E3 Post-Mortem: Who Won, Who Lost

See full-size infographic here.

Now that the booths have been struck, the loudspeakers turned off, and the booth babes are fully dressed again, it's time to sort through all of the information, misinformation, hype and rhodomontade to figure out who won, who lost, and who's going to be up and who's going to be down in the coming year. Some interesting data on that point was compiled here by Webtrends, shown in the graphic above.

Adding up total mentions on the internet, Nintendo won with 43.1%, Sony had 31.2%, and Microsoft had 25.7%. Of course, it's not just who got talked about the most, it's what people said about it. Nintendo, going into E3, was certainly the favorite to get the most buzz, since they were introducing a new console.

Nintendo's introduction was certainly not an unqualified success. One very independent measure is what happened to Nintendo's stock price, which dropped 5.7% the next day and then another 5.2% the following day. Many people were confused by the presentation, which focused more on the Wii U controller than on the Wii U itself, to the point where some observers were wondering if Nintendo was introducing some sort of tablet gaming device instead of a new console. It didn't help that Nintendo was more than usually vague about speeds and feeds, leaving the tech journalists without much to talk about. Even when it came to game software, we were shown technical demos and some concepts about game design rather than actual games. Clearly this new console is quite far from being ready for release. It feels to me like Nintendo was rushed into announcing the device by the rather alarming drop in Wii sales over the past 6 months, and the disappointing 3DS sales, which between them has left Nintendo in rather poor condition.

Meanwhile, Sony had to spend part of its time apologizing for the massive security problems and the PSN shutdown. They did manage to redirect attention to their new handheld, announcing the name (PS Vita) and the price ($249). The name is about as enchanting as the Wii U name; Japanese companies seem to have problems coming up with really good names in the last decade or so (I still like Super Nintendo Entertainment System, myself). The price announcement was a surprise, and puts Sony in a good competitive position against the 3DS this holiday season. Assuming, that is, that Nintendo doesn't drop the 3DS price before the PS Vita release, which would be the obvious tactical move.

Microsoft didn't have any new hardware to talk about, which left them pushing existing hardware... specifically, Kinect. They showed Kinect enabled for nearly everything, though it was pretty clear that adding Kinect capability to a shooter is not exactly a must-have combo. Announcements for Xbox Live video content and new games were the primary news for Microsoft.

Publishers were, of course, mostly talking about their new titles. Electronic Arts was pushing their new Origin service, a combination of digital distribution and social network. Activision was talking about their new Call of Duty Elite subscription service. Both of these things mark the shift of the industry from purely depending on retail store sales to moving to digital revenue and subscription services.

Overall, I saw nothing coming out of E3 that would help the traditional retail sales market. It's harder than ever for a title to succeed at retail, unless it happens to be a sequel to a best-seller. Software sales through retail stores have sunk for three years running, and while sales of accessories have masked it somewhat this year, it's clear that trend will continue. Digital distribution and other business models are the future of the gaming industry. Some publishers seem to be fully aware of this, others are being dragged into it... and some are closing their eyes and hoping it goes away.

I think Nintendo has an interesting new console that will do OK for them, but it will not be as successful as the  Wii. Sony has a better handheld than the 3DS in their new PS Vita, but it remains to be seen if a $249 dedicated gaming device can really be a huge success in a world of smartphones and tablets with thousands of free games. Microsoft seems to be hoping that their Kinect, expansion of Xbox Live to Windows and smartphones, and the smartphone partnership with Nokia will be sufficient to maintain their leadership position in the console business.

I think huge changes are still heading for the console business, and Nintendo seems ill-positioned to meet those changes. Sony and Microsoft, at least, have worked hard on their networks for their consoles. Nintendo has barely acknowledged its existence. I fear for their future.

As for the game industry, E3 no longer represents the future. The revenue is quickly shifting to digital distribution, social gaming and mobile gaming. Console gaming will continue to be a major force, but it will no longer be the only game in town.

How To Analyze E3 2011

I believe this refers to the level of hype.

The circus is in town this Tuesday, and it's going to be loud. That's always been the case with E3; at the beginning of the show it's not so bad, but gradually each display with speakers on it gets turned up louder in order to be heard better over the crowd noise and the other booths... and once one is turned up, nearby ones have to be turned up also... and before you can hack a Sony website, the expo hall is pulsating with the maximum volume output from hundreds of speakers. It's an almost physical assault on your body when you step in there.

Equally powerful is the onslaught of marketing hype. Claims are inflated, then pumped up a little more... then untethered from reality to float freely into the blogosphere. E3 is a cacophony of thousands of voices all shouting to be heard, waving shiny objects to catch your attention, and claiming to be the most important thing at the show. (Just check out this list of press conferences for the first day... imagine attending a dozen of those.)

How do you deal with this wave of information? How can you derive any useful data from it? First you have to decide what you're looking for, since there's many things you can learn at E3. Are you trying to find out what will be the hit games for a particular platform for 2011? That narrows your search considerably, and you can just compare lists of Top Games of E3 2011 from a batch of game enthusiast websites to find the names that recur on each list. Information found, and you didn't even have to sit through a press conference to get it.

If you're looking for something more subtle, such as industry trends for the next year, or whether Nintendo's new console will be a hit, answers will be harder to find. Determining industry trends may be easier from a distance than when you're actually at the show. I plan on sifting through the reporting on E3 to look for key pieces of information. For instance, what are the three most important announcements from the biggest companies? Finding out what they consider to be most important gives you a clue to where they will be putting their marketing emphasis in the year ahead... and you think about whether that is really something important that can change the industry, or is just another AAA game that might sell well but won't affect the direction of the industry.

Look for major new business initiatives, new investments, new hardware, new business models, acquisitions and mergers, major business deals. Ask yourself "If this things goes as well as it possibly can, how would it affect other companies?" If the answer is "Not much" then it's not an important industry event no matter what happens. Ignore it and move on.

Once you skip past the 47,000 new product introductions and just look at the list I mentioned in the last paragraph, you'll find it's going to be much easier to figure out what's going to be happening in the industry over the next year.

Oh, and in general you can expect companies to be cheery and upbeat about their prospects for the next year, regardless of whether or not they actually expect that to happen. They'll also probably be positive about the industry as a whole. Third-party publishers will likely say they are excited by new hardware (like Nintendo's Project Cafe or Sony's NGP) and think it's going to be a hot seller. Why? Whether or not they really do, they hope that saying those things will help make the hardware sell well... because if it does, any products they create for it will do better. So they're just trying to help themselves out.

Ignore all the happy talk. Look back at last year and see how positive everyone was about Nintendo's 3DS. It was awesome, killer new technology that would really boost the business for everyone. Uh huh. The reality is much more anemic. The 3DS has had a good first week and lackluster sales since then. We can hope Nintendo will boost its sales with some powerful new titles and heavy marketing spending, but that's by no means certain. Me, I think its problems go beyond poor launch titles and not enough marketing; I think 3D is a gimmick that people aren't really that interested in, and the hardware is clunky and expensive, and their business model is antiquated. All those things can be fixed... but I'm waiting to see if Nintendo begins to address them at E3.

So discount what industry types with a vested interest say about new hardware. Look for hard numbers when execs speak about their products. If they really are happy they won't be afraid to quote actual sales figures. If they say things like "We're thrilled with the sales!" rather than a specific number of units, they really aren't thrilled. You shouldn't be either, in that case.

Best advice: Follow the money. And follow the sales numbers. Don't follow the shiny objects.

The Big Three Offer Small Change

E3 has been interesting viewed from afar. It's clear the classic electronic gaming industry (console games with a dash of PC gaming, though non-MMO/social/Flash PC gaming has been waning) is in trouble; sales were down 8% in 2009, and sales this year look to be in similar dire straits without a booster shot. So aside from a slew of sequels, what is being offered by the Big Three (Microsoft, Sony, Nintendo) that represents a possible sales jump?

Microsoft is offering Kinect, its motion-control peripheral, for $149, and a dozen titles that look very similar to the Wii's greatest hits -- simple sports. The Achilles Heel of the Kinect is not just the high price point; it's the fact that it sucks up a large part of the 360's processing power, to the point of causing noticeable lag even in the simple games being shown. This means the Kinect will not be of much use to the power gamer, which represents most of the current 360 audience. So Kinect must be aimed at the casual gamer... who's already got a Wii, or for about the price of a Kinect alone could get a Wii (I expect to see the Wii at $149 by Christmas, unless Nintendo wants to continue losing share). The Kinect's price point means it won't get a large installed base any time soon, if ever, which means we won't see any games that require the Kinect... which means even less reason to buy one. Net result: No big industry impact.

Sony is trying a similar tactic with the Move, though at least it's only $49... well, of course, you need to add the Navigation controller for $29.99... and that's only for one player, so you need to double that to $160... and you probably want a Playstation Eye, which is $39.99... so you're looking at $200. Which makes it even more expensive than Kinect and not as cool. And again it's unlikely to be appealing to hardcore gamers -- certainly not from the types of games they are showing for the Move. Sony is also pushing 3D display technology, which has a possibility of appealing to the hardcore... but it's hampered by the cost of the display, which currently runs at $2,000 or more. Sure, Sony will try to push for 3D-capable TV sales, but no one would expect that to be a significant market share for many years. Again, no big industry impact.

Nintendo is throwing all of its weight into the 3DS, which is their new DS-style handheld with a no-glasses-needed 3D display. Nice, but how useful will the gimmick be in actual gameplay? That remains to be seen. Meanwhile, no attention to the Wii's price point or its aging technology, and no hint of any innovation in business models. I think the 3DS may stop the hemorrhaging of DS sales, but it's not going to ignite a revolution. The iPhone 4's and iPads will be busy leading that charge.

The problem for all of the Big Three is that they're seeking to appeal to casual gamers, yet those who are the most likely targets for that have either already purchased a Wii, or are busy playing Farmville or iPhone games. Once Google TV and Apple TV bring inexpensive or free-to-play gaming to the family room, the ability of the Big Three to gain significant numbers of casual players will be next to nil.

Meanwhile, executives at third-party publishers are busy saying nice things about the new hardware offerings and how great it will all be for the industry. Which is the best they can say, given the situation. Meanwhile, they are looking for ways to grow that don't require reliance on the Big Three. Because it looks from here like the console era is drawing to a close.

More E3 Musings

The press releases are starting to spread like a massive oil spill from E3, though fortunately in this case no wildlife is threatened. Still, there's the sticky ooze to contend with... in this case, a sludge of desperate hyperbole trying to build up the traditional game industry's prospects. Much of the attention and hope for the future is focused on two hardware trends: Motion controllers and 3D displays. Many in the game industry seem to be expecting these things to cause a surge of new interest and sales in game consoles and games, putting the industry back on a solid sales growth trend. Sure, and if pigs had wings maybe bacon could fly onto your plate, but I wouldn't expect it.

Here's some evidence that, industry hopes to the contrary, the customers aren't exactly itching to spend money on motion controllers. This study shows there's less than 10% of Playstation and Xbox customers intending to purchase either Move or Natal, respectively. Not exactly a massive sales surge. What would it take for these things to be successful? Well, they'd have to be priced comparable to a game ($49 or $59), and include with that price a hotly anticipated game (or a sequel to a best-selling series) that takes full advantage of the new hardware. And then they'd have to market the hell out of it. With all that, you could maybe get 60% penetration of the existing base... and perhaps you'd want to start packing that thing in with the console in time for the Christmas market, so you would know you'd have 100% of future sales with the new controllers. Then you'd better have a lot of help and encouragement and some funding for new games that use your new hardware, and make it compelling for new customers to buy your hardware. Then perhaps you'd get some significant sales increases due to your new hardware. You think it's very unlikely that this will all happen? I agree.

And it's even worse for the 3D display idea. Either customers are going to have to drop $2000 or more on a new 3D-capable TV, and $100 for each pair of glasses, or get a new 3DS which doesn't require glasses. And aside from the ability to more easily generate nausea in gamers, how exactly is this going to improve the gameplay? How well will the 3DS work in a range of ambient lighting conditions, and even if you do get a good 3D effect, how again does it improve gameplay? Those answers aren't obvious.

Maybe E3 will show clearly how these new hardware technologies will transform the industry and put traditional game sales back into a solid growth pattern, instead of trending downward like this year and last year. Meanwhile, business model innovation has been posting amazing growth in the gaming industry: Free-to-play, social gaming, mobile gaming, virtual sales, DLC... and soon Google TV and Apple TV. Much of that sales growth is proven, and the wiser publishers are jumping into it. Look for announcements in those areas if you want to identify companies poised for growth. Companies that ignore those areas in favor of shiny new hardware are the ones taking the huge risks.