It's not all fun and games

BY KEN KUTARAGI
President and Chief Executive Officer,
Sony Computer Entertainment Inc.,
Tokyo

The game industry has not been immune to past economic recessions, but has often moved in the opposite direction. For over a decade, this sector reported its biggest profits when other industries, such as devices and electronics industries, were mired in deep recession.

It is, however, too optimistic to believe that the past will repeat itself now. The source of the current recession lies in the change of economic structure. The macroeconomy has created the possibility that many countries will revise their economic projections downward in terms of gross domestic product growth. If such revisions take place, the economy could further shrink, involving the game industry this time. In such a business cycle, the game industry may be forced to adjust its total market-size estimation.

The game business is strongly seasonal in nature. About half the sales are concentrated at year's end. People would get really angry if shipments fell short by 1 million units even if 9 million units were actually shipped. But if 10 million units were made when the market size was 9 million units, it would result in a million-unit surplus. One million units in stock is really serious. It could happen in the Christmas season because 3 million to 4 million units of Playstation 2 game platforms will arrive in distribution pipes in December alone. If someone could foretell the real demand, it might be easier to do business in the game industry.

The fluctuation is really big. For example, in the days of the original Playstation, monthly production was just about 300,000 units in the first year. Now production has swelled to 1.5 million units of Playstation 2 and about half a million units of Playstation 1 a month. This means that 100,000 units roll out every day. A tiny error in judgment would lead to a huge overstock.

The game market will surely reverse this autumn. Nintendo's Gamecube and Microsoft's X-Box will work as market enhancers. Critics say that Playstation 2 has lacked strong titles that would fire the market. After more than one year's experience, software developers now say they have a handle on this, describing Playstation 2 as a platform on which software can be easily developed. By the end of this fiscal year, Sony Computer Entertainment expects that the cumulative shipment of Playstation 2 in the U.S. market will reach nearly 10 million units. Putting together the announced figures of Nintendo's and Microsoft's entries into the game market, the shipments of new Gamecube and X-Box units by year-end will total 3.5 million units. This competition will grow the market.

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