The sports video game business is in its own little world — make that big world — and it's perfectly happy there, thank you.
The real-world challenges to American sports in the past few years, such as economic recession, terrorism and labor struggles, haven't penetrated the sports video game business. By almost every account, it's robust and healthy, with many game makers and almost all licensees registering double-digit growth in revenue for many years running.
Business is so strong that many of the participants are doing little more than tinker. For instance, Major League Baseball is asking its licensees to issue fewer game titles in 2004, after each of its eight licensees — the most of any league or players association — came out with a game for every gaming platform this season.
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| Video games are no passing fancy for sports leagues, generating double-digit growth in revenue. |
"Next year we'll have fewer titles on [Sony's] PlayStation 2 and [Microsoft's] Xbox. The retail industry won't support that many titles," said Mike Napolitano, senior manager of new technology for the league.
And with the pitched battle in stores, game makers increasingly are demanding help from licensers in marketing partnerships. The NHL will do grassroots promotions with Microsoft this year. Players Inc., the NFLPA's marketing arm, is in talks with Toys "R" Us and Blockbuster for beefed-up promotions this fall and will include some new, non-endemic retail partners as well.
The NBA promoted games via McDonald's last season with more in the works, and now, Major League Baseball is driving two 52-foot tractor-trailers to Lollapalooza and Ozzfest shows nationwide, promoting licensee video games along with its "Authentic Collection" of merchandise.
If there's a blockbuster issue on the horizon, it's online gaming. But in talking about it, the licensers don't show the proselytizing urgency that leagues and Internet companies had about the Web in general a few years ago. Simply put, the licensers don't need online gaming right now. They put the "inflection point" — when broadband technology, game maker participation and fan interest all kick in — at two to three years away.
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| Innovative and detailed products offered by game makers can help leagues attract and retain fans. |
"I see unfulfilled potential right now," said Gene Goldberg, vice president of consumer products for the NFL. "There's a core group of avid game players who really like to extend their experience, but it's unproven so far as mass appeal is concerned."
As one investment analyst who covers sports-game behemoth Electronic Arts put it, "If the industry does $13 billion and online is $100 million of that, who really cares right now?"
For now, the industry is doing fine off-line. Revenue in the United States was actually $10.3 billion in 2002, the first time it had surpassed $10 billion. This included all hardware, software and accessories for consoles (like Sony's PlayStation 2) and portables (like Nintendo's GameBoy). Overall growth is expected to be between 10 percent and 15 percent this year, analysts say.
Software accounted for $5.5 billion of the marketplace, and sports' share of the software market is actually declining, claiming 19.5 percent in 2002, down from 22.2 percent in 2001 and 24.5 percent in 2000, according to industry tracker NPD Group.
Over the past year, only three times have sports games placed among quarterly top-10 sellers, out of 40 places in all. Those games were EA Sports' (Electronic Arts) Madden NFL 2003 for PlayStation 2, which was No. 1 in the third quarter and No. 2 in the fourth, and Activision's Tony Hawk's Pro Skater for PlayStation 2, which was No. 4 in the fourth quarter.
Sports' share-drop doesn't indicate a decrease in sales overall, just faster growth in other segments, especially action games, which went from 20.1 percent of the market in 2000 to 25.1 percent in 2002, according to NPD Group.
Licensers' revenue growth is an indicator of the segment's growth overall. The NHL had 30 percent growth in game licensing revenue for the 2002-03 season and expects a 10 to 15 percent spike this year. Players Inc. had a 14 percent jump during the 2002-03 season, to around $5 million. By contrast, fantasy licenses brought in $1 million, according to Clay Walker, senior vice president of Players Inc.
Major League Baseball's growth is in the single digits this year, after several years of 10 percent to 20 percent growth. Some of the major game platforms are now two years old or more, and sales of software can slow as platforms get older, especially in a sport that doesn't have a 700-pound gorilla, like EA's Madden franchise, Napolitano said.
The explanation for sports' slower growth, experts say, is that it's more difficult to have breakthrough technological and thematic innovation, because of sports' strict rules, fixed playing fields, etc. In the action category, a game maker can invent something out of thin air, "analogous the difference between another movie sequel and a unique film like 'Pulp Fiction,'" one expert said.
But sports has the advantage of seasons, and so marketing hinges on convincing players that the new year's edition is a must-have.
For example, EA Sports' "NHL 2004" game will give players added control over the athletes, including hip-checks. Microsoft's 2004 NHL offering will feature background crowd noise that adjusts to the home team's performance and ice that changes its look and becomes "slower" as the period progresses.
EA's "Madden NFL 2004" will give players the ability to call receivers off their routes and redirect them. Midway's "NFL Blitz" is going to 11-on-11. Retro features — including retired stars and old uniforms — have been added to some NFL and NBA games, as well.
The emphasis on innovation plays to another marketing fact, that while the core video game audience is between 12 and 24 years old, innovation is helping to retain fans as they grow beyond that demographic range. "[Game makers] are not losing the older customers as early as they used to," said Players Inc.'s Walker.
In the end, it leaves licensors and licensees with a lot of tinkering but no life-altering issues to confront right now. "I've been looking for the right partner for the 6- to 10-year-old set," said Greg Lassen, senior director of interactive and electronic licensing for the NBA.
