Kurt's Thoughts

What’s the #1 sport in the world?  Hint:  It ain’t American football, Basketball, or even Baseball.  That’s right… it’s football, or as we Americans call it, "soccer". 

And Xbox 360 has an exclusive on it. 
Pro Evolution Soccer, the only next-gen FIFA-licensed soccer game is exclusively on Xbox 360.

For those of you who don’t quite understand the ramifications of this, let me spell this out for you in terms you might better comprehend.  Y’know how Electronic Arts has an exclusive lock on NFL Football with Madden 2007 meaning that only Electronic Arts can produce NFL football-based video games?  Now imagine that through some agreement, they only produced Madden NFL games for Xbox360 and Sony Playstation 3 would never get any NFL football games made for it.  EVER.

Gettin’ the picture now?

Now imagine that Madden NFL Football wasn’t just an American/US-only phenomenon.  What if the Madden NFL Football franchise were a WORLDWIDE phenomenon and, in fact the only sports video game that the world outside of America really cared about was Madden NFL Football… so much so that as a video game manufacturer, you coud exceed your Madden US game sales predications by just concentrating on countries outside of the US.

Is it becoming clearer how big this is?  

Now put the cherry on top:  Imagine that your primary competitor won’t even be releasing their console outside of Japan & the US until 3 months after the holiday season.

WHY DO YOU CARE?
Why should you care about this?  Isn’t this just sis-boom-bah rah-rah crap from Microsoft?  Not exactly. 

See, if you’re an Xbox360 console owner, the more Xbox360’s that get out there, the more lucrative it is for companies like Namco, Konami, Activision, Ubisoft and Electronic Arts to build great games for it.  Because there are more consoles out there, the larger the potential market is for their game.

"The Marketshare Difference"
From the perspective of an Xbox owner, this is what killed us in the last generation – Xbox Classic versus Playstation 2.  Microsoft did it’s absolute damnedest to provide huge, huge incentives for game manufacturers to develop for our console.  Seriously – that poor Xbox Marketing team sold their first-born children and whored themselves out in the name of Xbox owners to try to get game manufacturer’s to at least PORT games over for use XBox owners to buy. 

For example, here’s a list of things that I know were done… and remember, I’m not an insider on this stuff so there’s tons of other things that were done to incent game developers to build for our platform.

• Discounted Licensing:
  Microsoft’s game licensing for Xbox was rumored to be 60%-70% less than Sony’s for Playstation 2.  Every game manufacturer has to pay a licensing fee to Microsoft for each game they sell on the system.  In turn, they sell the game console itself at a heavy loss in anticipation of making it up in volume game sales.  This is the fundamental way a game system company makes money and this includes Sony, Nintendo, and Microsoft.  This is also known as the "razors for razorblades" model.
• Comarketing & Advertising:
  Microsoft paid or subsidized the media advertising for many big name 3rd party titles like Dead or Alive 3.  Much in the same way that Intel pays for Dell’s TV advertising for using Intel processors and sticking the "Intel inside" logo and sound in the ad, Xbox did the same thing in order to minimize the cost of marketing an Xbox title.
• Seed Funding:
  Microsoft helped fund game development.  From what I’ve heard, in order to ensure that the game had enough money upfront to get things moving, some 3rd party developers had their costs offset by Microsoft to ensure that the game was built with adequate quality but still in a timely fashion.
• Minimal SDK Costs:
  Microsoft’s game development tools & libraries had minimal entry costs to them, allowing even the most poor developer to get up and running with relatively little capital.  I think the tools were $25,000 in total, and if you think that’s a lot, you should know that "Shinobi", the tools for the Playstation 2, cost something like $250,000.
• Architectural & Business Changes:
  Microsoft often bent over backward to accommodate the demands of certain developers.  While there were others, the most famous of these was Electronic Arts and their lack of adoption of Xbox Live.  Electronic Arts refused to build in support for Xbox Live because they wanted complete ownership and control of the login & matchmaking process of their gamers.  In addition, they were irked by the fact that Microsoft built competing sports games that did support Xbox Live. So Microsoft rearchitected Xbox Live so that users could login to Electronic Art’s "servers" instead of Xbox Live’s to initiate online game play, and in addition, they ELIMINATED their entire Sports line of games – known then as the Xbox Sports Network.  (Football, Basketball, Golf, Baseball, Tennis, Hockey, etc.)  All of this just to get Madden on Xbox Live so you could play online with friends.
• Developer-focused Tools: 
  It’s well known that XBox’s development tools are a generation more productive and easier to use than Sony’s, which makes sense considering we know development & programming infinitely better than Sony.  After all, it is our business.  Most game developers will tell you that it’s a genuine pleasure to build software on Xbox’s Game Development tools because the tools are written to always make things easy and flexible for the developer.  Sony?  Not so much.  Developers usually have to conform their programming practices to that of the Sony SDK and this is even more so with the new Cell architecture of the PS3.
• Spendthrift Userbase:
  Xbox gamers spend more on games.  Xbox Classic was marketed and sold to a very different customer than Playstation 2.  The average Xbox owner was between the ages of 18-35 while the average Playstation owner was between the ages of 13-25.  Because the intended userbase for Xbox was older, more educated, and wealthier, it was natural to assume that more games would be bought per console than on Playstation 2 – and this turned out to be true.  Xbox’s "attach rate for games" as they call it, was close to 7 games-per-console-sold compared to Playstation 2’s 2.5 games-per-console-sold.  A single Xbox console resulted in nearly 2.5x as much "game revenue" than a single Playstation 2 console.

…but none of that held a candle to the the "marketshare difference".  This refers to the fact that, in the end, Playstation 2 had arguably 4x-5x the marketshare as Xbox 360.  Sony consistently reported worldwide sales numbers that drastically eclipsed Xbox Classic’s worldwide sales numbers by 300% or more.  And it showed – game sales for the different consoles were decidedly higher on PS2 than they were on Xbox.

So the bottom line was, because there were so much more PS2’s on the market than Xbox’s, a game developer could assume that they’d make substantially greater sales by developing for the PS2 instead of the Xbox.

The Tables are Turned
Oh, but not today.  Xbox360 has 6 million consoles sold worldwide and because Playstation 3 hasn’t shipped yet, there’s still ZERO marketshare for Sony.   Of course this will change once PS3 is launched in mid-November but Sony themselves have admitted that they only havve 500,000 consoles for the launch.  To put this into perspective, this is 150,000 units fewer than Xbox360 had at launch, and you know what that turned out like.  (In fact, it’s been reported in Japan that Sony is backing off even that number by at least 20,000 consoles)

Now Sony has estimated 2M units by the end of the calendar year.  While this would exceed Xbox360’s launch shipments, it remains to be seen whether or not this is realistic. 

It also remains to be seen if PS3 demand, with it’s $600 price tag , remains constant.  While the initial sales will obviously be fanatical gamers, it would be interesting to see if Playstation’s core market – the 13-25 set has $600 of disposable income to spend on a next-gen console, especially with the number of people having recently bought a PS2 at $99 price tags.

The bottom line is that coming into the Christmas/Holiday season, XBox360 has a 6 million unit sales lead on it’s competitors.  It is highly anticipated that it will pick up not just sales by individuals interested in buying the console on it’s own merits (estimated at ~3M units) but also sales from individuals that could not get a PS3 due to the shortage but wanted a rich & mature next-gen game library available to them this winter unlike Nintendo Wii.