Innovation & Design

Gaming Stories of '07


In reverse order, the most important news stories of last year from the world's gaming industry

10. Bungie Leaves Microsoft Game Studios

Microsoft might tell you that Xbox's success is based on much more than Halo, and to some extent that's true, but let's face it…the Xbox 360 would not be where it is today without the massive hysteria and sales momentum that each Halo release provides. It's with great surprise then that we all learned that Bungie was leaving Microsoft back in October. Bungie's desire to create new IP and develop games other than Halo is completely understandable, but how much their departure will hurt Microsoft remains unclear.

Although Bungie has said that right now their focus is on Xbox 360 and only Xbox 360, at some point in the future you never know what might happen. The fact that Microsoft let Bungie leave in that sense is somewhat perplexing. It's not as if they're stacked with plenty of great first-party devs.

9. GameSpot's Jeff Gerstmann Gets the Axe

The world will probably never know for sure whether former GameSpot editorial director Jeff Gerstmann was fired for his Kane & Lynch review, due to advertising pressure. Naturally GameSpot denies the allegations but many (most?) gamers will continue to be very skeptical not just of GameSpot but of all enthusiast press. It's for this reason really that the news blew up so quickly after word first got out.

8. PS3 Sales Finally See Spike

Ever since the console's launch last year, Sony's PS3 has been held back by its ridiculously expensive price tag of $599. Even at $499, most consumers simply wouldn't bite. Sony's pricing schemes demonstrated in 2007 that yes, consumers are still very much price sensitive. Sure, at the time it was arguable that $500 was a bargain for a good Blu-ray player that also happened to play high-end video games, but Sony's target audience – the 120 million PS2 owners – are simply not going to spend that much. The result was that the PS3 lagged much behind Wii, Xbox 360 and even PS2 sales month after month. Now with a $399 price point and better software such as Uncharted and Ratchet & Clank, consumers are starting to take notice.

And while the PS3 is still outsold by the competition, it does seem to be closing the gap with Xbox 360. We don't yet know the December totals but in November the PS3 sold a much improved 466K units in the U.S. compared to 770K Xbox 360s.

7. Halo 3 Sells $300 Million in First Week

The brand power and mainstream recognition of the Halo franchise is truly incredible, especially considering it's still fairly new when compared to the likes of Mario or other properties. And yet somehow Microsoft has perfected the art of selling millions upon millions of copies, and in a short period to boot. Microsoft Corporate VP of Global Marketing Jeff Bell recently revealed that Halo 3 sold five million copies worldwide through November. To reach that sales total in just two-plus months is an astounding feat.

And the attach rate is incredible. 52 percent of all Xbox 360 owners in the U.S. have picked up the game so far. This has obviously helped to push console adoption and the momentum has clearly given Microsoft a boost this holiday season. The importance of Halo cannot be overstated.

6. EA Acquires BioWare and Pandemic

In October leading publisher Electronic Arts stunned us with the huge announcement that they were acquiring independent developers BioWare and Pandemic in a deal worth around $860 million. The acquisition provides EA with numerous valuable IPs and two developers that are simply loaded with talented people. The deal also gives EA a leg up in a genre where their presence hasn't really been felt much before: role-playing games. BioWare's expertise in crafting 'AAA' RPGs will no doubt be a huge asset, especially if the rumored Star Wars Knights of the Old Republic MMO allows EA to excel in the online space to better compete with Activision Blizzard.

The deal also emphasized the importance of John Riccitiello's return to EA. Because of his ties to Elevation Partners (which owned the merged 'super developer' BioWare/Pandemic), Riccitiello gave EA an edge in pulling off one of the best acquisitions they've ever made. Some concerns remain about how the EA purchase might affect game quality or the studios' autonomy, but BioWare and Pandemic sure don't seem the least bit worried.

5. Nintendo DS Becomes Best Selling Platform in 2007

Nintendo of America recently announced that its DS handheld has sold more than six million units in the U.S. through November and it was projected to be the number one selling video game platform of the year. As successful as the Wii has been, the DS just goes about its business selling like hotcakes, not just in the U.S. but across the world. The DS sold an incredible 1.5 million units in November alone and in many months it beat out all console sales as well.

The dominance of the DS is also a sign of the importance of the portable market, which has grown tremendously in the last few years due to the DS and Sony's PSP, which has also seen improved sales since the introduction of the PSP slim model. When budgets for console games can range from $10 million to $30 million, developing for a portable like the DS can be a very attractive option. Needless to say, consumers like the cheaper software prices too, which typically are in the range of $30 to $40, as opposed to $60 or more for 'next-gen' games.

4. Microsoft Loses $1 Billion to Xbox 360 Repairs

The Xbox 360 is a wonderful console…when it works. That's the complaint Microsoft was getting from thousands of gamers. The "red ring of death" became an absolute plague and tarnished the Xbox 360's (and Microsoft's) reputation. Finally, back in July after an "unacceptable number" of repairs had been logged, Microsoft decided to address the issue by extending the warranty to three years. It cost the company a billion dollars to issue the warranty and make repairs, but it had to be done – and hardly any other company could afford to just throw a billion dollars at something to fix it.

To this day we still hear from colleagues and readers who are experiencing Xbox 360 hardware breakdowns, but at least now they're covered. Microsoft never was willing to explicitly state what was causing the majority of the failures, but the consensus seems to be that it had to deal with inadequate heat management, leading to components on the circuit board to loosen. It's just a shame that Microsoft couldn't build a more reliable console from the start. But they are a software giant after all, so perhaps it's naive to expect expertly engineered hardware.

3. Activision Merges with Vivendi Games to Create Activision Blizzard

One of the biggest stories of '07, if not the last decade, is undoubtedly the recent merger of Activision Blizzard. The monumental deal valued at almost $19 billion instantly created another video game superpower that can compete with EA. Activision was already on a tremendous growth path without the Vivendi deal—in fact, through the first 11 months of the year the company has been the top publisher of console and handheld video games in the U.S.—but joining forces with the French conglomerate's games unit takes Activision to a whole new level.

Of course, as the name implies it's the Blizzard component of Vivendi that has the greatest potential. Activision overnight went from practically a nothing to a leader of online gaming, with a very real international and Asian presence. The deal also could lead to a wave of further industry consolidation as game companies try and keep up/compete with the giant. The effects of Activision Blizzard could be felt for years to come.

2. Wii Shortages Persist a Year After Launch

2007 has definitely been the year of the Wii. The console has performed better than anyone, including Nintendo, had expected. It's hard to fathom though that a whole year after the console launched in the U.S. that shortages can be just as bad if not worse than they were during Holiday 2006. Nintendo raised its monthly production to 1.8 million units and yet the Wii still sells out everywhere. Analysts believe that the inability to meet demand could cost Nintendo $1 billion or more this holiday season. Nintendo of America President Reggie Fils-Aime even explained that he's continually pushing Japan to send more Wiis to America, since Americans seem to be buying the console faster than anyone.

That said, although Nintendo deserves a ton of credit for the success of the Wii, they have to take their fair share of blame too. To say that you just didn't foresee this kind of demand becomes a poor excuse after a while. How long will it go on? Obviously over the natural course supply and demand will balance, but Nintendo has become one of the most profitable companies in Japan – pay some more manufacturers and just make it happen.

1. 2007 Game Sales to Shatter All Records

As tempting as it is to say that the Wii is the top story of 2007, the real top story is the collective success of the entire industry this year. U.S. video game sales have been on a torrid pace all year long. Through November, the U.S. game industry is up a whopping 50 percent to $13.12 billion. Considering that December sales can often wind up accounting for as much as 25 to 30 percent of annual sales, the industry will easily break all previous records in 2007, likely coming in around $18 billion or more – we won't know for sure until we get the totals later in January. And the $18 billion estimate doesn't even include all the online subscriptions, casual games, micro-transactions and more.

Consider this: According to the Motion Picture Association (MPA), in 2006 all-media sales (movies, home video/DVDs, and television) in the U.S. totaled $24.3 billion. Video games are rising, and they're rising fast. Games are no longer in the shadow of Hollywood. In some sense, Hollywood and the games industry look at one another as equals – there's lots of collaboration and that's only going to continue. Just look at the Jerry Bruckheimer video game deal with MTV Games. This is only the beginning...


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