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The market for video game consoles is wide open and growing for retailers, say analysts, retailers and manufacturers. And the threat to retailers, if there even is one, of direct online procurement and storage of video games, is far off.
The current field of three consoles — Microsoft's Xbox, Sony's PlayStation2 and Nintendo's Gamecube — is hardly crowded they say. Nintendo even considers its Game Boy Advance as a fourth platform. So the sentiment of these industry observers and insiders is that the likelihood of only one or two nudging the others aside is slim.
"Our experience with all three [platforms] has been positive," said Steve Lundeen, VP Interactive Merchandising for Blockbuster. "We'll allow the consumers to vote with their feet, to vote with their retail dollars." In that regard, he said, no clear choice has been made among the three. "We're still talking about growing the installed base."
Blockbuster also gave the category an added vote of confidence by announcing plans to expand its sections devoted to video game hardware and software by carring Microsoft's Xbox and Nintendo's Gamecube later this year. It currently carries PlayStation 2. The chain will also remerchandise its stores to create separate sections for each platform as it strives to double its video game revenue by the end of 2003.
Other industry watchers see plenty of room for that installed base to grow.
"It's just such a darn big market," said Consumer Electronics Association spokesman Jim Barry. "With the three platforms, I wouldn't call it a segmentation but rather a broadening of the market. There's room here, which is why you saw Microsoft making such a bold move into this area."
Since his company's success relies on a continuing growth of the installed base, perhaps Activision VP of Sales for National Accounts Jason Needleman is allowed to hedge just a little. "While its too early to tell if retailers can support all three systems, the results so far are very positive," Needleman said. "History has shown that retail can support at least two hardware systems at the same time and the demographics for video games continue to expand as games become a mass-market form of leisure entertainment. Consumers who played games in the '80s are still playing games and each year millions of new consumers enter the market."
So this bodes well for retailers. But what of online access to games? Won't that cut retailers out of the lucrative market for software titles? Not according to Brian O'Rourke, Senior Analyst for Converging Markets & Technologies, In-Stat/MDR.
"If you look at popular online games for the PC right now, including Everquest and Ultima Online, the consumer must go to a retailer — whether brick & mortar or online — to by the CD-ROM to get started," O'Rourke said. "Sony and Microsoft's online plans also envision the consumers buying the game at retail. Due to the large amounts of bandwidth required, I don't expect anyone to be directly downloading these types of games for quite some time."
And when the bandwidth does open up for consumers, Blockbuster sees an opportunity gained, not lost. "It's no secret, our main focus is with our stores," Lundeen said. "But when the market is right, we'll take the Blockbuster brand in that direction. So far, [downloading games] has not been a profitable business for anybody. But we'll be ready when it is."
Nintendo spokeswoman Beth Llewelyn echoed Lundeen's view on the matter. "Downloading a game is still a long way off," she said. "This is still a brick & mortar business. I don't believe the right game is out there yet for online gaming."
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