The video game business is in for momentous change in the months ahead. The direction for this change may be established as consumers make their choices of new products in the fourth quarter. While most game rental revenues in supermarkets will continue to come from the older 16-bit Super Nintendo and Sega Genesis technology, retailers will start to see new opportunities arising from three key product developments: The Sega Saturn platform that was introduced to the market in the spring, supported by heavy media advertising.
The Sony PlayStation, which will be on the market this fall and has received strong reviews from experts who have tried it.
CD-ROM (compact disc read-only memory) for personal computers, which will get a boost from the new Windows 95 software and the availability of cheaper, faster CD-ROM drives. All this high-priced equipment and software will mean strong interest in rentals as consumers look to try before they buy. "Rental is going to provide nice opportunities for the supermarket because the gamers really want to see what is out there before they commit their money," said John Gillin, director of marketing at Sega of America, Redwood City, Calif. "Because the price points will remain high for PlayStation and Saturn titles, the rental market will be great for them," said Dan Rogers, director of marketing at Virgin Interactive Entertainment, Irvine, Calif. But the new products may be hard to get this fall. "At the beginning, the supply is going to be constrained, while the demand is going to be intense," said Clyde Grossman, vice president of software development at Sony Computer Entertainment, Foster City, Calif. Meanwhile, anticipation of Nintendo's Ultra 64 system, which is due for release next spring, will be a hidden factor in the fourth-quarter sales picture. This fall Nintendo of America, Redmond, Wash., will push its new Virtual Boy handheld system and advanced software for its old 16-bit Super Nintendo Entertainment System. "Certainly in the supermarkets, the biggest opportunity in the year ahead is for the machines that have a large installed base," said George Harrison, director of marketing and corporate communications at Nintendo of America, Redmond, Wash. Because of the uncertainty in the market and the impressive growth of the personal computer market, CD-ROM may have the biggest impact of all the new technologies on supermarkets in the months ahead. This could be on the rental side of the business for higher-priced mainstream products and at sell-through for budget-priced lines. "There's no doubt that as the CD-ROM market grows, supermarkets will grow with it," said Richard Greener, managing partner at Essex Interactive Media, Englewood Cliffs, N.J. SN polled suppliers of electronic game hardware and software about how supermarkets can benefit from the coming changes in the market. Here's what they had to say:
John Gillin director of marketing Sega of America Redwood City, Calif.
We are entering a period when we are going to be coming out with new technologies, new platforms. Sega's big news is Saturn, and Sony will be coming out with its PlayStation. The games that are being designed for these platforms are not cheap. The platforms themselves are not cheap. While the supermarket industry may have a tough time trying to retail players at price points of $249 to $349 and up, rental will probably be more attractive to them. The prices of the game software are going to remain pretty constant with where the industry has been. You are not going to see $100 games, or anything like that. The suggested retail prices will be very similar to what we've had on the cartridge-based games. For the supermarket retail trade, the rental of games for the new platforms area is going to be very important. In the last year or two we have found that rental is becoming a stronger business among gamers because they all want to try before they buy. This fall it is going to be a very competitive environment. There is going to be tons of advertising by Sega and Sony, bringing a lot of attention to the new platforms. At Sega we are looking at moving 600,000 pieces of Saturn hardware by the end of this year. Once you get an installed base like that, that's where the rental market begins to look interesting to people who are trying to maintain inventories of software titles. The supermarkets provide an interesting channel for us because they are so ubiquitous. Most people generally go to them for a particular purpose: to buy their food or (other merchandise). But we have found that those grocery stores that do carry rentals have done fairly well. With the Genesis and some of the platforms that have been around for a while, there's been a proliferation of software, so people really need to take the time to sample before they buy. That's where the primary opportunities will be for the supermarket channel.
Clyde Grossman VP, software development Sony Computer Entertainment Foster City, Calif.
We are going to see bigger games. It's quite conceivable that people will want to rent these games and play them, but they won't be able to play them through as quickly as the smaller 16-bit games. Hence, there will be more buys based on that. So we will continue to see rentals in this area. The technological advances of the Sony PlayStation have to do with the superior graphics. The PlayStation has greater processing power, superior graphics, real-time 3D, giving the game player a more immersing, intense experience. Overall, this is going to bring more people into the market. I know there has been a drop-off in the 16-bit market, but I think the game players will come back to the PlayStation. Because of the realism of the games, we will be able to reach a wider demographic than ever before. We are introducing the PlayStation on Sept. 9. It will be a full, nationwide rollout. We hope to be in 10,000 to 12,000 retail outlets with the initial launch. We will have 20 software titles at launch and about 50 titles by Christmas. At the beginning, the supply is going to be constrained, while the demand is going to be intense.
George Harrison director, marketing and corporate communications Nintendo of America Redmond, Wash.
Certainly, in the supermarkets, the biggest opportunity in the year ahead is for the machines that have a large installed base. They can capitalize on renting or selling software. That clearly is in the 16-bit arena. At Nintendo we believe that our 16-bit software not only will challenge the next generation of home machines, but also will drive the cash registers, hopefully for all the retailers. We delayed the new Ultra 64 platform until next year, essentially because of the progress made on the 16-bit software. We know that when we bring out the Ultra 64, it has to have software that is clearly a quantum leap over the existing software. The Virtual Boy portable game system also will be very large, although it probably won't be as much of an opportunity immediately for the supermarkets until we can have an installed base of hardware. That's the reason we are focusing so much on the trial program through Blockbuster and other kinds of things. It's clearly a unique experience. We are about to conclude a major promotion agreement with a packaged goods company that should be coming to the supermarkets in November-December.
Albert Ovadia president Twentieth Century-Fox Licensing & Merchandising Beverly Hills, Calif.
There will be an opportunity here for the supermarkets on a going-forward basis. If you look at the situation at mass-market level with certain retailers, they are being very cautious at this point. It's not necessarily something that the supermarkets need to move on today. You are dealing with these two new Sony and Sega platforms, hardware that has not even reached the marketplace yet. So the supermarkets certainly need to pay attention to where it is going, but they are doing a significant amount of business right now in videos and in game cartridges. The retail sort of outlets that you would normally expect to go find game product will probably be going off the 16-bit cartridges faster, which may create an opportunity for supermarkets, if the price points are right. You are still dealing with installed base of roughly 32 million to 35 million. I don't think it is necessarily in their best interest to jump into the new technologies with both feet at this point. If you follow the rule of thumb of the cartridge business, there will be 10 titles that will do most of the business. My sense is that is going to be a fairly accurate assumption of what will go on with the new technologies, certainly with the game platforms. It becomes an add-on to a fairly aggressive opportunity that they may have in 16-bit. As the market evolves, and as they see where the opportunities are, if they can get some highly recognizable titles in there that have a lot of presold visibility and awareness, that is where they should go.
Craig Van Gorp VP, sell-through sales Turner Home Entertainment Atlanta
Right now what we are hearing from the supermarkets about multimedia products is that the price point of the titles needs to be under $20. However, a lot of the high-profile titles that you will see out there have retails of much higher price points. So it will depend on the amount of space that they are going to devote to it, and how much they want to be in the overall entertainment industry. Many supermarkets are in video right now, and it is just a matter of taking that step to become a full selection entertainment section within the store. Rental is very viable with certain of these products. It will allow the consumer to become aware of them before they step up and purchase some of the higher priced items. Whether supermarkets should get into CD-ROM rental is on a case-by-case basis. It depends on how much help they are willing to devote to it, because you have to have people who are knowledgeable, who can answer questions, who are familiar with the technology. That is the one item that they need to do to properly service their customers. We are taking the position in multimedia that this is a growing business. We are putting the power of Turner behind quality multimedia products such as the "Cartoon Network's Toon Jam," "Behind the Mask" and "Dinotopia," which will be coming out this fall. We are bringing those into the marketplace and positioning them as titles that will have longevity and collectibility.
Dan Rogers director of marketing Virgin Interactive Entertainment Irvine, Calif.
For the rental business, PC CD-ROM is still being shaken out. There are tests at Blockbuster, and those will be indicative of whether or not the market itself is going to accept a PC CD-ROM rental. There is a technological challenge for the consumer -- they have to load this thing on under Windows and there could be problems. Is it really worth the hassle to load it on just to try it? As an alternative, the PlayStation and Saturn, which are CD-ROM-based products, are going to follow with what has already happened in the marketplace. That model already exists. So I expect the game rental market to move right over to those particular CD-ROM platforms. That will happen immediately. The Saturn is now on the market. Most retailers, including those who offer rentals, will be picking up the software titles. Sega pretty much defined the rental market for the cartridge-based systems, and if you talk to anyone at Sega, it has been very well accepted. As long as the price point is high, then the consumer wants to know. The more that we can provide for them to tell them whether or not it is a good game, the better off we all are. So, because the price points will remain high for PlayStation and Saturn titles, the rental market will be great for them.
Richard Greener managing partner Essex Interactive Media Englewood Cliffs, N.J.
CD-ROM will have the biggest impact on supermarkets in the year ahead, mostly because of the price point. I'm not sure supermarkets can sell the higher-priced product. But with CD-ROMs at $9.95, it is a perfect price point for their promotional activities, like in-and-out promotions. This is no different than the dishes and encyclopedias, whatever they are selling. There is a wide variety of product that appeals to every member of the family, which can be targeted right to their demographics. The product is small, light and cheap. If all of these 25 million people who we think are going to buy PCs with CD-ROM drives actually do buy them, it's literally the perfect product. There's no doubt that as the CD-ROM market grows, supermarkets will grow with it. It's a home-based product, like music, and cookbooks, nutrition and children's titles are available. It is a sure thing for supermarkets to test. Undoubtedly they will try it.
Based on the way the industry works -- they require a pretty long lead time on promotions -- there could be some activity by the end of the year. So, if not the fourth quarter, I see the first quarter of next year as the time when CD-ROM starts to take off in supermarkets.
Molly Smith corporate communications manager Ocean of America San Jose, Calif.
Right now, I still see the 16-bit market -- the Super Nintendo and Sega Genesis machines -- as a viable market in terms of the installed base. The 16-bit market will continue to gather strength. Christmastime will be the big crescendo, and then it will start to die down. In terms of the newer platforms, it is going to be head-to-head competition between Sega Saturn and the Sony PlayStation, because the Nintendo Ultra 64 is not shipping until next April. Meanwhile, the PC business is just booming. There is a lot of content out there. Not all of it is top quality, but the installed base for multimedia PCs is great. The PC market is very strong right now.
In terms of the consoles, it's anyone's game at this point. We are actually developing for all platforms, so we are ready to support whatever the latest, greatest platform will be.
Traci Kahus senior account manager Sirius Publishing Scottsdale, Ariz.
The CD-ROM budget lines are going to do better in supermarkets because no one is going to want to take a $50 piece of software and drop it in a grocery cart. It's hard enough to put a 50-pound bag of dog food in there and spend whatever that costs. So it's going to be the budget (product) all the way. As opposed to other platforms, CD-ROM is just the way to go. It's a technology that everybody has been bombarded with information about. At one time, everybody had to have a microwave and now they all do. It's the same type of concept for PCs. People are thinking, "I've got to have my multimedia computer. I've got to keep up with the Joneses." By the fourth quarter of this year, you will see a lot more CD-ROM in stores. If not in the fourth quarter, then definitely in 1996.
Bruce Buchan sales manager Software Solutions Downsview, Ontario
The grocery chains are going to follow other large retailers that have approached the market and found out it is successful. The CDs are going anywhere from $19.95 to $12.95, but as the competition gets stiffer, you are going to see it priced about $9.95 for boxed product and perhaps even as low as $7.95 for the jewel case, and even lower than that as the market gets saturated. That's where I see it all heading in the next few years.
Kim Barnes marketing coordinator SoftKey International Cambridge, Mass.
We have a couple of really strong tests [of a CD-ROM program] with a number of large supermarket chains. We are hoping that over the next six months some of those tests will come to fruition, and you will be seeing a lot more of our products and more CD-ROM type products coming into supermarkets. We think the appropriate price level for CD-ROM is $12.99. Music CDs are priced anywhere from $9.99 to $17.99. So when a consumer looks at a jewel-case-only package, in their minds they think they should pay between $9.99 and $17.99.
Eddie Dombrower director Jim Henson Interactive Hollywood
The market for lower-priced CD-ROMs is really going to hit its stride once it can figure its way into supermarkets and stores like that. I know that the CD-ROM industry is starting to look at ways to get to a more mass consumer base. We are starting to see software prices really drop. There are brand-new products that are shipping in 1995, and one would assume that those products would drop into almost an impulse-buy price point. So there is a great evolution in raising the production and dropping the price. The educational CD-ROM market will have a big impact on supermarkets because of the nature of who shops there, when they shop, and it being a place where the whole family shops together.
4th Quarter Lineup
Three new, powerful video game platforms are expected to reignite the stagnant game business, but Nintendo's system will not be available until next year.