This week saw Sonic Tuesday. This was not the fire and brimstone demise of humanity that old men with placards have been proclaiming since creation but the day that Sega Europe Ltd launches version 2 of its Sonic The Hedgehog game. It sounds trivial but the UK video games software market is worth serious money to cartridge software manufacturers such as Sega and Nintendo Co. Taking a share of this expanding industry are numerous UK video software games developers and publishers. The estimated 1992 European floppy and cartridge software market is worth $2,400m – up from 1991’s figure of $1,500m – according to the European Leisure Software Publishers Association. These figures were produced for it by market researcher Euromonitor. The floppy games software market was worth $823m – up a third from $636m in 1991. Germany has the greatest sales at $500m and the UK comes second with $192m.
However this market is suffering because of the big growth in cartridge software. The prediction for the floppy software market in 1993 is $959m whereas the total European cartridge sales for 1992 stand at $1,560m and should rise to $2,380m in 1993. Again Germany has the biggest market. Cartridge sales for 1992 totalled $567m and sales for 1993 are estimated at $883m. In the UK, the market this year is estimated at $508m, twice that of 1991, $258m, and the estimate for 1993 is $750m. The floppy market may be losing out to the fast-growing cartridge market but this does not affect UK software developers which according to the European Leisure Software club deliver 75% of the games for the total European market. Figures compiled for the Association by Gallup put Sega in the lead with 23.03% of $700m UK floppy and cartridge sales from January to September 1992. Its chief rival is Nintendo with a 13.03% share. The Association says the figures for Nintendo are only an estimate because not all the retail outlets it uses will release sales figures, but it is noteworthy that Sega seems to be well out in front here, in contrast to the US and Japan, where Nintendo dominates. The rest of the UK floppy and cartridge market is divided between software developers Ocean Software Ltd, 9.4%, Electronic Arts UK Ltd, 9.2%m, and US Gold Ltd, 7.03%. Virgin Games Ltd, Acclaim Entertainment Ltd, MicroProse Ltd and Codemasters Ltd share between 3% and 4% each. Gremlin Graphics Ltd has 2.3% and Renegade/Mindscape Ltd has 1%. The report does not give the breakdown for the $508m UK cartridge market alone but Bandai Ltd, Nintendo’s UK distributor, claims it has a 47% share of the UK software market compared with 42% for Sega. This leaves only 11% for the rest to fight over. Sega and Nintendo vet software from external developers before they will license it – no licence, no sale. Ken Lockley, Ocean’s public relations director, says Nintendo does not approve of certain images such as crucifixes: We also had to change part of a game called the Torture Chamber to the Games Room. Before a game is licensed, it is sent to the US then to Japan to be checked for bugs.
Although both Nintendo and Sega manufacture the cartridges themselves only Sega then does the distribution, and takes a slice of the sales profits. Firms that develop for Nintendo have to buy back at least 5,000 units of the licensed software and then sell it to a distributor. Nintendo makes its profit from selling software licences and charging the developer for the manufactured product. The developer’s profit comes from selling to the distributor. From testing to manufacturing, it takes five months for the software to reach the shelves. Only five spaces are allocated a year to licensing new software games. Products licensed by Sega and Nintendo can rarely be licensed to another company whereas personal computer games can. Lockley says the rights to a software game could be sold to another developer such as Electronic Arts Inc, but then Electronic Arts would have to get permission from Nintendo to develop the game for Sega. Accolade Inc, based in San Jose, California, t
ried to develop games for Sega machines without a licence but is now facing a lawsuit. Acclaim does have an agreement to sell its products to Nintendo and Sega as long as the products are released on different dates. However, Nintendo and Sega’s demand for exclusivity with their games means they do not have the same problems with piracy as Commodore International Ltd. Nintendo’s marketing ploy is to restrict supply so customers are desperate to get hold of the games according to Electronic Arts. In the UK, Nintendo sells to only a limited number of distributors such as Toys ‘R’ Us. These Japanese giants have software developers and publishers at their mercy because the developers are themselves desperate to cash in on a valuable market, according to Roger Bennett, the Leisure Software Association’s director. Licence fees and the cost of cartridges mean the initial outlay by developers is greater for Nintendo and Sega than for companies such as Atari Corp and Commodore. Traditionally developers have been five- to 10-person companies that sold their products to publishers. Andrew Ball of Commodore believes the capital investment demanded by Sega and Nintendo could stifle the UK software market. Electronic Arts says the risks are high: We can afford to have a few dogs because we are a large publisher. But for the smaller firms this could mean bankruptcy. Neither Nintendo nor Sega guarantee returns on development. So what is the attraction of developing games for the console market? For a start, the potential sales volumes are about 10 times more for a cartridge game than a floppy game according to Electronic Arts. For example Sonic 2 is expected to ship 800,000 units before Christmas. The intense marketing strategy of Sega and Nintendo also helps to build sales.
Compact disk is considered to be the future for the computer games industry. Its advantage is a greater memory capacity, purer quality and scope for animation according to Maggie Goodwin, marketing manager for Psygnosis Software Ltd. Consumers will be able to buy entertainment centres that will incorporate television, video and a sound system. Although the cartridge market is worth $508m in the UK, Bennett claims CD-ROM will take over from this market. Handheld consoles are, he says, a gimmick and are limited by the proprietary nature of their software. Companies such as Commodore believe this will get them back into the games market with their personal computers as a standard. However, Sega has already released a CD machine in the US and Nintendo is expected to do the same. There are large rewards to be made by UK software games software developers and publishers. However, developers for Nintendo and Sega have to ensure they can afford the stakes before getting into this market. Compact disk may help to even out the market once it is a reality. Whether Nintendo or Sega will be at the top of the tree this Christmas only the buying public can decide – but the chances are that whoever wins, the software being run will be British.