Cost-cutting consoles

Zeitgeist finally got around to seeing “Elysium” last night. Typical of the current climate in film distribution, it was disappearing from all of Zeitgeist’s local screens in central London, after a mere 3-4 weeks of release. The above trailer screened before the film. Videogames have been trying to sell themselves as films for years, since the likes of “Metal Gear” and “Max Payne”. (The picture becomes even more blurred as more videogames attempt to make the transition to feature franchises). This tactic was nothing new, moreover it was somewhat underwhelming. The graphics looked pixellated, the movement clunky, and any sense of verisimilitude was lacking. It is difficult to put a finger on what exactly the problem was, but patching polygons together is not the same as making all the parts interact with one another. It was surprising, given that the game is to be made available on the as-yet unreleased Playstation 4, a console which, going from the launch event months ago, is capable of some stunning graphic simulation. The market has gone for longer than usual without a new stream of console launches, so it seemed puzzling that not all that much seems to have changed.

It was somewhat reassuring then to read today The Economist’s Technology Quarterly supplement, which featured as its lead article an overview of the videogames industry, and how high costs have produced diminishing technical returns in the latest bout of releases from Sony, Microsoft and Nintendo. The article states the newest consoles look “surprisingly underpowered”:

“At previous console launches, executives have boasted about their boxes’ whizzy technological innards. Sony in particular was a dab hand at this sort of thing, coming up with names like “Emotion Engine” and “Reality Synthesiser” for the chips that powered its previous consoles. But this time neither Microsoft nor Sony seems very keen to talk up the technical prowess of their new boxes… new consoles will be merely catching up with the current state of the art, rather than defining it. Both consoles… are, for all intents and purposes, ordinary PCs in fancy boxes.”

The market hasn’t found a way to substantially raise prices on games, while at the same time the cost of developing them has “ballooned”. Moreover, due to rising costs of customised chips and increasing competition from those with lower fixed costs (think videogame mobile app developers, and Ouya), Sony and Microsoft are now using standardised chips in their consoles.  The article was also keen to note that graphics are no longer the be-all-and-end-all of a console’s power and reputation (as it was in the days of 32 and 64-bit machines). Indeed gaming itself is argubaly no longer front and centre of console strategy, as manufacturers seek to diversify into other areas of entertainment. Just in time as well, as a recent report from Accenture predicts the end of single-use devices.

UPDATE (15/9/13): The New York Times points out that often the best games take a while to appear on new consoles, with Nintendo devices tending to be the exception.

Creative Destruction in Electronic Arts

The videogame industry, like many of the protagonists in the games it creates, is under attack. The competition is fierce. Not only is there healthy competition amongst legacy companies – including Nintendo, Sony and Microsoft – but new devices are increasingly distracting consumers, and digital disruption elsewhere is changing the way these companies do business.

Part of the problem is cyclical; the market has gone longer than usual without a major new console launch from either Sony or Microsoft, which in turn makes game manufacturers hesitate from making new product. But the industry needs to be wary that their audience has changed, in multiple ways. Sony are now starting to talk about their PS4 (due to be released in around six months’ time), beginning with a dire two hour presentation recently that failed to reveal price, release date, or an image of the console. And the word over at TechCrunch? “A tired strategy… [O]verall the message was clear: Sony’s PS4 is an evolution, not an about-face, or a realization that being a game console might not mean what it used to mean.”

We’ve written before on creative destruction in other industries, and talked before about shifting parameters for companies like Nintendo. The inventor of NES and Game Boy is currently struggling with poor sales of its new console, while at the same the chief executive of Nintendo America recently stated that digital downloads of videogames were becoming a “notable contributor” to their bottom line. Companies like Apple are surrounded by perpetual rumours of developing their own videogame platform. New companies in their own right, such as the Kickstarter-funded company producing the $99 Ouya, is among several players shaking up the industry. The upshot of such turmoil – a “burning platform” as the Electronic Arts CEO described the situation in 2007, referring to the dilemma of holding onto the burning oil rig and drowning in the process, or risk jumping off into who-knows-what – is a loss of market share. Accenture in January published a report predicting the demise of single-use devices such as cameras and music players whose revenues would be eaten into as more and more consumers flocked to tablet and other multi-purpose gadgets. Videogame console purchase intent was not researched, but it is not hard to make the analogy.

It was enlightening and reassuring then to read McKinsey Quarterly’s interview recently with Bryan Neider, COO of Electronic Arts. Some interesting take-outs follow. First, in 2007, the company recognised there was a problem: “game-quality scores were down and our costs were rising”. The company wanted to shift from having a relationship with retailers to having one with gamers. This meant having a focus on digital delivery. This fiscal year, digital is forecast to represent 40% of the overall business. Neider recognises this closeness to the consumer makes them even more susceptible to their whims and preferences, so they’re relying far more on data-backed analysis than they have before, including a system with profiles of over 200m customers. This data is used for everything from QA to predicting game usage. Neider elaborates,

“Key metrics answer the following questions: where in the game are consumers dropping out? What is the network effect of getting new players into the game? How many people finish a game? Did we make it too difficult or too long? Did we overdevelop a product or underdevelop it? Did people finish too fast? Those sorts of things are going to be critical… However, the challenge is that parts of the gaming audience are pretty vocal—they either really like a game or they really don’t like it. The trick is to find ways to get feedback from the lion’s share of the audience that is generally silent and make sure we’re giving these people what they want.”

Interestingly, the company’s structure was changed to reflect individual fiefdoms according to franchise – be it FIFA or Need for Speed – the needs for which are managed in that line of business. Each vertical competes with the others to deliver the highest rates of return, while also being able to draw on central resources (marketing, for example). Electronic Arts, as a developer of software for other manufacturers, will to some extent always be at the mercy of which devices are in vogue and the cycle of obsolescence. It is impressive though to see that the company has recognised the need to change the way it does business. The operational and technological sides of business don’t seem to have distracted Neider from the key insight in the industry, “Ultimately, we’re in the people business“.

Check us out

As we celebrate our first anniversary and approach our 150th post, please join us in celebrating our 30,000th hit.

Over the past year, we’ve written on a variety of subjects. Some articles have commented on whole industries or cultural movements, some on incidents of spectacular successes or dismal failures.

We’ve written on the changing face of masculinity, and how men shop in the second decade of the 21st century. We examined why England lost it’s World Cup bid, and what the World Cup meant for the world as a whole, and the businesses that aim to profit from it.

We talked about the future of content; what it means to own something that only exists as a file on a computer, but you still have to pay for, as bookshops and videostores fade to dust and intellectual property rights evolve along an uncertain path.

How social media is used for good, for ill, for Gatorade and for Conan O’Brien.

We’ve ruminated on leadership, on how luxury justifies itself post-recession, and how antique brands like Louis Vuitton attempt to keep themselves fresh, as well as ultra-premium.

We’ve talked about how movie studios win by marketing their product, and how auction houses lost out to the pitfalls of behavioural economics.

We’ve debriefed you on our visit to the UK’s Google HQ, while waxing lyrical on Nintendo as it moves from taking on Sega to taking on Apple.  We’ve asked what it means for the future of TV when everyone has Sky+ and a broadband connection. And we’ve looked at several examples of superb brand activation.

Lastly, we’ve tried in vain to present the glory of Roger Federer.

Stick around and have a browse, we’re not going anywhere.

Marketing “Tron”

Form follows profit is the aesthetic principle of our times

– Richard Rogers

You know your movie is knocking on the door of the cultural zeitgeist when razor brands are piggybacking off your product. Disney’s ‘Tron: Legacy’, released around a month ago, has accrued a great deal of spilled ink in newspapers and online. The reporting has focussed not only on the film itself, but also its unique design aesthetics and marketing formula across multiple platforms.

Zeitgeist has mentioned the film’s marketing activities before in it’s blog, including it’s three and a half year journey as a promotional campaign to screen, (surely a record). It was a good eighteen months before the December 2010 release of the film that electronic music duo Daft Punk were revealed to be composing the soundtrack. On a brand level, this was a good fit; those who were inclined to see Tron would find this news very exciting; it would hopefully also pique fans of Daft Punk’s interest in the film. The collaboration naturally allows for figurines, bears and awesome headphones to be created, too.

The razor mentioned earlier – the Philips Norelco Senso Touch 3D – could have been an exploitative gimmick launched without much thought of the product itself and how it connects to the movie or their audience. To it’s credit, as reported by brandchannel,

The maker of the new Senso Touch 3D electric razor is offering tickets to an advance screening of Tron: Legacy via a special website that includes a rebate offer, the ability to “customize your photo into the world of Tron,” and a sweepstakes with a $10,000 prize.

The above tactics all help build a connection with the movie itself, ameliorating the product in the eyes of the film’s audience, as well as building anticipation for the film’s release. The week of the release was when footwear designer Edmundo Castillo announced the arrival of a pair of LED ‘Light Sandals’ that, according to Luxuo “pay homage” to ‘Tron: Legacy’. They will retail at $1,650 at Sak’s from February 1st. The article also mentions eyewear manufacturer Oakley is releasing special 3D glasses to tie-in with the film’s opening. Nokia have employed a similar effort with the release of a new handset. More collaborations can be found in a very comprehensive article by brandchannel, here.

In the digital world, it would be ironic if Disney had dropped the ball. Similar to other recent accounts like that for the film ‘Inception’, the film featured several region-specific accounts on Facebook that were regularly updated, informal and promoted reaction and engagement. One of the best things that Zeitgeist saw on the account was the brief chance to attend a free 20-minute preview of the film in several locations around the country. Zeitgeist attended and found himself surrounded by a very particular type of demographic, who doubtless were exceedingly excited to be there, as evinced by their cheering when anything vaguely exciting happened during the select scenes shown. The other digital platform to be wisely exploited was that of videogames. We’re not there yet, but we are fast approaching a time when movies open to support the release of a new videogame, rather than the other way around. There has been a significant fanfare around the release of the videogame based on the film. The game(s) make the bold, yet logical and laudatory move, of differing greatly between platforms, based on the typical owner of such consoles, reports Reuters. For example, the more family-friendly Nintendo Wii’s version lets you race around on a variety of the vehicles featured in the movie. For other platforms, where hard-core gamers make up a bigger portion of the audience, the game delves deeply into the mythology of the films, providing a back-story only hinted at in the new film.

The film itself also sees a number of product placements, including Coors, Apple (so to speak) and Ducati. The latter’s placement seemed rather glaring to Zeitgeist, but to those not on the lookout for such placement it might blend in more easily and authentically. The prominent placement of the motorcycle was spotted by many on Twitter however, with mostly positive reactions:

Associating one’s brand or product with such a cool film is a way of adding to your cachet, to be cool by proxy. Most surprising of all the collaborations then, is that of Apple, who need engage in no such ‘cool by association’ tactics. Yet here they are with a very, very cool app on the iPad. Between the film and the tablet, which is promoting the other in this case is hard to divine.

All this talk of marketing ploys ignores the film’s greatest asset, it’s aesthetic beauty. The film is indeed a wonder to look at, hence how it has inspired so many product collaborations, particularly in the world of fashion. While Zeitgeist realised he was supposed to be feeling somewhat tense and anxious near the end of the film as the goodies race for home, the climactic chase scene is one of a stunning light display that leaves one fairly awe-struck. The design of the film as a whole has been influential enough for the Los Angeles Times to produce a feature on it recently.

You may of course just be looking for a Tron: Legacy Coliseum Disc Battle Play Set, or one of the 37 other items related (vaguely) to the film that Disney has commissioned. In which case, best to head here.

Rewarding Advocacy and Retaining Customers

How “24”, Louis Vuitton and a London restaurant attempt to make their brands worth engaging with.

Eye-catching advertising – like the one mentioned by Zeitgeist in the previous article posting – that succeeds in converting a person to being a new customer of a brand is one thing, but keeping them dedicated is quite another. As The New Yorker cartoon above demonstrates so humorously and effectively, engagement is what’s important. It’s about incentivising and rewarding your customer for their association (and, hopefully, evangelism) of the brand.

Zeitgeist has touched on location-based services several times in the past, and as the service continues its maturation process, we are able to judge better as to what kind of benefits it brings to marketers of brands. One is still left with the impression that network effects have yet to fully take hold for the myriad platforms – Foursquare, Gowalla, and more recently Facebook’s equivalent – that provide these services. Logically, greater and more plentiful benefits for those that sign up to these services would encourage those users to advocate others to sign up to them.

So what is the current state of affairs for rewarding users of such services? Well, first you can count out anyone who lives outside a major metropolitan city; the service has nothing to offer them other than who gets to be arbitrary mayor of which location. Sometimes, locations can be inaccurate enough that it looks like people are having a drink in a subaqua bar, as is the case above.

In the past week, living in London, Zeitgeist has experienced two offers through Foursquare that have had real-world consequences. Tuesday before last, as one of the first people to unlock the “Louis Vuitton Insider” badge, Zeitgeist’s presence was requested at the Bond Street Maison for a drinks reception, attended by several Vuitton employees from the marketing and digital disciplines, from both London and Paris. The chance to get to talk to such people, while browsing the store’s significant art book collection while munching on macaroons and sipping various beverages, leaving with a small gift, all were clearly tangible benefits for those guests who attended the evening. What of the business though? What benefits does it reap from organising such an event at reasonable expense? Ideally it gets to know its customer base better, though in this case, some of those who unlocked the badge were not habitual customers of Vuitton. Still, for those that are, the event would no doubt have encouraged a greater affinity toward the brand.

Yesterday at lunch near Covent Garden, Zeitgeist was early meeting his friend and decided to check-in on Foursquare. The reward for having done so was a free glass of wine. The benefits of free alcohol need not be extolled or delved into greatly in this article. However, the execution was sorely lacking. The waitress, when presented with the notification of this offer, was totally caught by surprise, and was not aware of any such offer. When the glass was ultimately brought – Zeitgeist was presented with a choice of “red or white?” – it was of course some substandard plonk that wouldn’t have been fit for a university ball. On the face of it, of course, this was not surprising; but it led to the question of what is the point of rewarding the consumer / shopper / person with something that is pretty poor and leads to a less enjoyable experience?

Zeitgeist can think of few experiences less enjoyable than competing against others to stay awake. Yet this is exactly the idea that 20th Century Fox have had, on the eve of the release of an enormous, diss-it-and-you’ll-be-waterboarded, boxset of the entire series of the hit show 24. Starting last night in Los Angeles, several “lucky” winners of a competition run entirely on Facebook will be subjected to every single episode of the series, while they compete with other viewers in a glass cube to stay awake. The campaign is also supported by a Twitter feed and, as Fox would have hoped, has been picked up by “24” fan blogs as well as the mainstream media, appearing in the LA Times. The campaign will have relatively little long-term impact, as the series has now come to end – though rumours persist of a film being made – but the idea for the competition, one of endurance, is very on-brand for the series, and has clearly sparked much chatter online. It should be noted that endurance contests are not always on-brand, or safe. UPDATE: The winners.

Nintendo’s Nemesis & Evolution

“All is unceasing and rigorous competition in nature”, said the Marquis de Sade. Rivalries come and go, it is the victor who must with each success continue to innovate and ultimately change, enduring the onslaught of new competitors. Yahoo vs Google, Microsoft vs Google, WPP vs Google and more recently Apple vs Google and Apple vs Amazon vs Google; in similar circumstances, we have gone from Sega vs Nintendo, to Sony vs Nintendo, to Apple vs Nintendo.

Apple themselves have pushed beyond their preliminary battle with Microsoft to a place where they now court multiple rivals in all the different markets that they affect with products like iTunes, the App Store and Apple TV. Steve Jobs, in September last year, said that the iPod touch was being released with gamers in mind after having had much feedback from the public as to what they used the device for. This was part of the reason why the iPod touch was cameraless, unlike its smaller, cheaper cousin. Nintendo must have known it was only a matter of time until their paths would cross…

Zeitgeist has very fond memories of inadvertently reshaping the bones in his thumbs while playing the Mario Brothers trilogy for hours and hours back in the day. The Nintendo Entertainment System, their first console, was fantastically successful. Somewhere along the way, however, the company got a bit lost. The turnabout it managed thanks to the Wii (and to a lesser extent the DS) is extraordinary; Sony and Microsoft saw share of their respective PlayStation and X-box platforms gradually erode to give Nintendo a position of dominance, becoming the market leader less than a year after its launch; PSFK named it one of their top ten brands of 2010. In the last week though, Nintendo have reported an earnings drop – its first in four years – hurt by slow sales of the Wii and possibly effected by piracy as well, according to Le Monde. Just as Apple are encroaching on Nintendo’s sovereign territory, the reverse is also true, as Nintendo have been offering Netflix movie rentals for a while now. Will the DS soon be facing off against the iPhone, iPod and iPad? According to Le Monde, in 2008 Apple’s iPhone represented 5% of the gaming market, Nintendo 75%. Today the iPhone’s share is 19%, Nintendo’s 70%. It is the casual nature of its games that made the DS and Wii appeal to a market that other consoles never even considered. Now though, those casual gamers are equally at home playing on an app on their iPhone, as well as on Farmville on Facebook. Variety says, (emphasis added),

“More than 32 million people tend their virtual crops each day, and the game has a total user base of 80 million. That’s roughly seven times the number of people who play the online smash ‘World of Warcraft’.”

Of course, rivalries like this will become increasingly common in this sector, as technology platforms – what the great Lawrence Lessig calls “layers” – continue to converge, allowing for excellent, mutiple functionality on one product (look at the iPad as an example). Somewhat counterintuitively, customers may not readily embrace this convergence, as behavioural economics tells us that people put more trust in a product that performs one dedicated task well; they assume anything else will be somehow diluted. Neither Nintendo or Apple should fret, exciting times are ahead. There is speculation in the Le Monde article, among others, that Nintendo should take the fight to Apple by releasing its own phone. Zeitgeist would find that a real treat. Almost much as much of a treat as the original Japanese advert for Super Mario Bros. 3. Enjoy.