Information about Console Manufacturer

A console manufacturer is a company that manufactures and distributes video game consoles. It is also known as a first-party video game publisher. Historically, some of the most recognized console manufacturers include:

• Atari - first console market leader; now a third-party publisher.
• Microsoft - the newest major player in the market, releasing the Xbox and Xbox 360 consoles.
• Nintendo - historically the best known console manufacturer; also the longest running company in the market, and long-time dominant market leader of the handheld console market.
• Sega - a dominant leader during the 16-bit era, now a third-party publisher.
• Sony Computer Entertainment - became the console market leader with its first console, the Sony PlayStation.

Industry

The fact that out of the list above only three remain as console manufacturers - one less than 6 years old - demonstrates the volatility of this industry. Each new console generation, which typically lasts 5-7 years, experiences significant changes in the market share. For example although the Nintendo NES enjoyed a 90% market share during the 8-bit era, this dropped to approximately 60% after the 16-bit era, with Sega being responsible for the majority of this change with their Sega Mega Drive/Sega Genesis. Likewise, during the 32/64-bit era, Sega’s market share plummeted with the Sega Saturn, and Sony - a newcomer in the industry - became the market leader (Nintendo took second place with their Nintendo 64). As of 2005, the most significant console manufacturers in the industry during the 128-bit era were Sony (PlayStation 2), Nintendo (Nintendo GameCube), and Microsoft (Xbox). Of these three, Sony remained worldwide market leader with Nintendo and Microsoft roughly equal in second place, each dominating the competitor in its home territory. Two years into the seventh generation era, Microsoft has grabbed an early lead with the release of the Xbox 360 in North America on November 22, 2005 and the continuation of its revolutionary Xbox LIVE service. The release of the PlayStation 3 in Japan on November 11, 2006, and Wii in North America on November 19, 2006, saw gamers snub the pricey PS3 in favor of the innovative Wii, despite its inferior graphical capabilities compared to the other two. The Wii remains in high demand (outstripping supply in some areas) and is quickly catching up to the XBox 360 while PS3 lags behind with less than half the worldwide sales of either competitor. Industry analysts caution that it is too early to call for final standings, with all three consoles anticipating new titles from major franchises for the holiday season of 2007 and Spring of 2008.

By contrast, in the related handheld console market, Nintendo has remained market leader since the establishment of its wildly successful Game Boy line in 1989. In spite of its technological inferiority, the black-and-green Game Boy easily staved off competitors, including color-display systems made by Atari and Sega of the above-mentioned manufacturers. With backward compatibility and a continued emphasis on battery life and quality games, the Game Boy Color, though short lived, proved sufficient to maintain Nintendo’s lead and brand awareness until the release of the Game Boy Advance, which had all the same features and more, and again brooked no competition, including the Nokia’s phone/console hybid, the N-Gage. The first significant challenge to Nintendo’s handheld gaming dominance arrived in 2004, in the form of Sony’s PlayStation Portable (PSP). Despite superior graphics technology and a wide array of non-gaming capabilities, however, the PSP has failed to overcome Nintendo’s DS system, which, with its addition of a second, touch-sensitive screen, remains the fastest-selling console worldwide and in most territories.

Pricing

An interesting strategy that many console manufacturers take is to sell their console at a low price (respective to the production costs) with the hopes that this will entice more consumers to purchase the hardware, which in turn will generate additional profit through extra software sales. For example, although a bit extreme in terms of ‘normal’ pricing strategies within the industry, it has been reported that Microsoft was losing nearly 275 USD with the sale of each Xbox unit. (See: Razor and blades business model.) In the seventh (current) generation, Sony is also expected to lose several hundred dollars per system sold. However, unlike its two competitors, Nintendo will allegedly be making a profit on each system sold, despite Wii already being several hundred dollars cheaper than Xbox 360 and PS3. It is worth noting that unlike SCEI and Microsoft Game Division, which are part of media and technological conglomerates, Nintendo is a stand-alone, primarily (almost solely) video game-based company.

Backward compatibility

Recently console manufacturers have begun considering backward compatibility as an important feature in their consoles. Nintendo has had much success making their Game Boy Advance compatible with the regular Game Boy and Game Boy Color handhelds, as well as their new handheld Nintendo DS which is compatible with games made specifically for the Game Boy Advance. Nintendo’s Wii is compatible, after a fashion, with all four of its previous consoles, in that it can play games from its immediate predecessor, the Nintendo GameCube, and users may download select games released on all of Nintendo’s older home systems (and those of some defunct competitors) using the Virtual Console feature. Sony employed the same making its PlayStation 2 backward-compatible with its PlayStation, and continued with this strategy by making their PlayStation 3 backward-compatible with PlayStation 2 and PlayStation games, although many games had serious problems until a firmware upgrade 3 months after launch. The Xbox 360 is backwards compatible with 394 Xbox games as of the July 12, 2007, update; fewer titles are backward compatible in European, Japanese, and Australian markets, with 295, 101, and ??? titles respectively.

First-mover advantage

The first-mover advantage that certain console manufacturers experience can be a great boost, on the other hand is it a somewhat risky strategy. Though it may attract early adopters by providing an advanced alternative to current offering, this strategy leaves room for competitors to copy the hasty company’s successes and learn from its mistakes. While there have been cases of consoles becoming successful partly because they were the first ones released within a specific era (most notably Sega with their Megadrive during the 16-bit era), success from being the “first-mover” is not always guaranteed. Sega tried once again but failed to reap benefits by being the first-mover during the 128-bit era with their Dreamcast. Unfortunately for Sega, many consumers decided that they would rather wait for the PlayStation 2 to be released instead. Other console manufacturers have also attempted this strategy, such as the 3DO and Jaguar, all failed miserably. Nearly every console manufacturer who released their console first to the market by a significant margin, permanently exited the race soon after. Despite this trend, in releasing the Xbox 360 before its competitors’ products were released, Microsoft hoped to benefit greatly from the first-mover advantage - and its gamble paid off, shipping around 6 million units before the others launched. As many gamers decided to buy a cheap, novel Wii, and only one of the expensive, high-end, traditional alternatives, Microsoft’s early launch allowed it to firmly trounce Sony in the first years of the seventh generation. However within a year of the Nintendo Wii's launch it had already beaten Xbox 360 sales which had been available for 2 years already.

Third-party support

It has often been said that when it comes to a console’s success: “It’s all about the games”, and this is certainly true. A console manufacturer needs to have ample third-party developer support in order to have a steady stream of quality video games being released throughout the year. Although brand loyalty, technical capabilities and price certainly plays their part, people tend to purchase the console that offers the games that they enjoy most. Without games, there is no reason to buy a console. It is the very reason why people doomed the Nokia N-Gage to failure before it was even released. Therefore console manufacturers need to establish good relationships with third-party developers, otherwise they risk losing the support that they need to another competitor. A lot of this revolves around management, business decisions and partnerships, as even Microsoft occasionally publishes games for Nintendo handhelds, having no handheld of its own at present or planned for the near future. However, a console manufacturer can also help promote third-party support by making their console easy to develop on. Part of the reason for the success of the Sony PlayStation against the Sega Saturn was that the PlayStation was considered an easy platform to develop games, while the Sega Saturn, with its dual processors and overall complexity, frustrated developers instead. In the sixth generation, Nintendo was perceived to be comparatively lacking in 3rd-party support, and relied mainly on their own 1st-party games, a situation since the Nintendo 64, since at the time, many third party developers opted for the PlayStation due to the ease in making games for it. It should be noted that many top-selling Nintendo games are critical franchises that are well recognized in the video game industry at large, like The Legend of Zelda, Mario and Metroid. In the current seventh generation, this is reversed: the PlayStation 3 is perhaps the most difficult (and the Wii the easiest) to develop for.

On the other hand, third-party developers and publishers are themselves responsive to sales numbers, and the surprise success of the DS and Wii has prompted companies like Electronic Arts and Square Enix to shift more focus and resources toward Nintendo projects.^[1]

Former console manufacturers

• Atari - revived by Infogrames and now a third-party game publisher
• Coleco - defunct
• Commodore - revived and now Commodore Gaming ^[2]
• Emerson
• Magnavox
• Mattel
• Milton Bradley Company
• NEC
• Philips
• RCA
• Sega - abandoned console manufacturing and is now a third-party software publisher
• SNK - revived by Playmore and now a third-party game publisher

Notable former licensed console manufacturers

• Aiwa - licensee of Sega
• Bandai - licensee of Apple Computer (Pippin)
• Hitachi - licensee of Sega
• JVC - licensee of Sega
• LG Electronics (fka Goldstar) - licensee of 3DO
• Panasonic - licensee of 3DO and Nintendo
• Sanyo - licensee of 3DO (Japan only)
• Sharp Corporation - licensee of Nintendo

References