Video Games Are All Business

The video game industry held its annual trade show, the Electronic Entertainment Expo (E3), last week with three major corporations — Microsoft, Nintendo and Sony — all arriving in sunny Los Angeles to provide details on freshly announced hardware price cuts.

To me the price cuts are only the beginning of a bitter war of attrition, as violent and high-stakes as many of the video games they sell. In my mind's eye these three corporations look like old-fashioned battleships, turning their massive guns around at each other ready to blast each other at point blank range, profits be damned, until one or maybe two are left on the water.

Looking back at the category over the years, having three game platforms out there battling for business is nothing new. But it doesn't last long.

During the late '70s and early '80s you had Atari, Mattel Electronics and Magnavox. When Magnavox dropped out in the mid-'80s you had Coleco, Atari and Mattel. After that the industry imploded for a few years. Nintendo resurrected the industry in the late '80s and has been around ever since, first battling Sega, now Sony and Microsoft.

Plenty has changed in the video game business during the past 20 years. The technology has taken quantum leaps, of course. And those 12-year-olds who owned Atari 2600s during '81 and '82 are still playing games today and now have their own kids who want the latest equipment, so the potential market is a lot larger.

In our coverage of the game business (see p. 19) our associate editor Will Safer quotes several industry execs saying that there is room for three video game platforms in today's market. No offense, but I disagree. That view flies in the face of the category's history.

A few things haven't changed in the video game business. While there have been three game formats available at the same time from vendors in the past, the competition is short-lived. The game platform with the most software hits wins. The video game is nothing if not a fashion industry.

The difference this time around is that, corporately, all three companies involved have deep pockets to make long-term investments in the business. And the technology of each game platform is excellent. For the surviving manufacturer, the profits should be lucrative until the next manufacturer joins the fray. Even if there are two, odds are that one will have an overwhelming market share, say 75 percent, with the other making a living with 25 percent of the market.

This time the battle will be a longer, expensive one, but eventually one or two vendors will say "No mas" and drop out of the business.

TWICE rarely goes down Memory Lane, but occasionally when the subject is right, we will saunter down that road. Harry Elias' 35th year with JVC is one such occurrence. He celebrated the anniversary last month, and yours truly sat down and talked with him about his career at the company and his view of the industry. The interview kicks off a new semi-regular feature called TWICE Newsmakers, in which we will sit down with industry executives who have been in the news recently and give them the opportunity to discuss major issues in a Q&A format. Harry continues to have a unique viewpoint on the industry and we hope you find our first installment on page 24 both entertaining and informative.