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President Iwata, economics, and fun with automatic translation
Japanese publicatiion Toyo Keizai recently sat down with President Iwata for five questions about the economics of selling consoles what print money (hand over the proverbial fist, even). Since we're stuck puzzling out squiggles Kanji and scratching our heads over the auto-translation, only to discover that there isn't much meat to the interview at all, we thought we'd bring it to you exactly as we read it:Toyo Keizai: The DS sure prints money, yeah?Iwata: Damn yeah it does.TK: But that's just Japan. How's the overseas market?Iwata: The overseas market also produces fat stacks of cash, only in different colors and shapes.TK: You guys are really expanding the market, eh?Iwata: We had to -- everyone already owned seven DS Lites. TK: So how about that Wii?Iwata: It also seems to be printing money. We're very pleased, and also, rich. TK: Is the hit of DS and Wii probably to mean what?Iwata: Very to recently, the game was thought that the child it is something which the young man enjoys. The woman, not to mention, to forge how no one where the old people touch to the game machine imagined and, the brain, the expectation which the person whom you think that English study can become the game software, is not.Oh, uh ... sorry, we were too busy giggling at the Google translation. This is the interesting part of the interview, but we've heard this song before: Nintendo is working to expand the gaming industry beyond the artificial boundaries we've set when it comes to determining just what a game is, and who the audience should be. And we approve; in fact, bring more of it over here! Give us the language trainers and games we can play with Grandma, as well as more traditional 'hardcore' gaming fare.
Global currency rankings via the iPod Nano
For years, The Economist has monitored the "Big Mac Index" to measure the relative purchasing power of various currencies; it's not an exact measurement but it's an interesting (and moderately nutritious) one. Now, as noted by Marginal Revolution, Australia's Commonwealth Bank has extended the idea by measuring the Nano Index: comparing, you guessed it, the relative price of an iPod Nano in 26 countries.The results are far-ranging, and obviously subject to Apple's local pricing policies in addition to government and trade restrictions. Worst places to shop for a Nano: Brazil is by far the most expensive at $327.71, way more than 2nd through 5th places India, Sweden, Denmark and Belgium (all under $225). US shoppers have a pretty good deal at the list price of $149, with only Japan, Canada and Hong Kong slightly cheaper. See the MR post as well as the Yahoo News story for more analysis of the macroeconomic implications of the tiny MP3 player's price tag.It's amazing that in only five years the iPod has achieved enough global brand status to allow "indexing" alongside the Big Mac, Coca-Cola and a Starbucks latte.Update: Headline corrected to "Nano."
Breakfast Topic: WoW's influence
People are always talking about WoW as the 800-pound gorilla of the current gaming world (or at least the MMO sub-world). I don't have much non-WoW MMO experience, so I don't know where WoW innovated or where it just took/refined standard genre tropes. I do know that WoW must be making a big splash in the economic side of the gaming industry, with its massive legions of subscribers. I remember reading a while back about some game developers saying WoW was bad for the business because a lot of people were just playing WoW and not buying other games, and there may be something to that; I, for one, would almost certainly have bought a Wii by now if it wasn't for WoW.What have you observed WoW's influence to be, good or bad, artistic or economic, in the gaming industry? What further influences do you predict it will have?
The new economics of Counter-Strike
In an effort to ensure a more diverse usage of armaments, Valve is implementing a Dynamic Weapon Pricing system into Counter-Strike: Source. Essentially, all guns are divided into two categories: pistols and everything else. Within each category, data is collected from the servers as to how much money is spent on each gun. Every Monday, the price of guns will be adjusted to correlate with its popularity from the previous week -- the higher its demand, the higher its price.With this system, Counter-Strike users will be able to balance the game through their habits. Players will continue to have a starting bank of $800, but each week will be forced to tweak their strategy in order to accommodate for market trends. The MAC-10, for example, is on a downward trend and the price is falling. As soon as the gun becomes viable for its respective price range, the demand will increase. Eventually, we foresee, an equilibrium will be reached where the change in price from week to week will be marginal.The projected value of each gun and piece of equipment can be tracked on the DWP market page, where Valve has also provided a more in-depth explanation of their price-adjusting algorithm.[Via Pro-G]
The Economics of Warcraft
This interesting article attempts to explain the economics of Azeroth in terms of real life economic theory. As players, I'm sure we can all poke holes in this theoretical view of our favorite game, or perhaps find the lack of game knowledge frustrating. For example... Goods rarely cost less in the neutral auction house (though sometimes lower prices will reflect lower prices on the Alliance or Horde side - but usually neutral prices are jacked up to the highest possible profit rate), due to the higher cut the Goblins take out of the transaction. Trade-skill items are of less economic importance than seems to be placed on them - very few craftable items being desirable, long-term, over bind on pickup drops found in dungeons. And it does not consider Blizzard's continued efforts to rid the game of gold farmers, which has an ongoing (though variable) impact on the available supply of gold in the economy. However, it is always interesting to see how real economic theory can apply to a virtual game world, and I would say the article is worth a read.Update: The comments below may well shed more light on the subject than the initial article - so read on!
Games sales figures show online is key
The NPD Group has released sales figures for 2005, estimating that the US spent $1.4 billion on games last year. An interesting and growing proportion of that income was from online games -- $344 million, about one quarter of the total spending, came from recurring subscription fees.Breaking that down, NPD estimates about 85% of that recurring income is from specific games like World of Warcraft, whereas the rest -- a non-trivial $52 million -- comes from casual games portals. It's clear from the tremendous amount of money being generated by both games and gaming portals, as well as the popularity of MMOs and casual games, that online is a key area to watch in future. While digital downloads are only a small part of the picture -- 3% of total market sales -- the area should grow, partly driven by the convenience of buying and delivering online. Of course, paying for a game through monthly subscriptions rather than a one-off box fee is appealing, though players of games like World of Warcraft don't seem to mind doing both.
Acclaim's MMO strategy examined
Next Generation brings us the lowdown from Howard Marks -- CEO of the newly-reopened Acclaim -- on Acclaim's MMO strategy. His plan is to bring Eastern games to the West with no subscriber fee, but instead to make money via in-game ads and micropayments.Next Gen's feature asks if this will work in a market with no real precedent. By dropping the phrase "free game" and instead focusing on games as a service, Marks intends it to. However, his strategy doesn't come across with a lot of confidence in this article. It'll be interesting to see if Acclaim manage to set a good precedent for an East-to-West business model, and more importantly whether others follow suit.
Vivendi Games earnings see 109% increase
According to Next Generation, World of Warcraft is a nice little cash cow for publisher Vivendi. With first-quarter earnings of $30m this year, an increase of 109% from the same period last year, Vivendi's financials have beaten analyst expectations.A report from Vivendi says that "this dramatic improvement was driven by a growth in revenues, with an increased proportion relating to the higher margin of World of Warcraft business". While increased development costs are also cited, it seems clear that a fair amount of the money pouring into Vivendi's pockets is staying there. While players suffer from server and infrastructure problems, is this entirely fair? Well, publishers don't get into the MMO business to make losses. Without seeing a complete breakdown of where our subscription money is going, we're not placed to judge.
Cash card taps into virtual funds
The MMORPG Project Entropia is known for its economic experiments, with pieces of virtual land being bought for high real-world prices. This latest news breaks the barrier between real and virtual money even further, however; a new cash card will let owners withdraw from their ingame balances using real ATMs.Some MMOs entirely shun the idea of converting money earned online to real money, but Project Entropia is taking this to the other extreme. The game's economy is built around real-money transfer, so a move like this simply adds a logical ending to the cashflow pipeline, with developer MindArk sitting in the middle profiting from the whole process.[Thanks, pandlcg]
Mobile market shows signs of stagnation
Mobile gaming research firm M:Metrics has published data showing March 2006 from a mobile gamer's perspective. The firm claims that the mobile market is stagnating; the number of mobile gamers is remaining constant month-on-month with only a tiny fraction of mobile phone users (0.5%) downloading their first game in March.The percentage of phone users who use their handset for downloadable games is low, with the UK standing at 4.7% and the US at 2.7%. Given the millions of mobile phones in the market, that still represents a large number of consumers, many of whom are repeat customers. However, a lack of compelling reasons to buy new titles -- as well as high prices -- are putting consumers off. After all, already-downloaded and preinstalled games fit the interstitial nature of mobile gaming just as well as brand new releases.
MMOs: the near and distant future [Update 1]
Academic blog Terra Nova is asking a big and important question -- what does the future of massively multiplayer games hold? Arguing that current games like World of Warcraft are the best the current-gen has to offer, what's around the corner for next-gen MMOs?A few buzzwords that are floating around the comments thread: middleware; user-created content; no grinding; item-based revenue; user-hosted MMOs; dynamically-changing worlds; non-high-fantasy-themed games; customisation; co-operative control of vehicles; massive-scale MMOs; celebrities; console platforms.That's a lot of theorising, and a lot of potential for new MMOs. Whether new games get personal with localised, user-hosted mini-worlds, or create their own celebrities with ingame content creation that ties into a large-scale international world, there are some exciting possibilities around the corner.[Update: reinserted mysterious vanishing end-of-post.]
Mom & Pop plot to screw you out of a PS3... and put food on their table
We despise the bait-and-switch and illegal bundling tricks that some unscrupulous retailers played on gamers who were looking to purchase Xbox 360s last holiday season (Best Buy, we're thinking of you). But should we be even more alarmed by the way in which small games retailers take advantage of temporary shortages to make a killing selling scarce consoles on eBay? Several weeks ago, I visited a tiny games retailer in my old 'hood of Astoria, NY, just outside of Manhattan. Once I got the clerk talking, he let slip that his boss had eBayed every Xbox 360 he'd received since the system's launch, most of them for 100% over retail price. "Will you do the same with the PS3s you get?" "Totally," the clerk responded. In other words, if the PlayStation 3 is scarce this holiday season, don't expect your local games retailer to save one for you. He'll do the economically rational thing and divert his allotment of consoles to the global marketplace, where they'll fetch a higher price. After all, he's in the business of making money, not running a charity, right? Rational merchants guided by the invisible hand? Or shady shysters? Is there any solution to this problem?
Alcohol and micropayments mix all too well
Micropayments are already flowing freely on Xbox Live and are becoming increasingly popular in MMO circles. However, Opposable Thumbs points out an unfortunate problem with any micropayment-based system that stores your payment details--it's all too easy to buy things when intoxicated.Of course, this problem extends beyond the realm of gaming, to websites and even real-world transactions. However, the nature of gaming as an entertainment activity means that perhaps enforced self-controls may help those of us whose wallets get looser with liquid.
More on Majesco's fall from grace
CNN are featuring a look at publisher Majesco's problems, after the company's decision last week to withdraw from the premium console market. It's a sad tale of ambition backfiring and promising titles failing to live up to expectations, with a very real impact on the company's revenue and stock.The CNN article points out that Midway, Atari and Acclaim have all been to the brink of bankruptcy and back, Majesco may still make it through. The company's move towards budget and handheld titles, as well as emerging markets such as casual and downloadable games, seems a wise one--we may even see another Psychonauts in amongst the budget bin.[Thanks, Ashcrotch]
The history of real money trading in MMOs
There have been some hefty discussions going on recently at WoW Insider concerning buying gold and accounts, and the subject of gold farming's fast becoming a favourite amongst MMO commentators. However, the phenomenon of real money trading (RMT) is not a new one, and Terra Nova have been digging into its history.An interesting comment is that powerlevelling another character wasn't originally a service done for cash: "Men did it for women in the hope or expectation of some kind of emotional or physical relationship." Nice work if you can get it. According to Richard Bartle and Jessica Mulligan, selling items for money dates back to about 1987, and character sales have been happening since at least 1989. However, both were on a much smaller scale than the items available to purchase through eBay today; the universally-known auction site has certainly helped RMT take off and attain a much higher profile than it had in its early days.
Does gaming cost too much?
This week's Escapist has a Casual Friday piece concerning the cost of gaming. According to the article, games--as compared to movies--cost too much, providing a barrier to entry that will stop the industry from hitting mainstream. The short shelf-life of games is also a problem: instead of having new, expensive games every six months, why not have cheaper games that are available for longer, just like movies can be bought years after their release?It's an interesting point, but Jason Smith seems to have entirely overlooked one of the hottest segments of the gaming market at the moment--casual games. Casual games meet all the criteria--they're cheap, there's a low barrier to entry technologically (they're even available on multiple platforms), they're widespread and available for long after their release, especially if they're good. Casual games may well be the key to the mainstream, and yet this article entirely ignores their existence. Nice work.
What's holding the 360 back?
Forbes reports that Microsoft has suffered a particularly bumpy ride this last quarter, with analysts spotting a problem with shipments that hasn't yet been addressed:"It is clear that something disrupted the supply of Xbox 360 shipments in the quarter, and there does not appear to be any end of year catch-up in shipments,”The estimated number of Xbox 360s shipped so far is around 1.3 million, at 600,000 to 800,000 per month. This puts Microsoft on track for their estimated sales milestones, but why hasn't there been a catch-up with extra shipments going out to satisfy the tremendous demand for the console? Even this long after launch there are still huge shortages, so it's something on the supply side -- not the demand -- that's the problem.
Revolution will cost less than $299
The Revolution will cost less than the Xbox 360. That's Satoru Iwata's latest droplet of Revolution-based information, and it'll no doubt help fuel rumours of low-priced launches, although some launch speculation can now be safely laid to rest.It makes sense for the Revolution to come in at a lower price point than the 360, although we don't know how much the 360 will be selling for once the Revolution is launched--here's hoping the games are cheaper, though.[via Engadget]
Xbox economics: revisited
Slate's "Everyday Economics" columnist Tim Harford has returned to further discuss the 360 shortage and Microsoft's response to it. His basic query is, "Why doesn't Microsoft raise prices temporarily from the current floor of $300 for a basic console? Why doesn't the company auction them all on eBay, where consoles are currently reselling for $700 and up?" We responded to his original column and apparently weren't the only ones. The writer's friend, an economics professor at George Mason University, explained, "Very few people really are willing to pay $700 for an Xbox. Contrary to what you might expect, long lines are perfectly consistent with customers who refuse to pay high prices." Harford elaborates on this theory concluding, "The answer may be that it is gamers who are acting irrationally. Very few people resell their consoles despite the high auction prices. Having grabbed a scarce console, gamers only think about using it rather than profiting from its resale. As a result, only a few consoles are up for sale and only the most desperate buyers compete for them. If more people put their consoles up for auction, the price would drop." Sounds like Harford got it right the second time around.
