Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
As introduced, my name is Yoichi Wada.
The Undercurrent of Revolution
in the Games Industry
September 15, 2011
Computer Entertainment Supplier’s Association
Chairman Yoichi Wada
I've prepared today's slides in English. There are many
overseas visitors attending this conference, and I imagine
plenty will take photographs. To ensure various people will be
able to read the slides I've decided to write them in English. I
don't believe it will be that much of a problem for the Japanese
here.
The expansion of games industry market is indisputable. The
degree to which the market is expanding can make it difficult
to understand what is going on, but I believe that if we look
closely we can see an undercurrent flowing through this
growth.
Drivers of Growth in the Games Industry
1. The Market Expansion
2. The Gameplay Experience
Today I will speak about the “drivers of market growth,” those
driving forces which are causing the game market to expand.
3. The Business Model
I've divided the presentation into three drivers, and will explain
each.
1. The Market Expansion
The market expands as barriers to entry for consumers are reduced.
Market Expansion = Consumer Diversification
Market Size
Cloud Games
Browser Games
PC, Non‐PC
(Online Games, etc.)
Mobile Games
Console Game Software
Console Game Hardware
Arcades
1975
1985
1995
2005
2015E
In this slide (Figure 1), the X axis represents time, the Y axis
represents market size, and via this image you can tell that
since the birth of video games the market has consistently
continued toward the upper right. Furthermore, there are
accumulations that look like geologic stratum. You can see
that it is not always true that something new replaces that
which had come before it. Rather, these layers steadily
accumulate. There is a tendency amongst the media to focus
so much on the companies which shape today’s industry that
you almost feel as though everything which came beforehand
was erased. But as you can see here, that has not happened
until now, and I believe it likely will not happen in the hitherto
mentioned expansion.
Let's move onto the main question, then, which is why the
games market is expanding, and what these drivers of growth
are.
Video games are incredibly complex applications. When they
first appeared, machines owned by the average user could not
play them under normal means. As a result, to play one game,
you had to make one “special device” upon which to play it.
For example, if you wanted to play Space Invaders, you
needed a special Space Invaders-only machine. It goes
without saying that individuals could not afford such machines,
and thus the first video games began as arcade games. The
video game market started here, with "one game, one
machine," whereby arcade game operators bought these
machines and recouped their investment by charging
customers one coin at a time.
1/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
Next, Nintendo created its Nintendo Entertainment System
(NES). Atari had previously released game consoles, but the
explosive growth began from the NES. The NES was by no
means cheap, and it was a pain to string up all those cables
behind your television, but it was affordable enough for
individuals to purchase. This is the red and orange areas on
the graph. This is the console game segment. "One game, one
machine" became rapidly less expensive, transforming into a
single piece of dedicated hardware that could play multiple
games. A time of growth and expansion occurred for the first
half of the 1990s, whereby all the home electronics makers
participated in what appeared to be a great market
opportunity. Gameplay was enriched, and the market
expanded, as both the participants and the customers
increased dramatically. The video game market did not
change for quite a while, but a change occurred in 2000, with
the PlayStation 2 (PS2).
I think that there are people here who remember the kind of
debut that the PS2 had at the 2000 Tokyo Game Show. It was
like something from the movie the Matrix. The PS2 was a
multimedia device; a combination of game console and DVD
player. Prior to the PS2, customers had to purchase a
dedicated piece of hardware to play games, but after the PS2,
you could also use it as a DVD player, and so the relative
investment to play video games decreased.
Thus, as is summarized in the slide, a driver of growth for the
game market's expansion is the reduction of barriers of entry
to the consumer. As the investment to play is reduced, the
market grows proportionally. The market moved from "one
game, one machine" to a dedicated game console which could
play multiple games, to a multimedia game console which
could play multiple games.
Furthermore, in the first half of the 2000s, the specs for iMode
capable cell phones grew remarkably.* Cell phones are not
bought with the intention of playing games, but rather for
communication. But they can play some great games. Here,
we reached an era where games could be played on general
purpose devices. When this happened, the necessary
investment needed by consumers to play games was reduced
even further.
The next watershed came in 2007. It was in 2007 that all the
game consoles became connected to the net. And, it was
when the iPhone debuted. You could play games on both
dedicated consoles and general purpose devices- thus, the
necessary investment needed by consumers dropped to zero.
Of course, up to this point, the PC as a general purpose
device could play games, but in the first half of the 2000s if you
talked about the PC you needed a pretty strong CPU, GPU
and a ton of RAM, in other words if you didn’t have a special
machine that's beyond what you typically needed for
2/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
non-game applications, you wouldn’t be able to play games.
Thus, the “gaming PC” was a type of dedicated game console.
And this began to change in the first half of the 2000s. And
while I'm repeating myself, I want to highlight that it was not as
though dedicated devices were replaced by general purpose
devices. Both dedicated devices and general purpose devices
have their own benefits. Rather, the market expands in
compounding layers similar to geologic stratum- but the
platform driving growth changes. And thus, in the period after
2007, in this new network-connected world, it was neither the
general purpose device nor dedicated device which drove
growth, because the physical device was not the platform; we
entered an age where the network itself was the platform. Both
general purpose devices- iPhone, iPad, Android, etc.- and
game consoles made the network their platform. Consider the
PlayStation Network (PSN), Xbox LIVE, and Nintendo. The
undercurrents began to shift toward the network as the
platform.
What’s coming next is the browser and the cloud. These are
the blue and green sections. To tell the truth, in this slide the
Non-PC, PC, Browser Games and Cloud Games’ boundary
lines don't have much meaning. Regardless of device or
network, the axis itself is converging. We need to be a bit
careful about the vocabulary. I think the word “browser,” as I
use it here, is actually considered to be the “cloud” by most
people. Now then, the browser has progressed to the point
where the browser can do a pretty good job of playing games.
This has already started to happen. Furthermore, the browser
has the potential to play games at the level of the current
game consoles. And storage will be managed in the cloud.
Most people today think of the “cloud” as mainly dealing with
storage. But the "cloud" I have written in this figure has
processing itself done server side, the most extreme scenario.
This will not happen in the near-term, so that boundary line
doesn't have much meaning. In any case, what I wanted to
explain is that the platform has moved toward the network,
and eventually it will move further toward the cloud, which will
greatly expand the market.
There's something we have to be careful of here. It used to be
that customers who played games were filled with enthusiasm
to play games. They didn't care about spending hundreds of
dollars for the hardware, and then $60 to buy software. But
when you can play games on any device, and a consumer no
longer has to make investments in hardware or software,
games can become like any other service. In other words,
playing a game is as easy and natural as being invited to
Facebook by a friend. That dedicated resolution a player
needed to have in order to play a game is gone, and it would
be strange for developers to ask for such resolution on behalf
of the customers. The people we call the "casual users"- that
type of customer will increase. This is something we have to
keep in mind for those of us making games. The market
3/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
expansion means that the profile of our customers becomes
further segmented. And, of course, our core users remain
incredibly important.
That said, we should be conscious when targeting those
people who are not already core users.
In the last twenty years of the games industry, both designers
and users have developed a knowledge-base of implicit
assumptions. For example, the user interface. And there are a
lot of hardened assumptions in role playing games (RPGs). In
Japan, we think of rock-paper-scissors when it comes to party
roles, like with mages and fighters. There are so many
different assumptions a user has to be familiar with. Many
casual users are entering this gaming world not knowing
anything. From the mid-2000s, games which were designed to
allow first-time gamers to play easily increased. Of course, I
don't think they will continue being so simple. As new
customers get used to things, the standards they demand will
increase. And this is something we need to be acutely aware
of from the perspective of game makers; as I said, we should
be conscious of our assumptions.
Now then, let me move on to my second point.
2. The Gameplay Experience
Processing Power
CPU/GPU
Output
Controller
Touch Panel
Motion Control
Handhelds
Communication
Voice
Control
Input
Here, we'll talk about how a driver of growth shifts among
gameplay experiences. Please look at the slide (Figure 2). I've
drawn four axes. Processing Power, Input, Communication,
Output, exactly in that order. This story is not guesswork but
actually quite logical.
First, as I said earlier, in the beginning, video games were
applications which could not be run on regular machines, and
the industry was in competition for processing power.
Consider the CPU-based competition of game consoles: in the
1990s we had the 16-bit competition, then the 32-bit
competition, etc.
This axis stopped being the primary driver around the year
2000. Until recently, there continued to be plenty of talk about
processing power, but we now understand that processing
power was no longer the driver of growth in the market. Of
course, this does not mean that processing power has
stopped or will stop increasing. Processing power will continue
to increase. Next year, the year after, and the year after that- it
won't stop. For AI and physics, the bar will be set to grow even
higher. But when we speak of a driver expanding the size of
the market, it won’t be processing power. The creative side
has to fulfill the demands of the customers, who thus have
higher and higher expectations, but that is not the same as
saying that the market will expand; it’s a simple necessity of
sustainable technology.
Furthermore, the reason processing power stopped being a
4/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
driver of growth is due to general purpose devices gaining
considerably in processing power.
The next axis is input.
At the very start, the great invention was the controller. The
mouse, keyboard and joystick, then at a stroke, the Nintendo
controller. This was a wonderful invention, and thanks to it, the
gameplay experience became further enriched. You could
enter exceedingly complex inputs. And from there, Nintendo
also released the Game Boy, giving birth to the handheld
genre.
Around the year 2000, processing power stopped being the
driver, and the world shifted in the direction of inputs.
And here, Nintendo reappeared with the Nintendo DS and the
Wii. One after the other came touch panels and voice control,
then motion control. From the middle half of the 2000s to
2010, the Nintendo DS and Wii swept the market. And this
makes a lot of sense. The axis had moved. And Nintendo
consistently became the market’s sovereign.
As would be expected, Sony and Microsoft released the
PlayStation Move and Kinect. But touch panels and partial
motion, etc. had already become a standard for general
purpose devices. Bringing motion controls to the consoles
simply meant that the distance between dedicated game
consoles and those devices that were not dedicated game
consoles became closer; Move and Kinect could not become a
driver of growth for the whole industry.
I think the input axis will continue to evolve but the next jump
will take time. For example, we can think about how to use
brain waves. It could go as far as planting something in the
brainstem like out of the Matrix, which is a bit of a gap from
here.
This axis, as seen in the slide, only reaches as far as where
we are around 2010.
Earlier I said that these theories were all quite logical so I want
to link to our previous discussion.
As the investment to play on the part of the consumer
decreases, the market expands, and this expansion has
moved from dedicated hardware to multimedia machines and
then general purpose devices. The processing power and
input are reaching standardized levels on general purpose
devices and the gap between dedicated and general purpose
devices is decreasing.
Furthermore, from 2007/2008 and onward, in other words
since the network has become the platform, and particularly
5/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
striking in 2010, the driver of growth has moved toward the
communication axis. But this is only the beginning.
From 2007/2008, many companies offering new services have
appeared, but we are only at the very start, and we are only at
the beginning of knowing what our customer's needs are.
As we shift toward the communication axis, the hardships the
old games industry faced are happening all at once.
The gameplay experience is different. The customers are
different. This is an example of market disruption. Because
you can do micropayments, the business model changes too.
And distribution is different. All of this is coming at once. We’ve
been rushed by these market disruptions. Fundamental
changes are occurring. But, at this show (TGS), we can see
that the big publishers have started to catch up.
I don't think this communication axis will end in one wave. I
think two, three waves are coming. This will be an important
battlefield for years to come.
To reiterate, this is not a competition fought only within the
games industry. Beyond general purpose devices, we've
reached the era of the network as the platform. Services,
business models, and the gameplay experience- we'll be
competing head-to-head with other forms of entertainment.
While we are exposed to this competition, we'll have a greater
number of users by which to do business, and the amount of
chances are magnified.
Lastly, theoretically speaking, I think there is one more
revolution to be had with devices. We don't know what it will
look like yet.
Today’s 3D is just an optical illusion. Later, we’ll see, for
example, holograms become real, or something which shows
images directly into your eyes to allow you to overlay a
fictional world upon the real world. Many things will come with
the next axis, the output axis. There will be multiple drivers of
growth on the output axis, but it will be quite a while before this
happens. That's because it is a fairly large deviation from the
undercurrent I mentioned earlier, and something which will
take us back to hyper-dedicated devices. The output axis is
not something which the standards within general purposes
devices could handle; rather this innovation would probably
need to be something that occurs at arcades or as part of toys.
6/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
3‐1. The Business Model
① Price
The consumer controls pricing power and pays to his satisfaction (Freemium is an example)
Our final driver of growth is the business model (Figure 3.)
First, let’s talk about price.
When video games first appeared on the scene as arcade
games, they were pay-to-play. You put in as many 100 yen
coins as you wanted to play for.
Then, console game software moved into packaged good
sales. In other words, a fixed price. This trend has continued
since that period. Customers rebelled; that lead to used
games. It may be bad of me to say, but used games are
inevitable; it's the start of the customer trying to take back
control of pricing. The distributor does control pricing through
lower priced editions, in America this would be price
protection, in any case it's the start of price regulation.
Supply-side, demand-side... When you have a sales channel
which sells physical goods, in the end the distributor must
control the price.
Before I entered this company, I bought a game new, played it
immediately, sold it immediately, and then bought my next
copy used. I only paid the difference between when I bought it
new, and when I sold it used. But that’s the demand-side of
fixed pricing.
The decisive breaking point for fixed pricing was the internet.
When you connect your game to the web, you can do
micropayments. Then you can pay at any time. This is
something completely different than fixed pricing. We've
returned from fixed pricing to pay-to-play. But from here on out
it gets difficult. The amount that gets paid for in pay-to-play
schemes isn't something the suppliers can control. Customers
will only pay to their satisfaction. And the realization of this
phenomenon is microtransactions and freemium. This is, in a
word, a situation where the customer pays for as much as
he/she is satisfied.
The unit price for goods and services is going down. People
call this price destruction or "free." But that's not what's
happening. The phenomenon may appear that way, but the
undercurrent that I can see is we've moved to a system where
each customer is paying as much as he wants to. And when
this happens, the creative side needs to begin designing for
this new model- game designs will change completely. But it's
not that games will become cheaper and unprofitable; rather
the method of game design has to change. Within this context,
discussions over price become necessary.
7/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
Now for the second component of the business model (Figure
4.)
3‐2. The Business Model
② Shifts in Value
“Experience Value”
Community data
User-generated data
Data
Software
Hardware
Code
Personal data
When we say satisfaction, what kind of satisfaction do we
mean? The point is, what kind of value do people seek to pay
money for?
Provided data
Let's consider the word processor. It used to be that you
bought a machine to do word processing. Then DOS-V and
MS-DOS came out, and the PC, and the OS, and on top of
that you could buy word processing software. Hardware and
software were separate. If you asked which had value,
hardware or software, it was the word processing software that
had more value than the PC.
Next let's consider spreadsheet software. The core of
spreadsheet software is logic. If you add up this and this, you
get this, and if you jump to this part of this column you get
something- that kind of logic. But it's the calculations
themselves which are important, not the calculation logic, so
the software's value is split into two. They sell accounting
software which uses spreadsheets. That's exactly what I'm
talking about. If you divide the value it shifts up. This figure
shows the order in which these shifts occur.
Talking about games, first we started with arcade machines.
Then, with the NES, hardware and software were divided; and
when we reached the PlayStation, software's value was
specialized into user generated data- which is to say, play logs
and save data. And here the value shifted. And when the
network became the foundation, play logs were transmitted,
and communication between customers became critical. The
value shifted like this.
The dotted line, and the difference between what is above and
below it, is important. To put it succinctly, this separates what
can be copied versus what cannot be copied.
I will never say that pirating is permissible. But I am trying to
highlight that we need to seek out value that others cannot
recreate. No matter what amazing data assets we create, or
what kind of wonderful logic we code, when data assets are
copied they lose their value. But if we made use of it to find out
how customers experienced things, there's value. Making an
experience out of user data has value. It’s unique. For
example, playing with your friends: trying to recreate being at
the same place and having a shared experience, that's
impossible to copy. That's the direction that communication
will go toward.
The source of value is shifting. The payment model is
changing. We need to be self-conscious of this.
8/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
And as people in the industry it's very difficult. We make
enormous investments, we make the things that are below the
dotted line. But our customers are only seeing value in what's
above it. There's a gap between what we're targeting for
investment, and the model that's going to make the money
back. This is incredibly difficult.
But, I think that's the way games always have been.
I define games as communication with rules. Something like
sports is included in this as well. It's all games.
Let's take Shogi, or Japanese chess. Until Shogi as we know it
was created, only the board and the pieces had some sort of
value. Once the rules were created, well the board and the
pieces are something anyone can make, so now it's the rule
set. In other words, value transferred to the rules of Shogi.
Once this is diffused, a completely different type of added
value grows there. Playing itself becomes what's fun. And as
time passes, today you have completely different added value
services which have become mainstream. OUBAN
KAISETSU, JOUSEKI, DAN-I SHUTOKU…** These are all
completely different added value services. It's all the same, I
think. There's a lot to learn. In the case of video games, it's
how we interposition the computer which gives us a way to
blend things. At first, video games simply created computer
opponents in place of humans. Now they help introduce
people to each other. How will this change? The undercurrent
of competition is going to be in how we design games.
Finally, and this is not just about games, but it's something I
think is quite important. When I speak of the cloud, I speak of a
fundamental revolution.
In the world today there are tens of billions, if not hundreds of
billions of dollars invested almost completely in devices. And
incidentally, I've got amazing processing power! Of course, I
have all the game consoles, two computers, and I've got a
company smartphone, and if you add it up, this can do some
astronomical calculations, enough to do protein synthesis with!
But all their operations are meaningless. I've got this growing
amount of processing power, but most of the time it’s just
sitting around.
If we focus the world's investments on the cloud, the cloud will
evolve, and the communication environment will evolve along
with it. It's a complete paradigm shift. The industrial ecosystem
will be transformed. It will be the industrial revolution of
infrastructure. (Though this is different from the industrial
revolution of games.)
The cloud has the power to change governments,
corporations, etc. Today’s vested interests exist to protect our
current system. Moving toward this new shared resource
9/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.
Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011
system that is the fullest potential of the cloud means a new
system is needed to regulate how we share creative efforts,
pricing, etc. Copyright law will need to be changed, patent law
will need to be changed. There will be immense conflict with
vested interests.
There will be market failures. It’s possible that “the visible
hand” of the market will determine the resolution, and
emerging countries may manage to attain hegemony through
the cloud. The cloud has the power to change the balance of
power in the world.
Years from now, when we enter the cloud era, our games
industry will face off against other forms of entertainment.
What kind of value will our customers expect, furthermore,
how will the world be completely changed? We need to create
our products in anticipation of these changes.
I've spoken quickly and nonstop so there have been parts
which may not have been understood well, but I think that as
this games industry grew incredibly large, it became chaotic to
see what those drivers of growth were. My motivation today
was to sort out and share these thoughts.
As members of the industry, we each have to develop various
innovations to meet the demands of our customers. That said,
I believe that if our industry as a whole recognizes the
undercurrents together, we can create proper, high quality
products, and that is why I took the time to speak with you
about it today.
Thank you very much.
(Parts of this document have been revised since the actual
presentation.)
NOTES:
* iMode is a Japanese mobile internet platform.
**OUBAN KAISETSU is, for example, similar to commentary
in American football games, where announcers offer diagrams
that simulate alternative plays a team could have made.
JOUSEKI are similar to gambits in Chess, which have become
widely known and studied over the course of centuries. DAN-I
SHUTOKU refers to a grade obtained according to the level of
one’s skills, such as a black belt in Karate.
10/10
*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer
Entertainment Supplier’s Association.