The Disappearing Middle Game Companies

There has been talk as to why the game businesses in the middle have disappeared. All that is left are the upper AAA game companies and the smaller little companies. What is going on? And why is Sony talking about 3d glasses for gaming when clearly HD gaming didn’t have massive market demand?

While Nintendo is certainly the flagship boat of disruption to the video game market, there are many other boats out there. If Nintendo did not choose to go disruption, other businesses would. The disruption occurring to video games is not a Nintendo thing so much as a general thing altogether. Nintendo is riding the wave of this disruption while Sony is being driven underneath it.

If disruption was a play, this is how it would go.

The first Act is where the disruptor enters the stage. The disruptor is selling to non-customers. The disruptees, the core market, does not care because they consider these non-customers to be worthless. Who wants to make games for middle age women or for grandparents? The First Act is that the disruptor sees stunning growth. However, this is all ignored by the Core Market because they consider the product to be crappy and the customers to be crappy. These ‘worthless’ customers will not buy as many games as the ‘hardcore’ gamer. So why should the Core Market care?

The Second Act is when the Core Market retreats to the higher margins of the market. In other words, it makes sense for the Industry to retreat from the middle margins. It is rational for them to do so. The low margins of the market have been invaded by the disruptors. A wise company will fight for the lower margins to stop the disruptors (which appears to be what Natal is trying to do).

But now we have a problem. The low end is occupied by the disruptors. The high end is occupied by the Core Market. And the middle is vacant. What will happen next is that the disruptors, who are hungry for higher profit margins, will move to the middle margins. The values of the ‘casual games’ will be moving up. And what I mean by this is that a game like New Super Mario Brothers Wii is definitely having the values of games like Wii Sports, but it is a far more sophisticated title. Yet, NSMB Wii is not a ‘Core Game’. So Act Three will be seeing the disruptors move to fill the vacuum in the middle margins. We could be seeing the beginning of this as Nintendo focuses more on Motion Plus.

What is going to happen is that ‘Old Gaming’ is going to be stuck at the very top margins. Sony looking to 3d glasses technology to save them is actually retreating. It is more ‘sustaining innovation’. If upping the visuals didn’t work with HD, why would 3d glasses work? But Sony hasn’t figured out that they need to adopt new values. All the PlayStation knows how to do is to make ‘better graphics’.

Cornered, the gaming stuck at the top margins will find the disruptors following them until they have no where else to run. Then, they get gored.

However, I do not believe Core Gaming will be completely gored. With motorcycles, companies like Harley-Davidson were able to survive as a niche due to their counter-culture status. Some Core Gaming will survive due to its counter-culture status.

The shift in the disappearing middle game companies is the Core Market retreating upwards to the higher margins. Disruption doesn’t take place in a ‘generation’. It took decades for the steel industry and motorcycles to be completely disrupted. However, video games are a far more fragile business. Could this take around ten years? Maybe less?