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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

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


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 Nimblebi 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: