Sony expects big year from games sales

Sony expects to have sold 40,000 units of its handheld PSP gaming device by the end of the Christmas selling season as the console games industry wraps up what is expected to be a record year in sales.

Big-name video games and sales of newer devices such as the PSP, Nintendo DS and Gameboy Micro will push the value of the video games industry past the $130 million it was worth last year.

Sony bosses expect the jump in value to be substantial and in line with growth in the US$40 billion ($57.4 billion) global video games industry.

"This year it will be significantly higher with a greater volume of software sold," said Warwick Light, Sony Computer Entertainment's general manager for sales and marketing.

A third of the industry's annual business is done in the all-important Christmas quarter while the other sales spikes during the year coincide with school holidays. The sales rush is on with premium titles, which make up the bulk of game sales by value, selling for around the $100 mark on PS2 and Xbox.

The PSP, which plays movies on proprietary UMD discs and music as well as games, has notched up sales of 22,000 since its launch in September. According to video games market researcher GFK, the PSP has been outselling the Nintendo DS since launch.

Major full-priced games such as racing title Gran Turismo 4, Electronic Arts' Rugby 2005 and the controversial gangster role-player Grand Theft Auto: San Andreas have driven sales on the PlayStation 2 console, which has accumulated sales of 310,000 in New Zealand and 100 million worldwide.

In the first six months of the year Sony alone sold 77,000 games worth $5.4 million. Light says the figure can be multiplied by four to get a rough approximation for games sales across the industry as a whole.

It's an industry where the new video game consoles will debut at prices that may mean significant losses for their makers. That's because the video games business model demands that hardware be sold cheaply and swiftly, with money being made on the software titles the hardware runs.

Margins of 50 to 60 per cent on software sales for game publishers are not uncommon and as sales of hardware increase, the cost of making the consoles falls. It's a cyclical model that is being repeated as the video games industry enters a phase of new hardware releases.

Microsoft launches its next-generation gaming console, the Xbox 360, here in March (it had its US debut last month) at a price range of $549 to $720. Michael Ephraim, Sony Computer Entertainment's managing director for Australia and New Zealand, says an Australasian launch of the PS3 is 12-18 months away. Nintendo, the distant third player in the games hardware market, unveils its Revolution console next year.

PlayStation continues to be the jewel in the crown for Sony, which is struggling to meet competition from lower-priced Korean and Chinese manufacturers in the consumer electronics market. On a revenue basis, the games division is responsible for 10 per cent of Sony's turnover and at the moment, 50 to 75 per cent of its earnings.

Despite that, only 2 per cent of Sony's employees work for PlayStation. But the balance of power at Sony may shift if the upcoming PS3 console achieves its makers' aim of being an entertainment hub for the household.

Like Microsoft, Sony wants its next-generation console to be used to watch high-definition movies, play music, store photos and connect to the internet. Whichever console maker does a better job at combining all of these things with gaming will wield huge power in the consumer electronics and entertainment industries.

Ephraim believes Sony has the edge. He points to PlayStation founder Ken Kutaragi's claim that the current generation PlayStation 2 is a "Trojan horse" into the "networked digital entertainment market". That means a lot more than gaming from PlayStation consoles in future.

"In three to five years you're going to see some real lifestyle change in how people get their content," Ephraim said.

With 63 per cent of the installed console base in New Zealand compared to Microsoft's 36 per cent, Sony certainly has an easier route into the living room, where it is an established brand.

Ephraim says that in 10 years Sony has pushed the video games industry from the "bleeping Marios" of the early 2D Nintendo games to life-like 3D animation.

But critics point to the levels of realistic violence.

Game industry executives such as Light and Ephraim are naturally defensive about the portrayal of violence in the games they sell.

Although violent, GTA represented some "very clever American satire" and was rated R18, so it was aimed squarely at adults, said Ephraim.

About 15 to 18 per cent of games have extreme violence in them. As for the proliferation of action role players and war games, he says game makers are simply meeting market demand.

The 18-to-34 male demographic is still the vital target market for the games industry though Sony claims women are increasingly taking to gaming.

The industry as a whole is going after female gamers and casual gamers with more targeted titles as it seeks to exploit the commercial advantages of taking gaming more mainstream.