New Technology & Better Marketing Give Video Games A 1-UP

Readers of Nintendo Times have known for years the video games are back and better than ever. The mainstream press has finally caught onto that fact, since sales have gotten too big to ignore. The L.A. Times ran not one, but two articles today showcasing the resurgence of the video game industry:

 

Video Games

June 13, 1988

Source: LA Times: http://articles.latimes.com/1988-06-13/business/fi-3249_1_video-game-systems

 

How popular are video games? Last year, Nintendo alone had sales of $750 million–more than Coleco did, when sales of its Cabbage Patch Kid stuffed doll peaked at $600 million in 1984. Nintendo accounted for 70% of video games sales last year, followed by Atari, with about 20%, and Sega of America, with 10%.

Although it is No. 2, Atari likes to point out that more people own Atari video game systems than any other. That is because it sold 28 million video game systems, mostly Atari 2600s, during the earlier boom. The 2600 remains Atari’s best-selling model. But since the second video boom took off 2 1/2 years ago, Nintendo has sold 4.1 million game systems, Atari has sold 2 million systems and Sega has sold 500,000 systems.

The best-selling video games are Legend of Zelda and Mike Tyson’s Punch-Out. Those Nintendo games have sold more than 1 million copies each. Frequently mentioned by retailers as leading sellers are Major League Baseball by MCA’s LJN Toys unit and two games featuring the Air Force’s F-14 fighter jet: After Burner by Sega of America and Konami’s Top Gun.

New video game system owners usually buy four to six games during the first year of ownership, but fewer each year after that. Sega estimates that veteran video game players purchase three to five games yearly. This year, Americans will buy 6.9 million video game systems and 40 million games, according to Nintendo.

The popularity of video games has hurt sales of a traditional toy for boys: action figures. Mattel’s He-Man and other 6 1/2-inch plastic superheroes were no match for the electronic heroes of video games last year. The Toy Manufacturers of America report that action-figure sales dropped 36% last year, to $702 million from $1.105 billion, largely because of competition from video games.

The video game craze has spread to computer games. The Software Publishers Assn. says sales of computer games rose 37% to $62 million during the first three months of this year. Electronic Arts, the largest publisher of entertainment software, says computer game sales could grow by an additional 30% this year. Meanwhile, sales of VCR games fell 12% to $36 million last year, according to the Toy Manufacturers of America.

 

The Joystick Lives: New Technology, Better Marketing Give Video Games a Second Life

June 13, 1988 |DENISE GELLENE | Times Staff Writer

Source: LA Times: http://articles.latimes.com/1988-06-13/business/fi-3250_1_video-game-systems/2

 

Each day after school, Kristopher Hritz travels to the Land of Hyrule in search of the Triforce of Wisdom. With it, 12-year-old Hritz, an avid video game fan, can save the beautiful Princess Zelda who is being held captive by the sinister Ganon.

Hritz admits that it wasn’t easy to “collect life energy” or “blow away a huge rock,” at first, but his experienced friends gave him hints. It took a week of after-school play, but Hritz did manage to save the princess from the elusive Ganon in the Legend of Zelda video game. “I kept running into him, but it took awhile to figure out how to kill him,” Hritz explains.

Virtually consigned to electronic oblivion three years ago, video games are back. Thanks to improved technology and better marketing, thousands of youngsters are now zapping such notorious bad guys as evil Ganon, King Demon Beelzebut and Dr. Wily Humanoid.

Video game sales exploded to $1.1 billion last year from $430 million in 1986, and many expect sales to hit at least $1.5 billion this year. Industry leader Nintendo of America predicts that sales of game systems and cartridges will reach a whopping $1.9 billion by Christmas, the most since 1983, when sales hit $2 billion.

Nintendo estimates that by the end of next year, video game systems–complete with joysticks and zapper guns–will have found their place next to the TV set in one-third of the nation’s homes.

That heady growth could mean trouble ahead for video game makers. As youngsters snap up game systems, the number of potential new customers shrinks. Most experts believe that sales will peak at under $3 billion sometime in 1989.

The industry has taken steps to avoid a repeat of the near-disastrous collapse between 1982 and 1985, when sales crashed from $3 billion to just $100 million. Manufacturers have placed tight controls on video game production. At the same time, video game makers are trying to broaden their market by developing games especially for girls.

 

Predicts Downturn

 

By inventing new games and gadgets to interest youngsters, “video games can have the kind of longevity that board games have,” says Peter T. Main, marketing vice president for Nintendo.

Yet, there are doom-sayers. “Anyone who knows the business knows it consists of peaks and valleys,” says Michael V. Katz, president of Atari’s entertainment division. “We’re headed toward another valley.” He thinks industry sales will sink to $400 million in just a few years.

Katz says Atari, which is primarily a home computer manufacturer, can withstand a sharp decline in video game sales. Others in the industry say Atari’s Japanese competitors, Nintendo and Sega of America, are large enough to survive a severe drop in the U.S. market.

But few in the industry agree with Katz that the video game market will crash this time. Take Epyx, a Redwood City computer software firm. It recently started making video games and expects that business to account for 10% of its sales this year. Chairman David Morse says: “Video games are just as big a part of teen-age entertainment as records, or tapes or going to McDonald’s.”

“It’s like having an arcade at home, only without the quarters,” says Hritz, who owns a Nintendo and Atari video system. His younger brother owns one made by Sega of America. Since the game systems aren’t compatible, a variety means “we can play just about any game,” says Hritz, an eighth-grader at Corona del Mar High School.

Atari, based in Sunnyvale, Calif., ignited the earlier video game craze in 1979 with Pong, an electronic version of Ping-Pong. After four years of dizzying growth, industry sales suddenly nose-dived. A wounded Atari, once the toast of the Silicon Valley, buried thousands of unsold cassettes in a landfill.

 

A New Generation

 

Many blame the collapse on a flood of look-alike, and often poor quality, games. Youngsters grew bored with games that didn’t seem to offer anything new. And with video games in one-third of the nation’s households, there was little room for more growth.

“The market was saturated, and the category went away,” Katz says.

It was Nintendo, a Japanese game company, that revived the video game market in late 1985. The games seemed new to most 8- to 14-year-old boys–the biggest buyers of video games–who were too young to remember the first video game boom.

The new video games are more advanced than those popular in the earlier boom. By building more electronic circuits into the hardware, the new games offer sharper color and clearer characters. Packed with more electronic memory, the new games can also do more. Best-selling Mike Tyson’s Punch Out contains 256,000 bytes of computer memory, compared to just 8,000 bytes in Pac-Man, a hit from yesteryear.

The new, more powerful games take a longer time to play. It can take several weeks to rescue the princess in the Legend of Zelda, which contains 600 separate scenes, including forests, lakes, mountains and deserts. That is a long way from Pac-Man, which contained fewer than 20 different scenes.

“The games are more sophisticated,” says Epyx’s Morse. “These kids talk in terms of computer graphics, and (expect) good game play. It can take 20 to 30 hours to progress through all the levels of a game.”

Game manufacturers hope the improved games with their complicated story lines will keep youngsters interested long after video games sales have peaked. “Video games are enduring. They are more satisfying and responsive than a Barbie (doll) or Hot Wheels (cars),” says Chris Garske, general manager at Activision Video Games in Menlo Park.

 

Limits New Games

 

Mindful of the industry’s earlier missteps, manufacturers are closely monitoring video game production. Nintendo, for example, discontinues older video games before they get stale. This year, it withdrew 12 games from the market, including Pinball and a popular version of Donkey Kong, in part to keep its games fresh.

Nintendo also carefully controls the number of games that are introduced. Game developers under license to Nintendo are allowed to market only five new games a year and are encouraged to prune old titles. Nintendo manufactures the games for its licensees to keep quality uniform.

Nintendo’s competitors say they weed out old titles, too.

“There isn’t the proliferation of software now that we had four years ago,” says Bob Pollack, electronics buyer for Target Stores. He expects sales to plateau next year but thinks the industry can avoid a collapse. “There are enough (manufacturing) controls, and the quality of the games has improved.”

One way to broaden the video game market is to somehow make the games more appealing to girls, who generally have not been as fond of video games. David F. Rhoads, sales vice president at Sega of America in South San Francisco, says more than 60% of video game buyers are boys age 8 to 14. The next-largest group of buyers are men age 17 to 34.

“We’re trying to attract girls, but it’s like turning around a supertanker in (New York’s) East River,” Rhoads says. “It happens slowly.”

Epyx designed a Barbie doll computer game several years ago “but it didn’t work at all,” says Morse, the firm’s chairman. “We care about girls a lot. We just haven’t found what works.”

 

Shortage of Chips

 

Earlier this month, Nintendo showed a new video game system at the Consumer Electronics Show in Chicago that it hopes will attract girls and possibly parents. The system comes with a floor mat that, when stepped on, controls a video game that shows aerobic exercises. Another tape, called California Games, features such sports as skateboarding.

“It’s important to develop (video games as) a total family participation device,” says Nintendo’s Main.

One factor that might dampen sales this year is a shortage of computer memory chips. Nintendo has delayed production of some new games because of a shortage of a particular chip, known as the static random memory chip, used in Nintendo’s more elaborate games. For example, it has delayed introduction of Link, a sequel to best-selling Legend of Zelda, to October from February.

Sega and Atari aren’t as seriously affected, because they rely primarily on other, more plentiful, computer memory chips. But Sega has postponed the introduction of two games until next year as a result of the shortage, and the company acknowledges that video game production could fail to meet demand if the shortage continues. Nintendo has already projected a 10% to 15% gap between supply and demand for new games.

Few view the chip shortage as a permanent setback. In fact, says Rhoads, pent-up demand caused by the shortage could create a greater hunger for games. “This means 1989 could be an even bigger year.”

 

Craig has been covering the video game industry since 1995. His work has been published across a wide spectrum of media sites. He’s currently the Editor-In-Chief of Nintendo Times and contributes to Gaming Age.

Craig Majaski

Craig has been covering the video game industry since 1995. His work has been published across a wide spectrum of media sites. He's currently the Editor-In-Chief of Nintendo Times and contributes to Gaming Age.

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