♠ Posted by Emmanuel in Marketing,Underground Economy
at 3/12/2009 08:26:00 AM
I've been cleaning out my bookmarks as of late and found some left over from the Christmas season concerning video game console sales. It is well-understood that Sony's Playstation 3 (PS3) has been underwhelming in terms of both sales and contribution to Sony's bottom line. Unlike the PS2, it has been an also-ran in the video game sweepstakes. Many commentators correctly identify Sony's problems. The thing is very expensive to make with its Blu-Ray hi-def video player, whereas the Nintendo Wii doesn't even have standard video playback and the Microsoft XBox 360 makes do with a DVD unit. As such, Sony has no choice but to rely on an unprofitable variation of the "razor and blade" model. Insofar as it loses money on every console it sells, Sony tries to make up the difference on game titles. Unfortunately, it doesn't benefit much since Sony sells just 15% of PS3 games compared to Nintendo's 60% of Wii games--not to mention that Nintendo makes modest money off every console it makes (see this very informative Forbes article).The Nintendo Wii is acknowledged to be a generation behind both the Xbox 360 and PS3 in technological sophistication, but that hasn't prevented it from taking an overwhelming sales lead due to its innovative control system and appeal to casual (read: family) gamers. Given that the 360 isn't faring too badly either, I have always thought that there's another largely unspoken reason for stronger Nintendo and Microsoft sales: gamers with a sprinkling of motivation can easily run pirated game titles for those consoles. I won't go much into describing how this is done as gamers probably know already and information is widely available. Basically, it involves (1) adding a "modchip" to your console that allows you to run "homebrew" applications of your own [nudge-nudge, wink-wink] and (2) either downloading and burning titles that can run on chipped consoles or buying pirated DVDs.
At this junction, the PS3's issues are two: First, Blu-Ray discs are not yet widely available. Hence, piraters don't have ready access to duplication machines that can forge titles en masse. Ironically, DVD at this stage is probably the better gaming media than Blu-Ray. Second and more importantly, there is still no known loophole for getting PS3 to run faked titles. Those of you with long memories know Sony's troubling fixation with running proprietary formats, from SACD to ATRAC. Things are no different here; Sony has made technological barriers by using Blu-Ray and engineering its machine to probably be foolproof to faking games. While a workaround may still be found, PS3 is certainly in the latter phase of its development cycle. In contrast, Nintendo and Microsoft jostle for often token US government crackdowns.
The funny thing is that Sony acknowledges pirated software has boosted sales of its other--more successful, I should add--video game platform, the Playstation Portable. From Destructoid:
I know it, you know it, and you know that Sony has always been aware. But it's weird to actually hear them say it. "There is a piracy problem on PSP. We know about it, we know how it’s done,” says SCEE President David Reeves, at a recent DevStation conference in London. According to NextGen, Sony is looking into a way to combat this piracy "problem," but, in the meantime, this very problem is boosting sales, and Sony is totally aware of this. “It sometimes fuels the growth of hardware sales, but on balance we are not happy about it,” Reeves said.Again, this is not necessarily a solution for the PS3 as Sony loses money on each unit sold. Still, I believe that a case can be made for what I call gaming's dirty little secret: co-opting the pirates can drive hardware sales. I suspect that Nintendo and Microsoft know this, but do not devise such elaborate traps to foil would-be piraters. While casual gamers probably aren't going to open the hoods of their machines to attach warranty-voiding "modchips," there's little point preventing the more persevering from doing so. In effect, Nintendo and Microsoft segment the market into two: casual gamers uninterested in hardware modifications buy unpirated titles, while hardcore gamers still need to buy a console at the end of the day.
Sure, you're not happy about the piracy, but you're always happy to report strong PSP sales. We don't blame you at all! Sony has been trying to prevent piracy and hacking for some time now, but the hackers always seem to find a way back in. I know that for some gamers, piracy and emulation are their only reasons to even own a PSP. Would Sony be shooting themselves in the foot by fixing this piracy problem?
It would make for an interesting study to see how console sales are driven by purchases of fakeries, especially in countries where IP laws aren't strictly enforced and knock-offs can be readily bought from street vendors and makeshift markets. Then again, the survey design required would have to be elaborate as admitting to piracy not only raises "social desirability" bias issues but also legal entanglements.
Certainly, the beating Sony is taking should make it question the viability of its strategy and whether to, in some degree, co-opt piracy for its next generation console--provided it is still interested in selling one. Sometimes, being too clever in foiling pirates doesn't pay. Go ask Sony.
