Video games on the threshold of tomorrow

Discount Store News, Jan 7, 1991 by Frank M. Viollis

Video Games on Threshold of Tomorrow

The video game industry is standing at the threshold of tomorrow. While most business strategies deal with the hows and why of stabilizing expenses, targeting growth opportunities, and maximizing market share, the players in the video game arena are planning revolutions in technology.

In 1976, the "Pong" game made its debut. Millions of people were lured to its black screen and bouncing ball. Millions of quarters were spent on America's new craze. The "Video Game" had arrived. A new age in entertainment was born.

Within three years (with Pong still America's most popular video game) the video game had migrated from the arcade to the home. Atari's 2600 Home Video Game System (costing about $330) dominated the marketplace, giving the company a 44% share of the $464 million video game industry. Just two years later, in 1982, industry sales hit the $3 billion mark (with Atari accounting for more than half). Everything was golden, or so it seemed.

In 1983, cheap, imitation software flooded the market. Video game sales dropped by $1 billion. Two years later they hit bottom. At the $100 million mark many industry players withdrew. The "first generation" had ended.

Enter Nintendo.

After successfully introducing its Famicom (Family Computer) System in Japan, in 1983, Nintendo felt confident that it could revitalize the U.S. video game industry. Nintendo launched its campaign in New York, at the tail end of 1985. By the end of the next year, it owned the video game industry in America. The "second generation" had begun.

Today, Nintendo stands at the head of the pack, controlling 80% of the $5.1 billion dollar market. Its game titles (like Super Mario Brothers and Tetris) read like a "Who's Who" in American pop culture. Its compact unit is a familiar feature in more than 20 million American homes. Its logo attracts millions of game-hungry buyers.

"There's no argument that today, even with their 8 bit units, the `install base' belongs to Nintendo," stated Ted Hoff, senior vice president of sales and marketing for Tengen Inc.

Today, as it has since its debut in 1983, the Nintendo machines utilize an 8 bit system. Its two major competitors, Sega Entertainment Ltd. and NEC (Nippon Electric Co.), have developed and are aggressively selling hardware that utilizes 16-bit systems.

Loosely translated, `bits' are the horsepower of the computer. They determine how quickly the machine will respond to data requests, and, as is particularly important with video games, how many frames per second you will see on the screen. The greater the number of bits, the greater the capacity of the machine to handle more elaborate software. A 16-bit machine has power capabilities equal to pcs of the mid '80s.

The 16-bit machine offers the game player:

* Superior graphics; * Life-like sound (including duplication of actual voices); * Characters that move more smoothly and seem human; * 3-D and zoom capabilities; * More complex plots.

It also, for the present, means a higher retail price per software unit (averaging $70 per game compared to Nintendo's $45 average), and a smaller selection of titles. In contrast to the vast library of Nintendo's 8-bit titles, NEC offers 60 games, and Sega, 26.

Already, NEC has sold 2.1 million of its Turbo GraphX units in Japan, and 400,000 in the United States; while Sega has sold 1 million Genesis units in Japan, and 600,000 in the United States.

"Last November [1990] one-third of all hardware sales at specialty and up-scale retailers were our 16 bit units," noted Kenneth Wirt, sales and marketing vp for NEC. "We're well ahead of our projections."

Wirt said he expected that percentage to rise to 50% by the end of December 1990. "Originally, we had thought we wouldn't see those kind of figures until the end of 1991."

Sega's Genesis system is also drawing a large audience, despite offering fewer games than either Nintendo or NEC, and its graphics, though better than Nintendo's, are not as detailed as its 16-bit competitor.

Why? Perhaps it is because "Sega has been a leader in the arcade business for years," said Al Nilsen, vp of Sega Entertainment Ltd. "We're taking advantage of our arcade experience to bring quality into the home. Right now, over 60% of our current owners are `trading up' from Nintendo. We should sell 1 million units by the end of the year. And, next year, we're going to introduce an affordable, color handheld unit."

The handheld game packs may well be the next generation in the video game evolution, since, despite the boasts, and hopes, of NEC and Sega, many believe the 16-bit game offers little threat to Nintendo. Nintendo, by the way, plans on offering its own 16-bit game sometime in 1991.

"The perceived differences between the 16- and 8-bit games won't be significant enough to cause any real shift in the `install base,'" added Ted Hoff of Tengen, an Atari subsidiary and former Nintendo licensee. "We're not going to see a duplication of Nintendo's success from this. It's not like the difference between a black & white TV and a color one. It's more like the difference between a 10-inch screen and a 12 inch."