Every time America's economy has taken a turn for the worse, the field of popular entertainment has emerged as an economic success. It seems that when costs go up and salaries decline, people want to escape from reality. This was true during the Great Depression, and it's true today, as movies set new box office records and television shows proliferate on cable. It seems that while housing prices and manufactured goods orders are what we look to for economic hope, we clearly want to be entertained until things improve.
But the strongest performer in the entertainment field these days isn't the movie industry or the music business. Over the past few years, people have revealed just how much they're willing to spend on entertainment by purchasing large catalogs of home video games. Last year, video games and consoles outsold the domestic motion picture box office, and this year they look likely to overtake declining music sales. More Playstation 2 units have sold since the system's debut two years ago than Tony Bennett has sold in his lifetime. Nintendo's Mario, the character that virtually launched mass-marketed home video games in 1985, has sold $7 billion worth of games. Hollywood, in contrast, has Harrison Ford, whose entire film output, including Star Wars and Indiana Jones, has grossed $5.6 billion worldwide.
Success in the gaming field isn't purely anecdotal. While some video game companies, like many during the recession, have seen a drop in the market value of their shares, many of the top game publishers and console manufacturers have posted all-time highs and yielded dramatic returns for investors. Growth isn't expected to stop anytime soon: Analysts are forecasting that the U.S. video game market will grow to an annual $13.2 billion by 2005.
This degree of economic success comes at a price for console manufacturers, however, who are now caught up in a wave of consumer opportunities that demand better technology and faster innovations. Consequently, last year Microsoft and Nintendo launched their newest systems, the GameCube and the Xbox, in a marketplace already dominated by Sony's less-powerful Playstation 2. With only three companies competing in the console market, success was virtually assured for each of them on some level, but Nintendo and Microsoft were hoping that their technological superiority would give them the edge in the coming years.
This year, Microsoft continues to invest in its estimated $2 billion Xbox venture by taking the machine, and some of the games for it, online. Launched last week, it's a technologically flashy service, called Xbox Live, made even more risky by the facts that the Xbox will connect to the Internet only via broadband and that Microsoft will be charging players $50 to access the company's network.
Xbox Live has certainly caught the interest of the competition. Playstation 2, which hyped its potential Internet access when it shipped two years ago but hadn't delivered on the promise, suddenly released and sold out a shipment of broadband and dial-up network adapters two months ago. And Nintendo quietly released similar adapters for the GameCube, which also sold out in stores.
Still, by betting exclusively on broadband, Microsoft is taking a risk on an unproven technology. High-speed Internet access may be attractive to individuals who want to download large amounts of video and audio, but the clear majority of consumers still access the Internet through a dial-up connection. Microsoft, however, decided that many of the features it wants to incorporate, including the ability to speak with other players through an Xbox headset, were only possible with a broadband connection.
"The broadband bet was a bet on the future," explains J Allard, Microsoft's general manager for Xbox and one of the machine's creators. "We've never looked back. Now that we have tens of thousands of customers online that I interact with daily, I'm more confident than ever that it was the right decision. We wanted to have voice in every single game. That's not an option on narrowband. We wanted to have your sports games completely synchronized with the statistics in the real world or the weather in the real world, as the case may be. Narrowband was completely inappropriate for our vision of what online gaming was, and we felt that we had to take that quantum step."
Sega, which will be publishing online games for each of the systems this year, agrees with Allard. "It was only a year ago that you couldn't imagine playing a game and being able to actually speak with someone on your team, be them on the street or across the country or even across the world," says Charles Bellfield, a spokesman for Sega. "But these types of experiences are developing gameplay. No longer is it an antisocial experience with you sitting at a computer in a darkened room. You're actually part of a community. You're actually able to communicate, building social elements into gaming. The game no longer switches off when you go home. The world can continue with your statistics, player, your friends and foes, without you, so that when you come back to the game, the game is progressing."
"We're fusing video games with broadband and communication," Allard says. "In the early '80s, people brought together music and television, and everybody thought they were crazy and nobody knew how it would sort out. That's where we are -- this is the most exciting thing to happen in entertainment since MTV. We don't know how it's going to pan out."
Nintendo shares that attitude as well, although the company is less optimistic than Microsoft. "All of our systems have had the capability to add a modem," explains Nintendo's Network Marketing Director Jim Merrick. "And frankly the technology is not rocket science... there's nothing all that advanced about putting a console online. The challenge really is, is the consumer in the mass-market sense ready to embrace online console gaming? And at the same time, is there a valid business model? Nintendo is a little bit more cautious than some of our competitors, because we really don't see those latter two things happening yet -- either the viable business model or that mass-market acceptance of online console gaming."
"You have to remember that Nintendo's a mass-market company," says Nintendo VP of Corporate Communication Perrin Kaplan. "Nintendo wants to remain an expert at games. And if this turns out to be something that consumers really want to use as the vehicle, Nintendo will be there full force. But for the amount of effort we think it's going to take the other companies -- the amount of money -- it's not something we think is fruitful at this point in time."
Sony, however, feels that consumers are ready to accept online consoles, at least on a limited scale. Most people who play video games already play with friends and family, and online computer games, such as the company's Everquest, have more than 430,000 players who pay a monthly fee just to take part in the game. But "when we're talking about tens of millions of people that we want to eventually be able to reach," says Sony spokesperson Mollie Smith, "it's just not there yet. But we also believe that there isn't an application out there that will accelerate this process. With the Internet in general, many people believe that e-mail was the killer [application] -- it was enough of a reason to get people online. And it just isn't there yet with broadband. However, we feel that the interest in online gaming, from a mass market proposition, may just be the killer [application] to get people to upgrade to a broadband service."
Some broadband providers agree. Many of them have begun to feature a special symbol indicating compatibility with Xbox Live. Industry analyst Schelley Olhava, with Interactive Data Corporation, believes that if the game experience Microsoft is aiming to deliver "is really compelling, it could actually be a very key factor for driving more people to adopt broadband."
And even with the 591,000 console gamers forecasted to go online this year representing merely a small percentage of the worldwide totals, if that number continues to grow, it could provide a jump start to the flagging tech industry as a whole.