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Sony and Nintendo Don't Even Understand The Threat They Face
by Nicholas Lovell on 03/18/11 08:38:00 am   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.


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.

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Matthew Mouras
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Great piece. Completely agree with your assertions on the specialization of AAA development. Really enjoyed the read - thank you.

Curious: How does the fact that the Nindento 3DS is sitting on the largest pre-order in history square with parts your article? Are all those folks just buying a pretty piece of hardware? Do they suspect they will be downloading free-to-play games from DSware?

Nicholas Lovell
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To my mind, console launches don't tell us much about launch. They tell us about demand. There is sufficient hardcore interest to make any launch reasonably successful (of course, the PSPGo didn't exactly fly off the shelves).

The problem is whether publishers can make enough money of a core audience alone.

Matthew Mouras
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Thanks for the comment. Good point.

This article got me thinking again about a book I recently read: "Hackers & Painters: Big Ideas from the Computer Age" by Paul Graham. Very sharp and thought provoking as always Nicholas!

Sting Newman
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The real issue is that doing high fidelity AAA games is beyond human capacity, i.e. no one can do detailed art fast enough or code complex deep gameplay systems fast enough for a good enough cost/profit ratio. The case in point is that one guy doing football players noses. That hyper specialization and huge teams lead to soul-less games. This is fundamentally why hardcore gamers are correct in saying that modern games have lost something fundamental.

I think these problems in AAA will be solved over the long term but what really needs to happen is for the entire industry to work on smaller more manageable games. The great thing about earlier portable game devices like Gameboy, gameboy advance is that it allowed developers to make games @ 16-bit level fidelity, it forced the developers to find fun within the limits of the hardware instead of trying to push units on graphics alone. Too many games suffer today because resources are spread too thin and no one thinks deeply about the game design and whether it is any fun.

What we're seeing on the PC now is a slow in coming rebirth. In countries who have smart kids and who's wages are cheap will be the next innovators. Magicka is a case in point, a game developed by young swedish students for less then $300,000 and selling @9.99 on release day.

Eric Schwarz
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Very nice article. This scrutiny of statements, especially from key industry figures, is very welcome. Critical assessment like this is what moves game development forward.

Regarding AAA game development and smaller developers not learning the "right" practices, I think what Iwata fails to realise is that someone like Miyamoto got his real start in games development by working with teams of 2-3 people developing NES games in an extremely short time frame and on a low budget. I think this is a pretty good reflection of the successes of a lot of smaller developers; Miyamoto was able to change and adapt to working in a much larger environment, so why can't others? Miyamoto is a brilliantly smart and talented person, but the reason he's so good isn't because he's just better than everyone else, it's because he's gained that knowledge and ability over an entire career.

He has a point in that developers used to working in small, casual, friendly environments won't necessarily be able to learn how to manage large projects and work in a bigger team very easily (especially for generalists), but I think such a statement is also overly presumptuous in that it underestimates how individuals are able to adapt to new situations. Sure, I've never worked on a game before in a professional environment, and my only experience comes from my own mod projects, but had I the opportunity I could easily see myself fitting into a larger team of people; rather than stunt my creativity, I think it would refine it and make me focus on details I would previously overlook. The problem isn't in getting people to work with others and learn good development practices, it's in management putting the same poor soul on Nose Duty for two years running.

Christian McCrea
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The interview with Andrew House in MCV, in context, is a bit more encouraging, especially as the try to re-develop the licensing model for the NGP. The quote you use, in context, can also be interpreted as merely a acknowledgement of competition. They announced in the Japanese presser that they will look to have both actually free and free-to-play games in the PSN ecosystem. Whether or not this eventuates, its a significant turn, and I think the MCV piece coheres well with the first. I don't think the Suite notion isn't flawed, but I do think they deserve a bit more credit.

This is Andrew, same interview.

"Then if you look at the wider bottom of the pyramid, you have got a huge amount of activity in the area of casual mobile games. Much of the content free and, lets face it, rather difficult to navigate.

Our feeling, and our research bears this out, is that there’s potential for an audience that sits in-between those two. An audience that wants a more quality gaming experience than they currently get from the mobile space – but they want the convenience of having that on their smartphone."

I don't think they really get it either - but for Sony this is practically light speed.

Rey Samonte
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I must admit, I agree with the "souless" comment about working on a AAA title. When I first started, the company was still fairly small and we got our hands dirty in a lot of areas of development. Solving new ways to implement features and learning from it always kept you motivated. But the moment you specialized in a specific area of development and were asked to do the same thing over and over without being involved in the other areas, that's when things started to become mundane and uninspirational.

I think companies like Nintendo and Sony forget that today's garage developers are saturated by industry veterans who were laid off instead of the usual hobbyist that are associated with indie games. When you have that kind of talent and experience working on these smaller games, that team can focus on the gameplay and really hone in and making it fun. When a team isn't constrained and have the freedom to create games outside of the box, I think you'll find your new Miyamoto.

When you look back at Miyamoto's earlier games at Nintendo, the scope of those games are similar to the scope of these smaller games today. It just so happens as Nintendo grew, so did their wallets and their ability to fund Miyamoto's next project. I feel the industry is sort of seeing this again with these smaller teams and projects. As is, we're starting to see the same trend of big companies buying up the smaller ones just like what happened not too long ago.

John Byrd
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Underestimate the Japanese master at your own risk. There is a huge flood of me-too crap content in the App Store and other "free" channels. For every profitable free game house I can show you 1000 others that are sucking wind. That percentage of success is not a worthy business plan.

Just because free profitable games are possible, doesn't mean they are a sound business model.

Nicholas Lovell
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I think they are a better business model. Mainly because they require significantly less upfront capital launch.

You may be able to show me a 1000 companies that are sucking wind. At least they are still alive. The console market is, for developers at least, a charnel house.

Kamruz Moslemi
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All Iwata was saying is that game makers should not let greed convince them that the business model of these new and suddenly successful venues can be carried over into the home console business.

He was trying to tell everyone being blinded with dollar signs in the their eyes that hey, yes, there are a lot new venues very different from our AAA home console platform, BUT, that does not mean that everything else will now instantaneously combust like a volatile and unwanted element next to these new venues. He was saying just as long as we keep doing what we do best, which is to create compelling big budget premium content then we will have our audience and these new venues and their differing business model will have theirs.

The music business comparisons need not apply, as someone once said, wither users chose iTunes or CD's they still got the same content, the same music track, it was just a alternative way of buying it. Just as Iwata was pointing out that is not the case here, the stuff being sold on these new venues and the stuff making its rounds on home consoles are about as different as you can get.

I mean I am continually baffled how people keep forgetting this crucial detail, just because development on iDevices is cheaper and more open does not mean that tens of millions of gamers will stop craving the premium experiences of home console titles. I mean, look at me, I have been playing games since the 80's and have had an iPhone since 2007 and have been aware of Facebook for just as long. But I don't play games on those new platforms because they simply do not provide what I crave.

Iwata was saying, hey, there are many gamer like me around, and we are not going to turn into columns of salt in the light of these venues. He was saying instead of being misled by all the excitement generated by these new financial successes and trying to aim for cheap productions that will undermine the premium value of their platforms and business model the creators with a vested interest there should stick to what they do best and continue to serve their already content and loyal userbase what they desire and let the other's worry about the userbase that they have generated for themselves.

Aaron Truehitt
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That's exactly what I interpreted when I read Iwata's comment. It doesn't mean we all jump on the band wagon.

Nicholas Lovell
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Kamruz, I agree that there will still be lots of core gamers who like high quality games. But that isn't my main issue with what Iwata-san was saying: it was his clear view that free=poor quality, which is not true.

The main difference between free-to-play games and AAA blockbusters is that a free-to-play game can be very profitable with a few tens or hundreds of thousands of committed users; a AAA blockbuster needs millions of users.

So the problem for AAA is not that all core gamers stop being core gamers. It's that *enough* core gamers move over, or that fewer casual gamers buy core games, to make AAA more risky, or even permanently unprofitable.

Kamruz Moslemi
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Well enough will certainly move away if there is no compelling content left to keep them there and keep the home console market viable in the eyes of its consumers. I think that is the gist of Iwata's message, focus on quality and we will not lose any significant number of our userbase. Let your grip slip and it is a downward spiral.

Joe McGinn
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Kamruz I see your point but I think Iwata is mistaken. Free-to-play and AAA is not the same product yet ... but the quality gap is closing, rather quickly. At which point it is just like the music industry dinosaurs fighting against a natural evolution. And don't fool yourself that a free-to-play platform isn't coming to the living room. It is a slow process for no other reason than the dinos in the living room now (Sony, MS, Ninty) don't want to evolve. But that won't hold forever. Soon enough Apple or Google will be there with an open app store and then where will Sony/MS be? They will be exactly like the music industry, pushing an outdated and overpriced product.

Jack Boats
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Hello pot, meet Kettle...

Seth Gorden
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I like what Kamruz Mos, above, sees from the Iwata quote. Specifically, there seems to be a lot of controversy around the following statement/quote from Iwata: "There are huge amounts of competition and free content out there and it is difficult to differentiate premium gaming experiences from lesser quality ones."

Here's what I get out of that:

'Competition and free content', to me, says there are lots of games coming out.

'Lesser quality experiences', to me, makes no claim as to what that quality costs. From my experience there's high and low quality at all levels of cost.

It's easy to pick apart somebody's statements when they are bold and public. But I think Iwata was acknowledging the surge of new business models, and encouraging all developers to be mindful of quality as they proceed. I didn't find anything saying that free content is bad, just that when lots of content floods into a market, that it's wise to evaluate customer's expectations. I think this is good advice for everyone, regardless.

It is always a greater challenge to find the true intent of somebody's words, even moreso to put that to work in a ways that create a better world (or at least a better industry). Just look for what you can get out of it, and make it work for you. If Iwata's warnings inspire to you to keep making free-to-play social games, then make the highest quality free-to-play social games you can. If you make AAA games, then make sure you realize that the free-to-play market is redefining how players think about value. You have to give as much quality as you can, if you're asking for high dollars just to take a game home. Whatever your gamdev path is, a focus on quality or creating a sense of ownership on your dev team about the work... this will be a benefit. That's my take-away from it all.

Sting Newman
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The real issue is that game quality for AAA games is hard, and if you don't get it right all that work doesn't matter.

If you've played God of war and then tried playing zelda (an action game by nature) you start to see how nintendo's own games are suffering from other games who have better developers and are raising the quality bar. Nintendo has been riding on fumes. It screwed up starfox and Twilight princess had serious quality issues.

The real issue is Nintendo is feeling the heat from western developers who've gotten their shit together.

Vin St John
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I'm opening up a Pandora's box by saying this, but never in a million years would I claim that God of War raised the quality bar over Twilight Princess :)

But to each his own, I suppose.

To your main point, though, Nintendo isn't worried about the quality of their games, at least not to the degree that they're scared. They're totally content making games that are profitable, just like everybody else. And this coming from someone who clearly thinks they make great games.

What they're scared of is that games which require a large up-front investment become unattractive to consumers. Nintendo doesn't like the price undercutting that has occurred in the casual and mobile games space over the last few years which has lead to $0.99 being the standard price for iPhone games.

The funny thing is, many iPhone developers have already realized that there are many iPhone users who ARE willing to pay more than a buck for a game - as long as they know it's good!

In the future, not every game will be free and not every game will be $50. But there will be a lot more "Pay ten bucks" or "Pay a buck every time you ___" games and that's probably a good thing.

Nicholas Lovell
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I like your approach of trying to make better games, no matter what platform, genre or business model you follow.

That's a great takeaway.

Ardney Carter
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I hear ya, Seth. It's amazing how many times this has been portrayed in the gaming press as "Iwata said all low priced/free games are garbage and should not be made" despite the fact that those aren't the words used in the keynote in any transcript I've read by a long shot.

What I did see (aside from what you pointed out) was a concern that by training consumers to expect to pay no more than 99 cent for any game that developers were unwittingly poisoning a new market and thus threatening their long-term survivability.

Again, what is missed (or seems to be missed, at any rate) is that a good portion of people that use mobile devices are not (yet) "core gamers" and are getting their introduction to the past-time through their phones. Their experiences now are going to largely define how they view the medium going forward. If they're trained to think of video games as ultra low-priced, disposable content this could create challenges for developers going forward. Some may be able to leverage a free-to-play model and see profitability. Others won't. Regardless, it's an issue that was worth discussing and Iwata was right to call attention to it (IMO).

Banksy One
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Is Nintendo being intentionally misleading by making so much noise about this issue? Think about it, we know so little about their Wii 2 platform to begin with, if they changed their hardware model drastically (with the Wii), why would they not change their software model? Will another season of Mario really sell or is the guy going to finally take a break?

I'd like to ask the author for his thoughts on PS Home as an indie development platform. Does the author know much about Sony's contracts with independent studios for PS home games and the costs of these games to develop?

Great article by the way.

Nicholas Lovell
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There's only so much I can say... I sit on the board of nDreams, which makes games for PlayStation Home and recently launched Aurora, a space in home about which we are very excited.

Banksy One
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Personally i am fascinated by what Home is and is becoming. I've heard people say its wasted money on Sony's part, but if they just keep focused on that wonderful word 'accessibility' then i am sure the fruits of this huge project will start to show.

When the create your game world mechanics of LBP come to Home then heads will start turning, thats for sure. Sony are sitting on a gold mine i hope they realize it.

E Zachary Knight
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"Think about it, we know so little about their Wii 2 platform to begin with"

Yeah, you really can't know less than nothing. So you are right there.

"I'd like to ask the author for his thoughts on PS Home as an indie development platform. Does the author know much about Sony's contracts with independent studios for PS home games and the costs of these games to develop?"

I highly doubt Sony will be making PS Home into an XBLIG competitor. Sony doesn't seem to want hobbyist and garage developers any more than Nintendo does.

Nicholas Lovell
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I don't think that "asking about Sony's contracts with independent studios for PS Home" and "a competitor for XBLIG" are equivalent at all.

Home is a virtual world. A 3d space in which indepedent developers successfully make virtual goods, home spaces and games. XBLIG is very much about making downloadable console games.

There is a world of difference.

Curtis Turner - IceIYIaN
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Well, the problem with making games is... You gotta make the whole thing. These days developers are giving way more access to their gaming engines. UDK, Unity, probably Source, Cry Engine, etc... Getting handed an engine is a major boost most of the time.

World of WarCraft is on the pc, the most open platform ever. They charge $15... They have quality and content. They get paid for it.

Nicholas Lovell
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I think the danger here is that for every World of Warcraft, there are dozens (literally dozens) of failed or struggling MMOs. When you are considering the best use of scarce capital, an MMO is very rarely the most rational decision.

Maurício Gomes
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Usually I really don't agree with you, and I think many of your posts suck and/or are evil (when you defend Zynga and whatnot).

But I take my hat to this post. It is plainly awesome.

james sadler
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I've tried a lot to not like this article. In reality I don't agree with a lot of your comments about free games and your interpretation of what the Sony head said about them. There are a lot of free games and a lot are crap. That's not to say that there aren't great ones out there among the rough, but there is just a lot of noise out there that people need to try and filter out. The same can be said about the film and music industries as well.

Granted with all that said I actually do think all of this is a good thing for the big companies. I don't think that we are going to see an end to big games or big companies, things will just get better. I'm sure we will start to see smaller teams and great designers come above all of this to make large titles have soul again.

Brad Borne
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So I've been playing a ton of iPhone games lately because I haven't had all that much free time, and well, let's face it, the portable cycle leaves us with very few good games until the 3DS and PSP2 have hit full swing.

A little background: recently I picked up Pokemon White, played a bit before, but I'm definitely not yet jaded by the Pokemon formula.

I was utterly blown away by the mastery shown in making a game a DS game, not in that it uses all the hardware features to the fullest, but it does all it can to mesh with the notion of what a DS game.

The game is unrelenting in it's own style, knows exactly what it wants to be, and executes that flawlessly. Not to say it's the perfect game or anything, but coming off of all these bargain Gameloft games and single minded uber 'casual' games, the whole of the game is utterly mind bogglingly good.

Quality, but streamlined, linear, but with enough to do, simple, but with enough personality that the games mechanics become far more than a bunch of numbers. The only game that came close to this level on the iPhone for me is Tilt to Live, and even that game, I get tired of after awhile.

Maybe I'm biased, coming from free Flash games and moving into the download space, but there is just such a massive leap between this new expendable entertainment model, and the software as a packaged experience model that proponents must first write off.

Then again, maybe most gamers can't even tell the difference, or are ignorant of the difference, and perfectly happy with expendable entertainment.

Sylvester O'Connor
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I think what we are all forgetting here is that Sony and NES are huge major corporations. Now, I don't agree with their statements and plenty of people can read into it in many different ways. Taking their statements at face value, word for word, makes it look like free is and can never be on the same level as for profit. It's so funny because I remember some politicians scaring everyone saying that if we don't give some struggling companies money from our pockets, that our country would fail. Sounds similar.

If I owned my own corporation, and I saw that there was another market up and coming and threatening the age old practice of charging people to play the games that I make, I too would throw out statements that overshadow them and scare people into thinking that if it is free it can't possibly be as good as something that you pay for because the myth says that paying for something, even if the price is inflated, means that the quality is much better that two guys working in their basement putting together concepts that larger companies throw into the wind. Sony and NES are about making money. Perception is also very key into this discussion. Of course everybody wants to haev a lower budget and put out games that sell at a lower price and sells more than AAA titles. Again, neitehr company wants to take that risk of trying to compete in that lower budget market. What happens when that title doesn't sell at all. It might only be $100,000, but, as far as a business model goes, that is $100,000 that could have been spent on making another AAA game.

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Nicholas Lovell
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Indeed. Another post on these topics incoming next week.

Dave Endresak
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There is another factor that everyone seems to be missing, or at least not mentioning.

Sony and Nintendo are major Japanese companies. Specifically, they are major East Asian companies. They have two countries in the same region who have exploded in growth for gaming in the past decade: South Korea and China. Both countries feature gaming industries that are extremely successful, and very profitable, via free to play, NOT console AAA titles. Even in Japan, the major media companies are very aware (and concerned) about the shift to mobile platforms of various kinds which require different approaches to content delivery and business monetization.

As a simple example of how things will work, consider the explosion of the Vocaliod movement, particularly Hatsune Miku and the other Vocaloid characters from Crypton Future Media. Keep in mind that Hatsune Miku's first Vocaloid software went on sale on August 31, 2007, not even four years ago. Within a few months after going on sale, her songs (created by general consumers, not by any major company) were topping the Oricon music charts in Japan, and her first album was a best seller of all genres of music. The various other forms of monetization came close behind, of course, but the point is that the tool(s) were given to the public, the market, and they chose what they wanted even when companies tried to do their usual "estimate" of what the market desired. For example, there's the famous case of Sony's exec who stated that the company expected preorders of Supercell's first album to be 10% female, but the actual preorders were 45% female, so obviously they like Miku. Yeah... obviously! So... stop trying to tell the market what they want and instead just listen while we tell you what we want, okay? It's a very different business stance to take, but those who do it are profitable.

Notably, Sega got onboard by licensing Crypton's characters very early and making the Project Diva games. Miku made live performance appearances of songs within the first two years. Less than three years after she went on sale, she was giving a sold out live concert to thousands of people (March 9, 2010) and repeated the event this year just before the disasterous earthquake that just occurred. A poll on Yahoo! Japan in December 2010 asked for the most popular game characters. Mario was #1, but Miku was #2... except Mario had a two decade head start on building popularity, and Miku came second in about three and a half years after she first existed at all. Last fall, Crypton announced an English voice bank for Miku if her Facebook page reached 39, 390 likes... it broke that with a couple months and broke 100, 000 likes in March 2011. The companies really do not know how their characters and products are loved in countries and cultures all over the world. They vastly underestimate the demand of the market, but they are attempting to meet it as best they can, nonetheless.

All of this happened because of the general market demanding it, not because of a company "pushing" a product. The companies who are profiting are following the market demand, not attempting to create it or guess at it.

What's the point of this example? Major Japanese companies are very aware of the success of the free to play game model in countries such as Korea and China. However, like any major company or organization, they cannot adapt overnight, and the changes are happening extremely quickly (or at least quicker than they can adapt if they are quite large, which these companies are). They may not address such concerns openly when speaking at a Western event, but they are certainly concerned about their competitive position in the global market when they see a company like Nexon raking in huge profits with relatively little expense. They have to be even more concerned when financial analysts state that the console market is barely holding steady, as a recent analyst was quoted as saying here on Gamasutra (and also stated that China is the actual area of highest growth for the global gaming industry).

Vin St John
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This raises a good point! My limited perception of the Japanese games industry is that most companies have been around for a long time and share in Nintendo's plight. But that's not really the case, is it? Hasn't Japan been the golden standard for smartphone adoption, mobile payments, and various other technology trends that have paved the way for the diversity in the US games industry in the last few years? Or is the impact of these companies marginal compared to their "big brothers" in the console industry?

Joe McGinn
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Great article, very hard to find anything to disagree with. An omission, if anything - Microsoft. I suppose because they haven't been as publicly vocal about their strategies ... but their strategy has been demonstrably similar to Sony's nevertheless. Two years ago, Microsoft seemed on the brink of really pushing indie development on the XBL. They had an opportunity to revolutionize living-room game development and delivery, to be the "app store of the living room". The blew it. Too many old guard forces wanting to keep the reins on - app concept approvals, tight TRCs, now there's even talk of needed a publisher! Perfect example of how hard it is for these big companies to adapt, and the hardest thing of all for them to accept is a change in their business model/

I am sure there will be an open-market app store in the home, withing 1 or 2 years most likely. I am almost equally sure that it will be delivered by someone other than Microsoft, Sony, or Nintendo. (Best bets: Apple and Google.)

Jonathan Jou
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Well, I don't know for sure that Iwata was actually saying "Cheaper = Worse => Free = Worst," and I agree that there are revenue models, demand, and great examples of games which are very, very fun and not packaged $50 boxes. I do want to comment though--this was a very thought-provoking article in several ways and I like the points you make.

1. The Unsustainability of the Console Market:

I think we're in agreement that the "Blue Ocean" strategy Nintendo described when it unveiled the Wii was an attempt to reach out beyond the core gaming demographic (people who are willing to spend vast amounts of their disposable income on video games in packaged lumpsums would be how I plan to use this word). The Wii won the hearts of families, grandparents, and people who had never touched a console before. I think this market is unsustainable, and Sony, Microsoft, and Nintendo will have a great deal of trouble trying to get the same sort of growth they've enjoyed over the last few years. I don't think that the purists and enthusiasts who line up camp out and line up to buy the latest and greatest will ever dwindle to the point where this industry will "dry up," or "go extinct" as many notables from smaller-scale studios project. I do think that the focus of "get rich quick" attempts have, are, and will continue to target the largest, least fiscally responsible market, and that platform is indeed shifting. But if nothing else, there will always be enough demand to fund the latest Nintendo Console, just to play the next Zelda, Mario, and enough people to buy the latest Xbox/PS3 for another first person shooter.

2. "Race to the Bottom"

I have trouble agreeing with you here--there are two sides to this argument, and merit to both perspectives. It's true that good games aren't defined by how much money you pay for them. I would even suggest that good games aren't defined by how much was spent developing them. But the Separation of Price and Quality isn't any stronger a defense for expensive games being better as it is an affirmation of the Free to Play paradigm. I'm proud of the garage developers who achieve huge success, and frightened by the Publishers who see this as a chance to trim budgets and expect better results. Nintendo Blizzard, and Rockstar have chanted the same mantra for years now: "polish, polish, polish," and this costs money. I have nothing but praise for the small-scale developers who find the fun in their games early, and discover that success follows closely behind, but I'm with Nintendo in my fear that the first things to go in any attempt to enter "free to play" and the 0.99 cent gaming audience will not be scope, or content, but iteration. The stakes only get higher when you make a game free to play, and poor millions of dollars into development, so the last thing the console industry needs is to chase its own tail and try to emulate the iTunes App Store. Market saturation does not improve when you try to make lots of games for lots of people, banking on a fractional conversion rate. The App Store, for all its masterpieces, continues to be a place where there's no guarantee that the $3.99 game you purchased is any more fun than the $0.99 game, or the $9.99 game, and if I'm not mistaken this is eerily reminiscent of the video game crash of the 1980s. So I'm all for small scale devs becoming world-wide phenomena, but I'd think twice before saying without qualification that console publishers need to be more like their mobile phone counterparts.

3. The Next Miyamoto

This is a tricky subject to tackle. I wholeheartedly agree that it's foolish and arrogant to believe that only AAA studios hire AAA-worthy developers. I don't doubt for even a moment that Shigeru Miyamoto himself would not be the industry celebrity he is if he was born in the 80s, and was trying to pitch Pikmin to Activision or EA. There is so much talent out there, and I see this the same way the music industry handles aspiring musicians, I guess. If Rovio wanted to develop a console game, I'd hope Nintendo would listen. If Jonathan Blow pitched a AAA concept, I'd hope publishers would take notice. But the unfortunate fact here is that good talent is hard to recognize, and undiscovered talent is almost impossible to sift out of the endless ideas out there. So, certainly, it's important to welcome rising stars, but if every developer who wanted to release a game on the Wii was given that opportunity, well, the "shovelware" association would only get worse. If third party devs have had trouble selling games on the Wii thus far, I can't see how lowering expectations by putting *more* party game cash-ins on shelves would help this.

Of course, I hope Nintendo and Sony pull through these changes just as much as you do. Because change is coming. But I'm hoping I will never see the day I see a "Free to Play" Zelda game asking for my credit card information to unlock the Magic Boomerang.

Kittipong Vanasapdamrong
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Good article

I agree that their statement seem a little bit too much...

but to me, I think they are top 10 company every thing they said affect to the share holder

the have to said something to state their business model.

Thomas OConnor
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"it was his clear view that free=poor quality" - I do not think that this was his point at all.

I believe that he was trying to point out how the two problems you mentioned yourself, discovery and changes in consumer behavior, are rushing developers to make their games cheap/free in order to survive and not because it is driven by the experience provided by the game.

The business models are fine and clearly plenty of people are making money off free games. It's giving us an amazing opportunity to change the industry so that developers are free of our usual constraints (publishers, brick & mortar, etc), but in our haste we are making decisions based on money and independence and might be undervaluing our own games and potentially losing sight of what makes them High Value. If consumers are indeed the ones who see mobile and social network games as low value disposable pieces of entertainment, then the long-term prospects are indeed worrisome for the industry even if it is liberating and cash generating.

Brian Buchner
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Simple rule of life : you get what you pay for.

Free games may make money, but it's lottery-winning style subsidized by ad revenue more often than not. And to compare the game *play* quality, the very point of games, from Zynga with the NES-era Nintendo 1st party games, just to use one example, is patently crazy, don't you think?

Bottom line is indirect revenue is unreliable and games are built primarily for fun. This is the spirit Nintendo was founded on and rose to a top tier developer from. Using the Indie game market would be a better argument against Iwata's free=crap stance. But, then again, they don't make money, with very few exceptions, do they?