Who’s in control?

So I was checking the VGChartz numbers on Gran Turismo 5, and while it is Christmas after all, it still managed to sell almost 5 million in its first month; if sales stay strong, they should hit 10 million sometime in 2011.  Congratulations Sony, you sure needed it.

What I have said before, or would have said if I had a blog, is that Sony needed Gran Turismo 5 to sell at least 10 million, and push the PS3, otherwise they should just give up.  The PS3 really needs this game, actually it needed it four years ago to prevent the PS3 from this death spiral from ever occurring; now it needs it to stop it from going out of control… out of Sony’s control.

In the beginning…

This whole problem really starts with the earliest game consoles, specifically Atari and the 2600.  Back then, there was only one company making games for the 2600, and that was Atari itself; they had full control, and unfortunately, they abused it.  Some of the developers at Atari grew fed up with the executives’ domination and formed their own company, Activision, the first third party developer.  Atari did not want Activision infringing on its turf by selling games on its hardware since software is more profitable than hardware, so they sued; when the dust cleared, Activision was allowed to continue, and became very successful.

Activision’s success had another consequence, more third parties.  Companies saw Activision making lots of money off of games like Pitfall! and wanted in; some of these companies had no business at all making video games, like Quaker Oats.  Atari certainly didn’t help things with stinkers like E.T. or the Atari 2600 port of Pac-Man, but the flood of lousy third party software that Atari could not control is one of the leading factors in the video game crash in the early 80’s.

Now you’re playing with lockouts

Nintendo arrived on the scene bringing its Famicom system from Japan, renaming it the Nintendo Entertainment System, and a swanky new lockup chip meant to stop unlicensed third parties; not only that, but to prevent a wash of low quality software, Nintendo implemented fairly draconian licensing agreements, limiting the number of games a company could produce, how cartridges were ordered, and console exclusivity.  Third parties didn’t like it, but they had no choice but to comply as Nintendo was about the only game in town; competitors like Atari and Sega were also-rans, while the PC market that blossomed with the fall of Atari was losing ground to the Japanese juggernaut.

Some companies tried to exert control over Nintendo, and of those, Atari through a subsidiary, Tengen was one of the worst.  Claiming they were being sued by Nintendo, they sent an affidavit to the U.S. patent office to get the code for the lockout chip, and used that to create their own chip to beat the NES’ security.  Of course, Atari got sued for this.

This game of cat and mouse continued with the next generation; some third parties grew frustrated with Nintendo and moved the moment a viable competitor appeared, and that was Sega.  Sega was certainly nicer than Nintendo, but third parties still had issues, as Sega was cut from the same cloth as Nintendo; they still had licensing agreements, strict licensing conditions, and collected licensing fees.  Like Nintendo, Sega had to put up with some third parties trying to work behind their backs.

Electronic Arts was one of the biggest offenders, and reverse engineered the Genesis, allowing them to make Genesis games with or without Sega’s blessing.  Before they went forward, EA approached Sega, looking for a license, but there was a catch; EA told Sega that they had cracked the Genesis, and unless Sega gave them a special license, they would move forward as an unlicensed developer.  Sega was mad, but they figured EA was better as an ally than an enemy, so they cut a deal.

By the end of the 16-bit era, several companies had successfully reverse engineered the NES, Genesis and SNES, and made unlicensed games; but most companies played by Nintendo and Sega’s rules as licensed developers.  The first parties were largely in control.

R U e?

After some bad dealings with Nintendo, another competitor appeared in the video game hardware space: Sony, taking the remnants of an aborted SNES CD add-on, created their own system, the original PlayStation.

The Playstation came out when many third parties were growing frustrated with Nintendo and Sega, and wanted a change, but they certainly didn’t want to work with another company like those two, and most non-game companies simply had no idea what they were doing.  Sony came in, learning from watching Nintendo; they also brought in the marketing experience from their various entertainment divisions, electronics experience from their technology divisions, and more importantly, almost no video game development capacity.

Game consoles sell because of games, it’s the software that’s in control, not the hardware.  Nintendo and Sega made their own software, and theirs was often the biggest draw; they’d hype up the rest of the library that third parties supplied, but it was icons like Mario and Sonic that were front and center, first party icons.  Nintendo tried to sell the Nintendo 64 with hit games like Mario 64 and Legend of Zelda Ocarina of Time, backed by a dream team of second party developers like Rare, Left Field and Silicon Knights; third parties were largely ignored.  And Sega, well they shot themselves in the foot with hardware issues, starting with numerous add-ons to the Genesis, and conflicting hardware designs; before the Saturn, Sega was building the Neptune, which would have been the Genesis and 32X rolled up into a neat, tidy little package, which they dumped when they remembered they were trying to make a true next gen console.  Even if third parties liked Sega, this left them confused.

Sony had the expertise to make the console, but without internal game developers (they had some, just not very many), Sony had to look outside for the games to sell the system; this made them very willing to court third parties, and offer incentives to any developer willing to jump on board.  Sony did have some conditions, like favoring 3D games over 2D, and there was Bernie Stolar who ran SCEA, adding restrictions on certain game genres like JRPGs, who left Sony just in time for Final Fantasy VII to hit U.S. shores.  Even with some bumps, Sony was far better to work with than Nintendo and Sega ever were, not because Sony was nicer, but because they had no choice.

Many third parties had games that were almost as big and well known as Nintendo and Sega’s finest, and when those companies jumped ship for the PlayStation, their fans followed.  Sony didn’t take over the market, third parties took the crown away from the old kings, and hoisted the PlayStation onto a pedestal.

Sony was king… a puppet king.  Third parties were in control.

The real irony is the reason for Nintendo not continuing with Sony’s CD add-on, it would give Sony too much control over the platform; dumping Sony led to losing control over the industry.

Sony vs. Microsoft

In the PS2 era, everyone bought a PS2, unless they had some specific taste; Mario and Zelda fans had to buy a GameCube, while FPS fans who latched onto Bungie’s newest gem, Halo bought an XBox.  Everyone else, and any of those who wanted more than just a plumber or a guy in a suit of high-tech armour, would buy a PS2 for all those other games that didn’t show up on Nintendo or Microsoft’s machines.

On the outside, this looks like a fine setup; gamers who bought a PS2 could enjoy almost any game, while game developers could make games for one piece of hardware knowing that they could reach most every gamer.  The only problem, it was good so long as Sony didn’t act like jerks.

At some points during the PS2’s reign, there was some grumbling that Sony was getting arrogant, that they were taking third parties for granted, but it really didn’t come to a head until Sony unveiled the PS3; it was powerful, built with the latest tech, and really freaking expensive.  It seemed that Sony was losing touch, not only with gamers who would have trouble paying the $500-$600 price tag, but Sony didn’t seem to care about gaming itself.

With the PS3, it was as if they only really cared about Blu-Ray, once that beat out HD-DVD, it almost didn’t matter how well the PS3 did.  They also wanted to sell HDTVs, and use it as a test bed for the Cell processor.  Now Sony’s focus is on 3D, and trying to sell 3D TVs.  After being on top for over a decade with two hugely successful system, Sony is not fighting as hard as you would expect from a company that wants to sit atop the video game empire.

By comparison, Microsoft had come into the market and intended to take over the same way they try to take over every other market, buying it.  They bought several developers like Bungie and Rare, paid developers to get exclusive games or periods of exclusivity, like the DLC for Grand theft Auto IV, and published several third party games, like Mass Effect, which is still not on the PS3, despite EA acquiring Bioware.

Compared to Microsoft, Sony just wasn’t competing until it was too late; Sony had struck some publishing deals with third parties such as the deal with Atari for Ghostbusters, but in that case, Atari was facing mounting financial problems and was desperate for help.  Microsoft made huge deals with third parties where the third parties had a lot of clout, such as the deal with Rockstar for GTA IV supposedly costing $50 million; and they paid $350 million for Nintendo’s stake in Rare.

Sony didn’t seem to care, it took the PS3 lurching into 3rd place that finally got them to sit up and take notice.  Microsoft cared a lot, or they are just horrible with money; but as The Simpsons‘ version of Bill Gates pointed out, he didn’t get rich by spending money recklessly.

Thinking inside a Cube

Over the years, we have seen how Nintendo works with third parties; unlike Microsoft who throws money at them to net exclusives, they pay out for principle.

First, Nintendo has gone to third parties, hiring them to make games in Nintendo’s franchises: Capcom made the Oracle games in the Legend of Zelda series, Sega made F-Zero AX/GX, Namco made Star Fox Assault, Square Enix made Mario Hoops 3-on-3 and Mario Sports Mix, and Team Ninja made Metroid: Other M.  By using Nintendo’s franchises, the games that resulted belong to Nintendo, so the third parties can’t take their games and go elsewhere; in the case of Mario and Sonic at the Olympic Games, Sega tried to take the Sonic side of the game and release it on the iPhone, and it disappeared from the App Store for reasons unknown.

In another case, Nintendo helped publish the Baten Kaitos games made by Monolith Soft and Namco; it was a series that helped fill the void with the departure of Square’s Final Fantasy and Enix’s Dragon Quest.  Nintendo thought it would benefit them, so they bought the franchise, and then Monolith Soft itself.  Nintendo also let Retro Studios take a swing at Metroid, and was so impressed, that they acquired it for developing more Metroid Prime games.  With their talent, Monolith Soft and Retro Studios had something that Nintendo wanted, giving them leverage on Nintendo; the owners used that leverage when they sold out to Nintendo, which gave the power to Nintendo.

Finally, for a case where Nintendo paid for an exclusive in a third party franchise without buying the company or franchise outright, look at Square’s (later Square-Enix) Final Fantasy Crystal Chronicles.  If Microsoft was approaching Square, they would’ve driven a large truck full of money to Square’s front door and said: “Final Fantasy XII, XBox exclusive, DO IT!”  With that strategy, it leaves power in the hands of Square, it proves the Final Fantasy series is important, and Square is in a bargaining position since they own it; Sony helped Square when they released Final Fantasy VII, and while it led to a decade long relationship, since Sony doesn’t own Final Fantasy, there was nothing to stop Final Fantasy XIII from going multiplatform.

Nintendo didn’t tell Square to make a Final Fantasy game, they wanted someone to make a game using the GameCube-to-GameBoy Advance link; this benefited Nintendo more than Square.  First they were tying their unsuccessful console to their successful handheld; second it would show off something that only Nintendo’s systems could do, so anyone interested in making games that connected a handheld to a console, would have to go to Nintendo.  The game didn’t sell that well, and it seemed clumsy, making the GC-GBA link a hindrance; but if it did work, Nintendo would’ve held the power, not Square.

When Nintendo works with third parties, they set up the deals to make sure the power stays with Nintendo, and not to acknowledge the power of third parties.

Return of the King

This generation, we find that the old king has returned, by broadening it’s gaming reach with a different focus than it’s competitors, Nintendo is back on top, even though the rest of the industry tends to act like they have leprosy or something.  Oh sure, being different meant that they could fail, and that the rest of the industry was right the whole time, but it also meant that they could succeed by escaping the constraints that shackle everyone else.

Sony and Microsoft, on the other hand, are very similar in their approaches, they made very powerful machines with the latest graphics technology, with nearly identical controllers, hard drives, and an increased focus on online gaming and digital distribution.  Third parties loved it, they rewarded them by putting their best games on the platforms, and punished them by putting their games on both platforms.  Because the two systems were largely the same, gamers looking to buy one, could buy either, and it almost wouldn’t matter which one they got.

This was also beneficial to third parties, third parties could play Microsoft and Sony off each other.  When Sony commanded a huge lead with the PS2, Microsoft’s money meant very little, third parties did not want to get shut out of a large market by supporting the XBox exclusively, so they had to support Sony.  As a result, Sony didn’t have to work very hard to keep the lead, and Microsoft’s work was for naught, so they didn’t try as hard or spend as much as they could.

With the XBox 360, Microsoft has taken a sizeable chunk of the market, third parties are developing for them, and any money they spent would lead to tangible results, so they spent more.  Sony, now behind Microsoft, has to work hard to keep third parties on side and to not fall further behind Microsoft; a big change from the PSX and PS2 where they didn’t have to do much more than release the hardware.  Also, the similarities of the systems meant that third parties could shift allegiances very quickly; Microsoft willing to pay, take a PS3 game and port it to the 360.

Third parties have Sony and Microsoft in a pickle, able to coerce special deals from them; but they don’t want to give too much to either company for fear of one “winning”, at which point they stop competing with each other.

The Wii was a problem because it was different; if third parties supported it, they were tied to it, and when they saw Nintendo taking a lead, they couldn’t go to Nintendo looking for a handout since Nintendo’s success was based on their own franchises.  Also, any handout wouldn’t cover the cost of porting games as HD games would have to be rebuilt from scratch to work on the Wii; they would need a truck load of money to entice them to support the Wii, and Nintendo didn’t get where they are by passing the moneyhat around.

How many times have we heard that Nintendo should cut price, or release a Wii2?  Both of these are third party attempts to seize control over Nintendo.

If Nintendo cuts price, then that means more money in the hands of gamers, and more people buying the system on a whim; this means more potential revenue for third parties with no extra effort on their part, as Nintendo has to do the heavy lifting of pushing hardware, and takes the hit to the pocket book to pay for the price cut.  Nintendo may make some money back on licensing fees, but they are also devaluing their own product and their brand to do so.

If Nintendo released a Wii2, then third parties will just use that as another machine to port games to; the Wii2 won’t get any special treatment, it’ll become just another piece of hardware.  Remember above how Sony and Microsoft are joined at the hip because they released largely similar systems, well the Wii2 will join them, and Nintendo will be reduced to fighting with the other first parties trying to curry favour with third parties to avoid being stuck in third; and even if they succeed and get into first, they’ll be only slightly ahead, and will have to keep currying favour in order to prevent Microsoft or Sony from catching them.

Yeah, no thanks.  With the Wii, Nintendo took control, and they’re not about to give it back.

The Driver’s Test

Sony hasn’t been in the driver’s seat for the PlayStation since the original launched, they own the car, but third parties were the ones doing the driving; and now that those third parties are eying another car, Sony can’t rely on them anymore.  Third parties are sharing all their games between the PS3 and XBox 360.

If Sony wants to dominate the industry again, they are going to have to take control, they need big exclusive games that will make games go out and buy PS3’s just to play those games; so they either have to pay off third parties for their support, or Sony is going to have to make those games themselves.

Either way, it’s time to roll up those sleeves.

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This entry was posted in History, Microsoft, Nintendo, Sony, Third Party and tagged , , , , , , . Bookmark the permalink.

2 Responses to Who’s in control?

  1. Akaro says:

    Very, very nice post. I enjoyed the read. Keep up the good work! |^^|

  2. Pingback: Third parties still don’t like Nintendo (and Apple it seems) | Fall from Angel Land

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