Wednesday, December 06, 2006

Video game market redux

This New Yorker piece on Nintendo vs placated 3 is quite interesting. Here is an interesting fact:

"Nintendo, though, has not just survived out of the spotlight; it has thrived. It has five billion dollars in the bank from years of solid profits, and this past year, though it spent heavily on the launch of the Wii, it made close to a billion dollars in profit and saw its stock price rise by sixty-five per cent. Sony's game division, by contrast, barely eked out a profit and Microsoft reportedly lost money. Who knew bringing up the rear could be so lucrative?"

There seem to be a few explanations for this

1) Because Nintendo is not trying to dominate the market, they are making money on its consoles rather than losing $240 dollars a sale. This makes profits, at least in the short term, easier to come by

2) Nintendo makes more of its games in house rather than through 3rd parties. Therefore, the return on its investment is higher

3) You do not need to dominate the market in order to be successful. Although the Video Game industry (at least console wise) is an oligopoly, Nintendo can still thrive despite not being thdominantnt factor because it caters to a niche market that Playstation and X-Box are not capturing. And you don't need to develop a computer suited for high tech weaponry in order to satisfy them.

Of course, this doesn't mean that Sony will not dominate in the long run. The playstation 2 accounted for over half of Sony's profits just recently. All that is being inferred here is that Nintendo can still compete despite not having the dominant system.

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