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E3: Game Outlook Keeps Getting Brighter

23 May, 2002 By: David Ward

After a few years of flat sales as the console game industry transitioned from one generation of hardware to the next, the Electronic Entertainment Expo (E3) in Los Angeles bubbled with genuine optimism as the recent console hardware price cuts and a impressive assortment of quality titles for every system cause many at the show to predict 20 to 30 percent sales increase for the industry in 2002.

This year's show started early, as even before the doors opened Nintendo dropped the third and final shoe on the console price wars, cutting the price of the GameCube to $149. The move came days after Sony and Microsoft cut the price of their systems to $199 and positions all three systems to reach a broader audience.

But what should be a highly competitive battle among three deep-pocketed and savvy game companies is in danger of turning into a rout. Even though both the Nintendo GameCube and Microsoft Xbox have been on the North American market only six months, Sony Computer Entertainment America (SCEA) COO Kaz Hirai used his company's E3 press conference to declare, “officially, the console war is over…PlayStation 2 has won.”

The total global PlayStation 2 installed base has soared past 30 million, Hirai said , including 9.5 million in North America. The PlayStation 2 player base will reach 50 million worldwide and 20 million in North America by the March 2003 end of the company's fiscal year, he predicted.

While it sounded arrogant, it was hard to argue with Sony's confidence on the show floor. A publishing source echoed Hirai's claim that sales have spiked dramatically since the PlayStation 2 was cut to $199.95, noting mass merchant Target saw its hardware sales increase four-fold in days following the May 13 cut. By today, an etailer was offering the consoles at $189.99.

On the software front, Sony offered up a strong mix of first-party games including NFL GameDay 2003, the first-person shooting game SOCOM: Navy Seals and two new character based games; Ratchet & Clank and Sly Cooper and the Thievius Raccoonus. All told there will be a staggering 400 games for the PlayStation 2 by year's end, up from 230 at the end of 2001.

The only real question for publishers and retailers at the show was PlayStation 2 software pricing. Sony indicated it is dropping the price of many of its first party games to $39, leaving many game makers to wonder whether to follow suit. Early indications are that while some top-tier games such as Electronic Arts' Madden NFL 2003 and Capcom's Devil May Cry 2 may be able to command $49 this holiday, the majority of games will be at $39 – good news for both consumers and retailers, who should see units sales rise as a result.

While it received little fanfare at the show, retailers and publishers were also encouraged by Sony cutting the price of the original PS One to $49. NewKidCo president Arthur Levine indicated the drop should keep the PS One market alive for another year at least, especially for value-price and younger skewing titles such as his company's upcoming Dora the Explorer.

While it was not a main focus, Hirai also touted the rollout of the company's online plans, beginning with the August 27 launch of a network adaptor for $39.99. The adaptor will come bundled with a startup disc and several game demos and Hirai said the company would have five online PS2 games available by next March, including Twisted Metal Black: Online.

Microsoft spent most of its press conference touting the upcoming launch of the online service Xbox Live and to boast it will spend $2 billion on driving the Xbox over the next five years. But despite a 3.5 million installed global installed base after six months – respectable by most standards – the software giant was a distinct underdog at the show as slowing sales have left it battling for shelf space in a retail environment that has historically never supported three consoles.

Despite the slow rollout for cable modems and other high-speed connections to homes, Microsoft spokesmen said the company is banking on broadband gaming to provide it with the edge going forward. Declaring that gaming on narrowband connections is like “sucking pizza through a straw,” executives claimed half of Xbox owners already have broadband connections.

When it launches later this year, the company said Xbox Live would retail for $49.95 and come with a one-year subscription, a voice communication accessory and the racing game ReVolt. <./I>

It's games that will ultimately save the Xbox and Microsoft did showcase some solid titles including Start Wars: Knights of the Old Republic, Blinx: The Time Sweeper and Sega's Panzer Dragoon Orta.

While Nintendo is in a similar situation to Microsoft in chasing the PlayStation 2, the company used a tried-and-true formula at E3, unveiling several new titles that feature some of the strongest franchises in the game industry, including Mario Sunshine, Metroid: Prime, Star Fox: Adventures and Legend of Zelda.

With last year's hardware launches of GameBoy Advance and the GameCube out of the way, Nintendo Sales & Marketing EVP Peter MacDougall said the company is back to doing what it does best—making, marketing and selling software. Nintendo of America will spend $240 million in marketing driving awareness for its games over the next seven months and MacDougall said the company expects to finish first in software sales this year.

Unlike its competitors, Nintendo downplayed the short-term potential of online gaming, despite the fact it is bringing out both broadband and narrowband modems for the GameCube. Instead Nintendo focused on inter-platform connectivity, as it unveiled a new e-Reader ($39.95) smart card accessory for the GameBoy Advance. With the reader and collectible cards embedded with data and storage space, gamers will be able to download information and transfer it to another GameBoy Advance, which can then transfer it along to the GameCube. The Cards, which contain up to 3.6 Kb of data, will feature Pokemon and other well known characters.

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