History of the Video Console Industry
Overview
Pre-1994
Post-1994
Future: Sega,
Nintendo, Sony,
Microsoft
Overview
The games industry as a whole consists of the video
console market and the computer games market (excluding
the arcade game market for the purposes of keeping
the focus on regular consumers). The direct competition
in the video console industry, as it stands today,
includes Nintendo, Sony and Sega. However, several
references will be made to the computer games market
because the two evolved in much the same way until
the early 1990s, and because PC games are the most
important substitute product that competes for consumers'
purchases. 
Pre-1994
The video game industry was born in the early 1970s
with the US launch of Atari's Pong arcade game and
later, Midway's Space Invaders. Following on their
success, the first video game system for the home
was released by Magnavox, and later a whole string
of new and revamped systems followed in Atari and
Mattel. For slightly more than a decade, American
companies dominated both the arcade and video game
markets.
Then, the status quo was shattered in 1985 when a
Japanese company called Nintendo burst onto the scene
with its 8-bit Famicom console unit (renamed the Nintendo
Entertainment System for the US market). Another Japanese
company named Sega released its 8-bit Sega Master
System in 1987. Subsequently, the Japanese companies
solidified their hold on the global video games market
with the launch of Sega's 16-bit Megadrive (called
Sega Genesis in the US) in 1989 and Nintendo's 16-bit
Super Nintendo Entertainment System in 1991.
The Nintendo Entertainment System,
the machine to revitalize the console market
As the games industry reached its cyclical peak in
1993, the 3DO company and Atari tried to break into
the market with technically more advanced consoles,
but both failed because of a combination of over-pricing
and poor software support. With Nintendo and Sega
at the end of their cycles, the video console market
began to slump in 1994 as consumers began to anticipate
new 32 and 64 bit video game systems that never materialized.
At the same time as video games were declining, PC
games became the most important games platform with
the growing use of IBM-compatible PCs as the hardware
standard. Because computer hardware evolves continuously
(while video consoles do not feature hardware upgrades),
the PC games market is never affected by the type
of cyclical downturns that strike the video console
market.
Post-1994
The video console industry was jumpstarted somewhat
by the release of Sega's 32-bit Saturn console in
1994, and subsequently the Nintendo 64-bit N64 in
late 1996. The real revival however, was stimulated
in late 1994 by the entry of a new player in the market,
with Sony releasing their 32-bit Playstation console
amidst considerable consumer hype and an unprecedented
performance level. The Playstation dominated the market,
outselling Sega and Nintendo's consoles by as much
as sixteen to one.
The release of the Playstation effectively made Sega
Saturn a huge failure, and they eventually responded
with their new Dreamcast console in 1998. Ironically,
the amazing customer anticipation of the Playstation
2 (which was already released in Japan) is looking
to once again burst its bubble. In the US, even with
Sega's Dreamcast available for consumers, the video
games market cycle is now peaking and entering into
a transitional phase that will last between 12 to
18 months.
The undisputed
market leader
|
Sony's Playstation has reached an installed
base of 80 million, which is above that of Sega
and Nintendo combined. This makes the Playstation
the most successful videogame console of all
time. There is approximately one Playstation
in every 5 American households today.
However, the value of the Playstation market
has begun to decline with the arrival of the
Playstation 2.
|
Sega's Dreamcast has enjoyed moderate success, having
shipped more than 6 million consoles to date. At the
same time, the N64 has also reached a plateau, conversely
due to the lack of quality games for their console.
Looking towards the future, it does not appear as
if Nintendo's new Dolphin console will attempt to
rectify their biggest problem, with only 3-4 titles
available at launch.
| Console |
Global Installed
Base (3/2000) |
Launch Date (Japan) |
Sales Peak (Anticipated) |
| Sony Playstation |
75 million |
1994 |
1998/1999 |
| Nintendo 64 |
22 million |
1996 |
1999 |
| Sega Dreamcast |
6 million |
1998 |
2000/2001 |
| Sony Playstation
2 |
1.2 million |
2000 |
N/A |
| Nintendo Dolphin |
N/A |
2001 |
N/A |
| Microsoft X-Box |
N/A |
Fall 2001 |
N/A |
The Future
Where does the market go from here? Undoubtedly,
new and changing technologies are the key to the continued
success in the industry, as will be outlined in the
Technology section. What other strategies do these
companies have to improve their market position? For
example, initial indications are that telecoms and
cable partnerships could be an important development
in new consoles. The goal would be to have a set-top
box that handles digital TV decoding, electronic program
guides, internet, and video playback.
Sega
Sega was the first to market their new console, the
Dreamcast, which could prove to be disastrous, especially
with a number of console releases on the horizon.
Regardless, the processing power of the Dreamcast
is clearly superior to the current generation of consoles
(Playstation and N64 namely) and is actually the closest
a video console has come to being truly PC-compatible.
The design of the console seems to be ideal for converting
a title from PC to Dreamcast, and it also features
potential for internet use (upgradable modem and telephone
interface) and word processing (USB port for standard
PC peripherals). Sega has also partnered with ICL
and BT to provide network and dial-up access in Europe,
AT&T in the US, and 30 local cable operators in Japan
to provide high-speed gaming. The Dreamcast was released
in the US in September 1999 and has no more than an
18-month launch window before Sony releases the Playstation
2. The key to succeeding in the midst of new consoles
will be Sega's ability to secure a steady stream of
high quality and original software titles in the US.
d
Titles such as NFL2K
(left) and Grandia 2 (right) are key to the Dreamcast's
success.
Nintendo
Nintendo's new console is a DVD-based device called
the Nintendo Dolphin, which is supposedly at least
as powerful as the Playstation 2. The console, which
uses third-party manufacturing partners, is set to
be launched in 2001. Matsushita, the primary force
behind the failed 3DO console in 1993, withdrew plans
to launch a console called M2 in 1997, and is now
working with Nintendo on the Dolphin project.
One of Nintendo's partners behind
Nintendo's upcoming system. MoSys provides the graphics
processor for the Nintendo "Dolphin".
Sony
In March 2000, the Playstation 2 sold 980,000 units
in its first two days on sale in Japan. The power
of the Playstation 2 will be a step up from the Sega
Dreamcast, although it will take some time for software
developers to fully take advantage if its capabilities.
An important feature of the Playstation 2 is the backwards
compatibility with the current PSX, ensuring that
all 3000 existing titles will be playable on the new
system. This large back catalogue goes a long way
in raising the appeal of the new console, although
initial reports claim that not all the games will
be compatible. However, production of the Playstation
2 is nowhere near cost-effective: Sony is currently
losing money on each console it sells and they will
have to bring down costs as other competitors enter
the market. Surprising to many, Sony does not intend
to include a modem with their new machine, but they
have outlined plans to sell and distribute games,
music and movies digitally through the machine's USB
and Firewire ports.
d
d
Sony will try to sell Playstation2s
with marquee titles from premiere 3rd party developers
like Namco, such as Ridge Racer 5 (left) and Tekken
Tag Tournament (right)
Microsoft
It has been known for some time now that Microsoft
is planning to enter the video console market with
their games-capable set-top box, X-Box. In short,
the X-Box a high-spec PC-console hybrid that is DVD-compatible
and will be competitive in terms of price and graphics
power with other models in the industry. The question
that has every one holding their breath is whether
Microsoft can break into the market without games
console experience as Sony did in the 1990s. Microsoft
claims that X-Box will be its biggest ever product
launch. The X-Box has online capability and clear
potential as a TV-based ultra-cheap PC, but Microsoft
is marketing it only as a games console. Curiously,
given a mouse and a keyboard, the X-Box would be more
powerful than most PCs in the market for only a small
fraction of that cost. Perhaps Microsoft is trying
to draw clear lines between the X-Box and its WebTV
division, in which it has invested over $300 million.
Others Besides the aforementioned Matsushita company,
an American start-up named VM Labs is also planning
to bring its Nuon video game into the market. VM Labs
are taking a unique approach by creating a DVD chip
instead of a console for their machine. The launch
date is tentatively set for mid-2000.
A conceptual computer graphic image
for the X-Box
