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Recent pronouncements from Nintendo and Sony show they don’t even understand the threat they face

By on March 17, 2011
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There is nothing surprising about giant corporations fighting to protect the status quo.

The music industry has been pretending that the Internet hasn’t fundamentally changed the way consumers view their relationship with music for a decade. They have fought tooth-and-claw to defend their existing way of doing business in defiance of economics, their customers and the force of technological change.

Is it any surprise that games giants are doing the same?

Nintendo’s fundamental misunderstandings

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In his GDC keynote, Satoru Iwata took time out from talking about Nintendo’s products to give a dire state-of-the-nation roundup. He had two key issues:

  • That young developers aren’t getting the solid grounding in game-making that are crucial to becoming the next Miyamoto
  • That the trend towards free games is driven by an indifference to quality that will make our gaming experiences poorer and less-rewarding

Both are not only wrong, they are problems that have been solved. By someone other than Nintendo.

Where will we find the next Miyamoto?

Iwata-san’s question is an important one. Modern AAA game development is a vast and often soulless experience.

I once met an artist who had been working on the FIFA franchise for two years. I imagined that for a football fan,this would be a dream come true. I asked him what his contribution had been.

“Footballers’ noses. For two years, I have drawn nothing but footballers’ noses.”

It is hard to get a sense of the art and craft of game design and development when you are so specialised.

So on that level, I agree with Iwata-san. Helping rounded game designers emerge is crucial for the industry. The good news is that they are emerging, from all over the shop.

Think of Markus Persson, the man behind Minecraft. Simon Oliver, who built Rolando on the iPhone with just one other person (an artist). The four-person team at Hello Games who launched Joe Danger. The Pusenjak brothers who coded Doodlejump.

They worked in small teams where collaboration with other disciplines was not only essential, the developers probably had to pitch in to help each other out outside their core expertise. Where an understanding of the whole project was critical to its success. These developers are working on indie PC titles and iOS games. On PSN and on mobile. On browser games and Facebook ones. The future Miyamotos are everywhere.

Iwata-san has identified a problem. But it is a problem that faces AAA alone. For every other part of the games industry, it is no problem at all.

Free = rubbish

I find this assumption from traditional media companies blinkered, foolish and frankly offensive.

For a start, it assumes that since you can’t make any money from free, you must have to cut development corners.

This has been endlessly proven to be untrue. Some quick examples:

  • The most successful open source blogging software, WordPress, is free. I use it to power GAMESbrief. It is flexible, robust and wonderful. The company behind it makes its money from consulting and corporate work; I get its powerful service totally gratis.
  • 34 of the top grossing apps on the AppStore are free. I’ll repeat. A third of the top games, ranked according to which makes the most money, are free. Have Nintendo and the other nay-sayers just not noticed this?
  • Zynga’s games are all free. While no-one agrees how much money they are making, everyone agrees they are making a lot.

I know that for many readers, Cityville clones are not your cup of tea. I have argued before that we are at the start of the free-to-play era, and there is much better to come. But these free games provide hours of fun to a vast audience and generate massive revenues for their operators.

It is surely not beyond the wit of humankind to make great games that are free and profitable, is it?

Sony doesn’t get it either

In an interview with MCV on 11th March, Andrew House, head of SCEE, said:

“There are huge amounts of competition and free content out there and it is difficult to differentiate premium gaming experiences from lesser quality ones.”

This is repeating Iwata-san’s mistake of equating free with poor quality.

Of course, to someone who assumes that the only (or best) opportunity to generate revenue from a customer is at point-of-sale, the equation holds true. If you only get one shot at revenue, and your price is forced down, you have to cut costs to maintain profit margins.

Stands to reason, doesn’t it?

Well no, it doesn’t. That is scarcity thinking when we live in an abundant era.

What was once scarce was now abundant

What used to be scarce was shelf space. It was limited in the physical world. It cost working capital to manufacture the products. A publisher could protect its position simply by being one of the few companies who could get a game into a store. Consumers recognised that the creation of one more copy of a physical disk cost money, and would pay for it.

That scarcity is now abundant. There is an unlimited store in the Internet. Making one more copy is free. Consumers know this.

This creates its own problems:

  • Discovery is a massive problem
  • Consumers are reluctant to pay for something that they know costs nothing to create (i.e. the one more copy)

Traditional companies launch strategy after tactic to turn back the tide of change, much like King Cnut. (Yes, I know that Cnut was trying to prove that he couldn’t hold back the tide. No need to write in.)

Companies who innovate have realised that much of what we used to know about publishing has changed. With an unlimited shop front, getting your product found is the hardest thing. Giving it away for free, and having a strategy that enables you to segment your biggest fans, offering them a unique experience for which they are prepared to pay, is a viable option.

Personally, I think it’s the best option. It is not an option that encourages you to put out cheap shovelware: there are few die-hard fans of cheap shovelware.

Andrew House says:

“If you talk to content providers, they will uniformly tell you that it is very difficult to run a business within the Android model or the iOS model as it currently sits.

I don’t hear ngMoco saying that. I don’t hear Snappy Touch or Nimblebihttp://www.nimblebit.com/t or Wonderlandsoft saying that. Those aren’t companies who have got lucky with a fly away hit like Angry Birds. They are companies who have successful free games that generate much more revenue than a $0.99 game.

Why this matters

It matters because, perhaps surprisingly, I don’t want to see Nintendo and Sony die. I want to see them adapt.

House talks about what content providers want. That’s fair enough – his primary customers have been the third parties for a very long time.

Iwata-san worries that his business model – of spending two to three years making high-quality gaming experiences for which consumers will pay £30 upwards – is under threat. That’s fair enough – it’s been Nintendo’s business model (on the software side) for two decades or more.

The problem is that they are looking at the wrong datapoints. Third party publishers want things to stay the same; consumers and the startup entrepreneurs who serve them don’t. Paid-for games have worked well in the past and have been high quality; free games are now working just as well financially and while I concede the quality isn’t there yet, I’m confident we’ll get there.

Did Dungeons & Dragons Online suddenly get worse when it went free to play? Is Metin 2 unworthy of your consideration because you don’t have to pay before you play?

Spend a bit more time out of your box

There is a great truism in science: don’t try and prove what you already know. That’s easy. Look for disconfirmation  If you find it, you learn much more than lazy (and easy) confirmation of your preconceptions.

I try to do it all the time. It’s why I’ve changed my mind about Activision, and it led to my belief that the games industry’s future lies in three parts.

I urge Iwata-san to go and meet the new potential Miyamotos. The game creators who understand the whole complex interplay between design and code and art and sound and story and play and fun. They are to be found everywhere that people make games – on iPhone, Facebook, PSN and the web (but are much scarcer in AAA development). Find them and hear their stories.

I urge Nintendo and Sony execs to assume that free gives a great experience to lots of people. To play Cityville and We Rule, Kingdoms of Camelot and Dark Orbit. To learn what they do well, and to think about how to improve them.

I am convinced that the web has brought an era where instead of paying for access to content, we expect to get it for free. When we find content we like, we will pay, often through the nose, to express our relationship with that content. It may be in-game or it may be out of game, but we will pay.

I know it’s true, in some cases at least, because it is already happening. I just wish that format holders would stop bemoaning that things aren’t the way they would like them to be, and embrace them for what they are.

Which is a new, profitable and exciting way of making games.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
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  • That is a very good point. If being mean to third party developers has not hurt Nintendo in the past, it’s hard to see why they would change now.

  • One thing often forgotten (or not mentioned, or unknown by some) about Nintendo is how badly it has always treated potential developers for its platforms, from its complete control of the system to forcing restrictions on designers to trying to ‘fix’ the market to suit itself. This has wound down a bit since the N64 days, but the issues around third-party support for Nintendo platforms still partially stem from those days.

    As such, I’m not surprised they are disparaging the idea of indie games / free games. It is an idea that is mostly foreign to them.

    Funnily enough, it appears that Microsoft is probably the most accepting of where things are headed, at least in the Xbox Live / console space.

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  • Thank you Gary. That is a thoughtful reply. And you are right that there are many different ways of getting a solid grounding in game-making.

  • It seems to me in your mind, no-one makes social games with the ambition of creating somehing of creative value.

    I disagree. I think lots of people do.

    We may find that we have no common ground over which we can have a rational debate.

  • Gary Penn

    Both companies aged rapidly before my very eyes after these statements. Not that I care much about Sony (despite their obvious contribution to gaming culture) but I do have an affection for Nintendo, for all its faults. (Mind you, Nintendo’s always come across as operating in a parallel universe.)

    Part of Nintendo’s fear seems to be for the future of traditional craft – for the apparent reduction in scope to take time to make a product shine, every part honed to perfection to make an ideal whole, like the cliché of the Swiss watch, to be unveiled in one fell swoop for maximum effect rather than exposed and nakedly evolved from the outset. But, if anything, there’s now more scope for that to come from the individual artists without huge overheads – people who do it more for love than money.

    On the face of it Nintendo needs no one else to support their systems. Nintendo’s products are almost always the best by far for their platforms. But without the third-party support, there’s no ballast, no comparative product to make the quality stand out (like the repertoire supermarkets depend on to help shape sales).

    “That young developers aren’t getting the solid grounding in game-making that are crucial to becoming the next Miyamoto”

    I do wonder what constitutes that solid grounding. Is it making games in isolation over long periods of time and relying on one generation of craftmasters to pass on their experience to the next? Or is it making games as often as possible to get them into the hands of as many real players as possible to get as much hands-on feedback as possible to help to hone your craft as quickly as possible?

    The former is romantic while the latter is far more pragmatic today. The former feels more like the production of classical music symphonies, while the latter feels more like pop music (or even nursery rhymes). The former has undoubted mystery and magic with the artist and methods out of reach while the latter feels more open and honest and more mutual in its making.

    The removal of barriers to players is having unavoidable, irreversible effects on games on every level, from the types of games that emerge to the way they are consumed. There will inevitably be adverse side effects, too, so Iwata probably has a point in there somewhere. But it’s not just the increased convenience afforded by free goods and digital distribution that’s undermined value – the removal of tangibility has undermined value, too, to give the virtual an almost natural, elemental quality like fire, air and water that should be enjoyed equally freely by all.

  • Guest

    “It’s like saying that a film director would never do television because the weekly episodic format doesn’t work for him”

    No it isn’t.
    The aim of the film director would still be to create something of creative value (unless its Michael Bay obviously), so this analogy doesn’t apply.

  • I guess you and I have a different view of Facebook games. I think they give you a choice of three things: coming back tomorrow, asking your friends for stuff or spending money. (See http://www.gamesbrief.com/2011/03/sp-elling-it-out-how-balancing-your-players-on-an-sp-knife-edge-is-the-secret-to-social-games-success/)

    In other words, it is a choice. I play Bejewelled Blitz heavily on Facebook. I have never spent any money. I could spend money to get more bonus jewels and spins. I choose not to. That’s fine by me. Some people spend, I don’t.

    I don’t see what’s so wrong with that.

  • Adrian Lopez

    People who play arcade games go into them knowing they’ll have to spend money to play and keep playing. Facebook games let people play for free and therefore make their money by depriving non-paying players of particular features and by taking advantage of non-paying players’ relationships in search of those who are willing to pay. The mechanics of the two kinds of games are not equivalent: Unlike Facebook games, arcade game mechanics are aimed exclusively at those who pay because those who pay are the only ones who get to play.

    Having said that, I think arcade game mechanics whose only purpose is to get players to keep inserting more coins do indeed suck. If you can take an arcade game, remove a particular mechanic and have that game be a better game because of it, I would argue it constitutes proof that the game mechanic sucks.

  • That’s a pretty big statement. I wonder if you’ve ever spoken to Miyamoto-san.
    It’s like saying that a film director would never do television because the weekly episodic format doesn’t work for him, and looking forward to all those silly film companies making tv shows and going bust.
    The challenge for an idealist in games is that you need a critical mass of gamers to make an individual platform fail. You don’t need everyone to stop playing on a console, you just need *enough* people to stop in being commercially viable.
    Your independent innovators will struggle to make profits on a console that does not have casual gamers; more importantly, the console manufacturers will struggle to launch a new console without console gamers.
    So I recomend you be careful what you wish for.

  • Guest

    A designer like Miyamoto would never turn to free-to-play as the motivations behind the design of these games are not in line with what drives his personal ambitions. No need to go cold turkey though, I’m looking forward to all the big gaming companies jumping onto the free-to-play bandwagon or going bust as it will leave behind the true independent innovators to create beautiful experiences and challenging game mechanics who aren’t driven by pure revenue targets. Its like one big cleansing of the games industry.

  • great post Nicholas! I was really disappointed by Nintendo’s keynote too. I think it’s tied to the DNA of both companies, they are very much hardware companies still and think retail and atoms first, even when they try to go digital. To make it more difficult, the Japanese web sector is quite secluded and peculiar, so it’s probably difficult to recruit talent there who really get the international web economics.

  • I don’t agree with your conclusion that a mechanic that encourages people to pay money suck. It’s how the games industry started (just one more go? put another quarter in the slot). It’s how many games are still made, even though the business model has moved on.
    If you design a game that gives millions of players the chance to play for free for 20-30 minutes every day, and some people choose to spend a lot more, that seems fair to me.

    Not everyone spends lots of money. In fact, very few people spend lots of money. They are grown-ups and make a choice. Other people choose not to spend their money, and still have an enjoyable play experience.

    This seems like a good balance to me.

  • Thank you. This is a good and thought provoking article.

  • Fair enough. Sony have just announced that they are bringing Free Realms (Free to Play) to the PlayStation 3. I think it’s only a matter of time before you will need to quit.

  • Adrian Lopez

    Recommended reading:

    What Does Free Really Cost?
    http://www.above49.ca/2010/08/what-does-free-really-cost.html

  • Nick

    I’m sorry, but the day I see Nintendo making freemium nonsense designed to sell virtual items, is the day I will quit games, at least outside of “retro” ones. No buts about it, just cold turkey. Done.

  • That’s really disappointing. For the 3DS to succeed it needs to charm developers the way the iPhone did.

    The iPhone fell ass backwards into being a gaming platform. Steve Jobs didn’t even want to open the API at first let alone turn it into a gaming device. As a gaming device it has a lot of weaknesses and even the iPod Touch is far too expensive.

    What they got right was the App Store and appealing to developers. That’s the bit Nintendo needs to copy but it’s the bit they most want to never do.

  • Harry H

    Excellent post, Nicholas. The biggest surprise to me has been just how long the race to free has taken the games industry.

  • Adrian Lopez

    “Zynga’s games are all free.”

    Except for the bits that are not. Zynga makes money through microtransactions by adopting game mechanics that encourage players to spend lots of money.

    “Paid-for games have worked well in the past and have been high quality; free games are now working just as well financially and while I concede the quality isn’t there yet, I’m confident we’ll get there.”

    Unlike Facebook games, paid-for games don’t usually incorporate mechanics whose only purpose is to get players to pay as much as possible while playing the game. That’s why Facebook games suck, and that’s why they’ll continue to suck as long as this remains their business model. Games you pay for directly don’t suffer from this.

    “The most successful open source blogging software, WordPress, is free. I use it to power GAMESbrief. It is flexible, robust and wonderful. The company behind it makes its money from consulting and corporate work; I get its powerful service totally gratis.”

    Consulting and corporate work doesn’t sound like a viable business model for game developers. How, then, should free games make money without doing the kinds of things that make Facebook games suck?

  • tigershungry

    Exactly, even if it is old news to state that its the least friendly download platform. Innovation with their hardware is one thing, but its what you do with it that counts. With people quoting development costs for the 3DS 3x what they were for the DS, and both kinect and move opening up sdk for developers then I really don’t know how the 3DS will survive without something as now basic as a friendly download platform.

  • I think that Nintendo’s attitude to WiiWare is old-fashioned, like Sony’s. It is based on the idea that scarcity is the natural position, when it is now not. They really don’t seem to want developers to work with WiiWare, do they?

  • tigershungry

    I think the article in develop yesterday in regards to Different Cloth’s issues around the release of lilt line highlighted further the issues around Nintendo and the barriers they are putting up against content providers.

    http://www.develop-online.net/news/37288/Lilt-Line-needs-double-sales-for-Nintendo-pay

    Even though its clear from their app store figures the release wasn’t a massive success, the figures still highlight how many more sales they’d need to achieve to see any revenue which makes me wonder why any small developer would consider taking the risk of developing for the platform. And as much as it pains me to refer to the game… no ‘angry birds’ for you then Nintendo.

  • I hope you are right. But I have to say that I sometimes think that is a genuine misunderstanding of the threat they face.

  • Sebas

    Sony is the one in the worst position by sure. They are just scared.

  • Andrew

    I don’t think it’s a matter of not getting it – they all get it. It’s a matter of denial.

    As the newspaper industry pretended nothing was wrong so to are the traditional gaming titans.