Video games come out shining in a losing sector
Enough of gloom and doom - there's been one very bright light for the tech sector in recent times, the video-gaming industry. How can the investment community not be enamoured with a business that has turned in impressive results year after year - culminating in the holiday season consumer blitz we witnessed in December. Not since the eighties heyday of video gaming - when Atari was fending off Intellivision and Colecovision the way Pacman evades those pesky goblins - have we witnessed such robust activity.
Compared to the ink dedicated to such sectors such as wireless or the internet, one might think video gaming was an investment afterthought.
But the pursuit of gaming pleasure has generated a windfall for the makers of hardware and software alike. According to a 2001 report by Informa Media Group of London, the worldwide electronic games sector will grow into a US$85 billion industry within five years, a 70% expansion from what it is today. Those numbers, propelled by the launch of the latest systems from Sony, Nintendo and Microsoft, point to the global mainstreaming of video games.
Japan's console-makers, Sony and Nintendo, are cashing in, big time. The latter's GameCube, which made its American debut a few months ago, has captivated a younger demographic with a good run of cute-and-cuddly games - plus the beloved franchises like Super Mario Brothers and Pokemon. Not surprisingly, adults who came of age over a decade ago playing Legend of Zelda on the Nintendo Entertainment System (NES) are also snapping up the new Nintendo boxes on both sides of the Pacific. Nintendo's relatively low price - US$100 cheaper than competing machines - also gives it a leg up.
Kyoto-based Nintendo is a renowned power in the video game sweepstakes, and with good reason. Over the years, it has put out a traditionally high-calibre product. For entrepreneurs looking for their break in the industry, it can be daunting indeed to look at the company's track record. But keep this in mind: Nintendo got its start in the gaming business more than 100 years ago by making old-fashioned playing cards. Certainly more humble beginnings than Bill Gates' meteoric rise.
Several evolution cycles later, Nintendo entered the early eighties coin-operated arcade game craze. Its legendary Donkey Kong, which still ranks with Pacman and Space Invaders as one of the bonafide hall-of-famers, would establish the company as a force in the industry.
Today, Nintendo is a fully certified member of the gaming industry's Big 3 - along with behemoths Sony and Microsoft. However, Nintendo's GameCube may be playing to rave reviews from gamers and critics alike, but it still faces stiff competition from Sony's Playstation 2 and Microsoft's XBox. The rivalries have created a dynamic environment that continues to spawn better products and a bigger marketplace.
All three have identified a niche for themselves, although the most visible turf war thus far has been between Sony and Microsoft.
Regardless, opportunities abound - especially as companies compete over revenue from internet access, network services and a growing pool of players. Gartner's research indicates that the next five years will be the gaming industry's best yet. Certainly, we haven't seen the last of Sonic the Hedgehog, Lara Croft or John Madden Football
"As video gaming systems become increasingly more technologically advanced with DVD hardware, internet capabilities, and lifelike graphics, capturing market share is anybody's game," says Wes Nihei, editor-in-chief of GamePro magazine. "Consumers will have a multitude of products to choose from."
All the while, companies like Microsoft will be looking to a wider range of software developers to enhance the gaming experience. The XBox, like its peers, is only as good as the games it powers. That helps to explain why Bill Gates' camp has approached a multitude of developers over the past few months, including Japanese developers, Enix and Square.
The software community, in turn, is rising to the challenge with better graphics and storylines, and plenty of bells and whistles. They might want to take their cues from the good ol' days in case they run out of ideas, mind you. Pacman, widely held as the most popular video game of all time, was the brainchild of designer Tohru Iwatani, who apparently was inspired by a pizza with a missing slice. Revenues of US$100 million later, it's ongoing proof that originality will always be the catalyst for growth in the video game business.