Every four or five years for the last three decades, the games industry works itself into a tizzy by advancing videogame technology to its next logical level but promoting the advancement as if it were the second coming of sliced bread.

Traditionally, there's been two major competitors in the space, a third dark horse upstart and sometimes one or two more pretenders hoping to cash in on a craze. In the early years, it was Magnavox, Atari and Mattel, then Nintendo, Sega and NEC, then Sega, Nintendo and Sony and now Sony, Microsoft and Nintendo.

The videogame market has expanded significantly in the last couple of generations and now boasts an audience large and diverse enough to sustain three or four competitors in the space. Good thing, too, for four there be in this new-generation console war, namely Sony's PlayStation 3, Microsoft's Xbox 360 and Nintendo's Wii console with the fourth dark horse found in the ubiquitous PC.

Too, the videogame game has evolved to a point that the actual game playing part is just a primary feature among many "digital lifestyle" features like movies and music downloads, community and live chat and persistent worlds that remain running in real time and evolving dynamically even though the player may be at work or asleep.

Game revenue now comes from a variety of sources, too. Traditionally, game hardware makers followed the "give away the razors to sell the blades" business model, selling game systems at a loss but making that back with game software sales. These days, however, or somewhere around the time that videogames broke the $10 billion annual revenue mark and every corporation on the planet suddenly wanted in, money can be made in a variety of ways, some of them obvious, some of them clever.

First, there's in-game advertising, which until recently meant one time buys for a billboard-like ad within a game, whereas now such ads can be bought, inserted and swapped out of many games as streamed in the background over the internet. Same goes for product placement and exclusive sponsorship deals, as seen with EA's phenomenally popular people simulator, The Sims, a game franchise in which characters in the online version of the game could open up a McDonalds restaurant (but not a Burger King or Wendy's, obviously) and sell Big Macs.

Another relatively new money-maker is found in subscription based games, where people who buy a single game such as World of Warcraft for PC, an MMORPG (massively multiplayer online role-playing game) or "persistent world" game, must then pay a monthly subscription fee of $15 per month to access the game's actual playing fields, or "worlds," which are found on the publisher's proprietary servers which, in turn, host thousands of users playing the game together at the same time. To date, World of Warcaft boasts more than 7 million subscribers and has generated almost $1 billion in subscription revenue all by its lonesome.

Interestingly, MMO gaming has spun off an underground sub-industry of its own, a black market of sorts in which entrepreneurial gamers will actually sell off in-game assets like swords and magic spells, even houses and gold, for real money on auction sites such as eBay. High-ranking players will offers themselves as bodyguards for hire to low-ranking players entering dangerous areas of a game. Some make it their full time job and earn tens of thousand of dollars a year doing it. Industry analyst group DFC Intelligence estimates the trade volume of these cyberspace-based goods and services range from $100 – $800 million a year.

Last month, the U.S. government took notice and is now trying to figure out how to tax this industry-within-an-industry. No joke. "Right now we're at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise -- taxes, barter exchanges, property and wealth," said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress in a recent Reuters story. "You could argue that to a certain degree the law has fallen (behind) because you can have a virtual asset and virtual capital gains, but there's no mechanism by which you're taxed on this stuff."

Last year, Sony Online, purveyors of the granddaddy of MMOs, EverQuest and EverQuest II, opened "Station Exchange" which acts as a controlled and moderated environment for this otherwise dubious practice with "Caveat Emptor" written all over it. Not surprisingly, Sony charges a service fee for all Station Exchange transactions.

Sony's fee-based slice-of-the-pie services are neither new nor unique, however. "Micro transactions" are as common as 99 cent songs sold on iTunes. For the games industry, however, it takes the form of after-market parts for your preferred racing game car, downloaded for 99 cents; a brand new, Limited Edition car for that same game is just $2.99 and another 20 courses on which to race, $5.99; a game you thought you only paid $50 for but somehow managed to spend $90 on: priceless.

And thanks to the penetration of broadband internet, online portals like Steam, GameTap and Direct2Drive, meanwhile, bypass the traditional retail channel and allow users to purchase, download and install games (and other media) directly to a PC's hard drive. These are huge files, to be sure, and they can take up to several hours to download, but that's still often quicker than getting dressed and driving down to the mall to actually buy a copy, bringing it home and installing it. Too, such direct purchases aren't just for second serial schlock, either, though there are plenty of games that died on the vine three years ago being offered anew in virtual stores, but also quite a few "AAA" games like Valve's Half Life 2 and Ubisoft's just-released Dark Messiah Might and Magic. Not always sold at any kind of discount, mind you, but at full retail prices, even though pressing and packaging costs were nil.

So it follows that each of the three new-generation consoles, the PlayStation 3, the Wii and the Xbox 360 are all online, broadband-enabled out of the box. Hence, the new console wars aren't just about razors and games anymore. While online connectivity is a natural feature to promote the multi-player modes of any give game, it's also how each manufacturer and publisher expects to make some extra money out of you. Each system will offer some form of multimedia downloads, including music, broadcast and cable television shows and Hollywood movies in some cases, plus virtual communities with online chat, video conferencing and digital photo sharing, etc. and, most lucratively, access to exclusive game content in the form of big game supplements and add-ons as well as self-contained smaller games. These include most of Nintendo's best selling titles from previous generations, Microsoft Live Arcade's casual gamer distractions and Sony’s small suite of digital ditties, too. All for a wee fee or modest micro-transaction, which adds up to big bucks. Of course, the PC has been enabling such things for years; now it's the three consoles bringing their little war to the computer's domain. So, as mentioned, that's four competitors in the new-gen race.

The thing is, none of them is likely to fail, though some will fair better than others. There is more than enough room for each system, because the potential audience or market share worth sharing is truly and probably for the first time, as large as the populace that can afford it, which is pretty darn large. It's not just games anymore, it's digital entertainment in many forms in one place. Who wouldn't buy into that?

Still, it's worth looking at each system a little more closely...

Also see:

• Console Wars '06 - Historically Speaking


• Console Wars '06 - Exhibit A: The Xbox 360


• Console Wars '06 - Exhibit B: The PlayStation 3


• Console Wars '06 - Exhibit C: The Nintendo Wii


• Console Wars '06 - Exhibit D: The Windows PC

 
 

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