
of what the Industry expected? But why did the market reject the Industry’s
grand plans?”
As if on cue, the Chorus swayed and chanted:
“How quickly markets fall into revolt
“When control becomes an object!
“For this the foolish overcareful industry
“Have broke their dreams with deadlines, their hopes with hell.
“Their imagination with technology.
“For this they have engrossed and piled up
“The cankered heaps of strange-achieved gold;
“For this they have been thoughtful to invest
“Their future for fluff:
the Fools' Paradise.”
The reader pulled out a gun and shot the Chorus dead. “Enough of that!”
I saw the gun. “A Smith and Wesson: the original point and click
interface! Now, let us end this farcical play.”
A journalist appeared before Bill Gates. “Do you wish Microsoft had come up
with the idea for the Nintendo Revolution controller?”
Microsoft fans threw themselves at the stage chanting, “Sidewinder!
Sidewinder!” only to have security throw them out.
Bill Gates answered the question. “Uh...no. [Laughs] We'll
watch and see. Holding two different things like that? Anyway, Nintendo...you've
got to give it to them. They march to the beat of a different drummer. Sometimes
that makes them incredibly right and sometimes that makes them incredibly wrong.
They're certainly making a very different bet in terms of how much they're
putting into the graphics this time. I do think there is a question as to
whether they can get outside the young age bracket at all. That's been tough for
them.” (18)
It was then that Pachter stood up and made a declaration.
“Consumers may hope for improved graphics, and my guess is that Nintendo will
comply. In two or three years, commodity prices for graphics processors and CPUs
may decline to the point that a High Definition Wii could be introduced. If so,
Nintendo will likely introduce one." (19)
The Industry could not contain their screams of pleasure.
“Enchanting!” “How wise!” “So insightful!” Pachter’s words and face begin to
multiply and appear everywhere as every journalist quoted him.
But one journalist had enough. “Why are we listening to
this guy? He is an idiot!”
The Industry was shocked. How could someone say such a
thing?
The journalist explained himself: “Here's a guy who really
should only be talking to the money people in the world. And yet Kotaku’s
quoted him 17 times in the last couple of months. As if gamers care about
investing in stock. Sheesh, there’re games to play! Thing is, there are dozens
of interesting analysts out there. (Like Billy Pidgeon.) And Pachter’s
suggestions can be specious. He wants people to buy stock in Electronic Arts
when the thing’s trading 204 times earnings. That’s just crazy.
“I’m sick of seeing Pachter quoted in Kotaku. Maybe if Pachter is quiet for
a while, I’ll feel differently. But since he’s so loud-mouthed and so
ubiquitous, especially on Kotaku, he’s the VH1 Game Break Idiot of the Week.”
“Oh my…” someone gasped.
“He dared criticize the One Who Must Not Be Criticized.”
“Don’t worry guys. He obviously doesn’t mean it. He just secretly wishes he
WAS Pachter and could have his job.”
“Yeah! That can be the only explanation. It’s not like anyone criticizes
Pachter because they believe he is wrong. They criticize him because of hidden
motives like jealousy and inferiority complexes.”
Pachter’s response was to grab a club and start pummeling the journalist into
submission.
“Howard, I'd speak to you if you called, too. If you have a problem with what
Kotaku prints, take it up with them. I think you're out of line attacking me
personally because Kotaku finds what I have to say interesting. Maybe if you had
something more interesting to say, you'd have as many readers as Kotaku . . .
At least they're not jerks.”
The journalist held his hands up to defend himself as Pachter kept swinging
at him. “Well, I have to say you're a jerk, too. You can't even read a blog and
get the writer's name right. An analyst should pay attention to detail.
Obviously, you don't.”
But Pachter kept swinging. “’Howard’ was a hybrid of "Harold" and "coward".
It was intended to be humorous. Obviously, the attempt at humor failed ;-) And
as a journalist, you should get your facts straight. I never called you a
jerk, you inferred that. On the other hand, you called me an idiot, a jerk,
and loud-mouthed. Please feel free to google my name and compare to the dozens
of other interesting analysts. I have never called a blogger or a journalist;
they call me. And somehow, by a ratio of something like 10:1, they find me
interesting. Of course, you're entitled to your opinion. I just find your ad
hominem invective tiresome, quite offensive, and out of line. Again, if you ever
want to speak, I'll take your call.”
As Pachter left the beaten body of the journalist, the journalist said, “I
don't converse to people who make the egregious number of mistakes that you do
in your prose. Those mistakes are indicative of a problem that's far greater and
far deeper than words.”
The readers whispers, “Hey Mal, why did you bold what you did?”
“The major influence on Pachter is not business but politics. He is a
political animal. Listen to how he uses a lawyer’s tongue. He claims he never
called him a jerk, yet he did. Only a political mind would make such a technical
legalistic differentiation. And, of course, he labels what the journalist said
as ‘opinion’ to easily dismiss it, saying he ‘found’ what the journalist to say
to be ‘ad hominem’ (as if Pachter didn’t go bonkers in his replies), and, my
favorite, the implying that the journalist really wants to get Pachter quotes.
If you check Pachter’s bio, sure enough, he went to law school and all.”
An investor nodded and said, “Hey guys. I'm an investor who has actually
spoken with many buy and sell side analysts including Mr. Pachter at one point.
In the video game investing world, we call him "Sideshow Pachter." The guy is
the absolute biggest moron in the industry with likely the worst track record.
That sentiment is shared by many company executives and his fellow analysts. In
the last few years, doing the exact opposite of what he said would have done you
better than actually following his advice. "Idiot" does not begin to describe
how those of us in the market feel about this guy! He is a shameless turd whose
only goal is being quoted by the clueless press.” (20)
The Industry discovered the beaten body of the journalist and gasped.
“Quickly!” one said. “Damage control time!” cried another. “Get Gametrailers to
do a special interview!” one said. “But wouldn’t it look obvious with just
Pachter there?” “Hmm. Put in another analyst, one that doesn’t specify in video
games. He won’t say much except just to praise Pachter as well.”
Now there was a dumb play within the dumb play!
“So Pachter,” said the journalist. “How do you go about your research?”
Pachter chuckled, laughed, and guffawed: “I spend three
hours everyday reviewing the message forums and blogs.”
“And companies like Microsoft don’t try to influence you?”
“It is like a puppy that is always trying to lick you. So
it is hard to be critical when they poop on the floor.”
“Ha. Ha. Ha. What an amazing analogy!” everyone laughed.
The Industry laughed too. A puppy analogy! So cute! Oh, that Pachter!
"I think twice before I say something bad about Microsoft," Pachter admitted.
"Even when I'm critical of something they’re doing I try to frame it in positive
terms."
“But what,” asked the journalist, “do you think of people saying you are wrong.”
Pachter laughed. “I predicted a price-drop for the Xbox 360. It eventually
had one.” (21)
The Industry gurgled in joy. “Behold his brilliance!” “Plus one for Pachter!”
“If we were were only as smart as he was!”
The lights faded and curtains fell.
“What the heck type of play was that?” asked the reader.
“Now you know how I feel. As screwed up that play is, it is nothing but
the reality of today’s Industry.”
The New Gaming Tree
When
journalists pressed Nintendo executives about the competition pre-Wii, they
always said, “We know the direction they are going.” The DS and Wii are
not so much designed to grow the market as they are to rescue the market from a
slow motioned crash.
Microsoft and Sony are draining the profitability from the industry. Such a
‘console war’ ends with the two dogs devouring one another except the tails. And
for what? To put living room entertainment under their control?
Ultima’s tribute to Final Fantasy, Ultima VII Part II, showed an
ancient war where two sides destroyed one another leaving only thousand year
ruins for the heroes to explore. In its expansion, the heroes could go back in
time and replant the dead World Tree before the total collapse of the warring
factions.
I hit the dead, hollow, but still beautiful Gaming Tree. Then I touched
the flowers and plants in the garden. They crumbled at the lightest touch, their
cheap paint on my hands. The scent of the garden stunk of decay.
Despite the new bloom, this generational tree is dead. It is not growing. It
was shrinking in Japan and beginning to in America. In the second part, you will
see how Yamauchi and Iwata foresaw the upcoming gaming crash and made moves to
prevent it. From their words, not mine, you will see how Nintendo foresaw
everything that happened… and cooperative investors were made fabulously wealthy
as a result. Nintendo bringing gaming back to the starting line was, in effect,
planting a ‘new’ Gaming Tree.
“That is the new Gaming Tree Iwata has planted?” grunted The Industry. “Look how
small it is! How will it ever compare to our majestic old tree?”
Reggie said at E3 2007 that a turning point was made. What he is referring to is
the growth of the new paradigm, the new plant, whose roots is running deeper and
deeper into new markets, appears as a sapling now but is fast growing. Soon, it
will grow around the old tree and absorb it into its being.
It is common now to believe that no one could predict the Wii and DS success,
not even Nintendo. Some executives, such as Reggie, have expressed how
‘surprised’ they were. But the Wii and DS explosions did not happen by accident.
They were deliberately planned, step by step, whose vision was realized as far
back as 2003. And contrary to our current egg-on-face analysts, in the next
article you will see why Iwata foresaw this “revolution”, how the DS hatched the Wii, and the secret beneath the waves of the Blue Ocean.
References
1) Pachter’s WoW Comments:
http://www.thenanotechnologygroup.or...88&PressID=405
2) Strategy Analytics says Wii a non-factor:
http://www.joystiq.com/2006/11/16/analyst-sony-to-win-big-in-long-run/
3) Wallace declares Revolution as Nintendo’s last console:
http://kotaku.com/gaming/console-wars/analyst-revolution-nintendos-last-console-138532.php
4) Maeba and Mefibaugh say the PS3 will have 50% of the
market at the end of 2006.
http://www.gamespot.com/news/6143288.html
5) Yuta Sakurai declares the PS3 to outsell the Wii.
http://www.next-gen.biz/index.php?option=com_content&task=view&id=3520&Itemid=2
6) Pachter proclaims Motion Studios will decide game
console sales:
http://www.next-gen.biz/index.php?option=com_content&task=view&id=5511&Itemid=2
7) Research and Markets proclaim PS3 will sell 75 million
systems by 2010:
http://www.researchandmarkets.com/reports/c47765
8) Pachter is shocked and flabbergasted by the success of
the DS Lite:
http://www.next-gen.biz/index.php?option=com_content&task=view&id=3759&Itemid=2
9) Pachter considers E3 2006 a success except for the booth babe ban and
talks about his mother’s reaction to E3.
http://www.gamasutra.com/features/20060602/wen_01.shtml
10) Business Week thinks Wii will cannibalize DS sales.
http://www.businessweek.com/globalbiz/content/sep2006/gb20060920_163780.htm?chan=top+news_top+news+index
11) N’Gai Croal talks about the possible Wii success.
http://www.msnbc.msn.com/id/12891555/site/newsweek/page/3/
12) David Cole quotes his 13 year old son and says Wii will
be a hit with enthusiasts but alienate the mainstream.
http://www.next-gen.biz/index.php?option=com_content&task=view&id=1084&Itemid=35
13) Van Baker says casual gamers won’t be engaged with the
Wii longer than a couple of years. Low resolutions will destroy the Wii future
as well.
http://www.next-gen.biz/index.php?option=com_content&task=view&id=5786&Itemid=52
14) Anita Fraizer says content will win the next gen war,
not price.
http://biz.gamedaily.com/industry/feature/?id=14428
15) Enterbrain president doesn’t think Wii will sell much after three years.
http://mybroadband.co.za/nephp/?m=show&id=4310
16) Yankee Group says will sell only 11 million.
http://www.next-gen.biz/index.php?option=com_content&task=view&id=3643&Itemid=2
17) Ed Barton says he cannot analyze the Wii strategy but
puts it as a distant third anyway.
http://www.gamasutra.com/php-bin/news_index.php?story=12890
18) Bill Gates doesn’t wish Microsoft came up with the Wii
controller.
http://www.1up.com/do/feature?pager.offset=1&cId=3147131
19) Pachter says Nintendo will come out with a new HD Wii in a couple of
years.
http://www.gamepro.com/news.cfm?article_id=126268
20) Michael Pachter has dust-up with a critic.
http://www.vh1gamebreak.com/2007/07/idiot-of-the-we.html
21) Gametrailers devotes a show to defending Pachter from the evil blogger
and forum critics.
http://www.gametrailers.com/bonusround.php?ep=9&pt=1
Home
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Before the Revolution |
Malstrom's Casual Article Division
The Blue Ocean Articles
|
Disruption Chronicles
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Ludology