Wii U Will Not Be Behind Next Generation

One of the most resounding criticisms launched at Nintendo’s upcoming Wii U console is that it just isn’t going to be powerful enough.

Critics look back at the leap between PlayStation 2 and PlayStation 3 in terms of the power packed under the hood and rightly conclude that it went miles beyond the difference between GameCube and Wii. With early Wii U software consisting mostly of titles that either resemble or are ports of games possible on current-gen HD hardware, some have raised understandable concerns that Sony and Microsoft will easily render Nintendo’s system technologically obsolete for a second consecutive generation.

Naturally, they believe, this means that Nintendo is going to be “behind” its competition. Stepping back and taking a look at history and the bigger picture surrounding the system’s impending launch, I can’t help but question the wisdom of this conclusion.

Apart from Wii actually attracting a much bigger audience and its big sellers dramatically outpacing those on other systems, my skepticism has a lot to do with the conditions currently facing the industry. I look at gaming today, after the massive leap in system power between the sixth and seventh console generations, and I don’t see an industry on the verge of a breakthrough.

I see an industry on the verge of folding in on itself.

The biggest and most obvious factor in this decline is the impact of substantial increases in system capabilities on the costs of development. According to estimates generated by Ibis Capital in its research into game development costs, the average game on PlayStation 3 or Xbox 360 costs between $15-30 million – that’s over three times the average cost of development for PlayStation 2 and Xbox ($5-10 million), and anywhere from 3-4 times the average costs for Wii games ($5-7 million). Some games, like Star Wars: The Old Republic, cost in the range of hundreds of millions of dollars.

Meeting steeper hardware demands requires more expensive development tools, more development time, and a larger staff—as well as additional overhead. The amount of money an individual copy of a game costs for consumers at retail, however, has remained relatively constant, shifting from $50 to $60 for PlayStation and Xbox titles. So while the cost of development has increased substantially, revenues haven’t kept pace. The gap’s probably a whole lot wider once you factor in added manufacturing costs for newer physical media formats (thank you, digital downloads).

Meanwhile, unless you’re the source of the latest Massively Huge Hit, the general trend seems to suggest that these bigger budgets do not necessarily correlate with higher sales. In fact, most of the highest-selling games tend to have lower budgets and less ambitious production value. This is the case even for consistently-profitable franchises like Mario, whose critically-acclaimed 3D games historically have never even come close to approaching the sales performance of the side-scrolling Super Mario Bros. titles.

In other words, developing games that meet the perceived popular standard, with high-definition visuals and dozens of hours of playtime, costs more money and tends to make less money. If you’re developing a cutting-edge AAA game these days your product needs to perform significantly well for you to break even, much less pull a profit. In such an atmosphere, it’s no wonder that over 120 game studios have closed since 2006. Not everyone can sell 3-5 million copies of their latest game.

Many other studios have seen mass layoffs in recent years. THQ has been hit particularly hard and is now skating on thin ice. Sega has been in trouble for years and recently reached a near-breaking point. There are many more examples. While some might argue that these companies have struggled to maintain consumer confidence in the value of their products — Sega in particular receives a lot of deserved criticism in this department these days — the fact of the matter is that even properties that had and maintained stable value in the sixth hardware generation saw sales declines in the seventh.

To use an example from a more successful publisher, despite nearly five years of development time and a $48 million development budget (before marketing), Final Fantasy XII fell over 2 million sales short of Final Fantasy X. Its successor, Final Fantasy XIII, was rumored to have a 50% higher budget (its overwhelming production values corroborate this, but no conclusive facts exist), but only managed to ship about a quarter-million more copies than Final Fantasy XII.

I suppose Final Fantasy XIII may not be the best example, either. The game has created a rather noticeable divide due to its extreme linearity. But then this raises another concern: instead of being enriched, many franchises actually suffer as they embrace more advanced technologies.

The question then is why the supposed conventional wisdom of the industry supports a business model that favors these larger development costs when there is no definitive positive relationship between these factors and higher perceived overall value or higher sales.

I think the answer is simple: by flexing their superior resources to support a standardized industry development environment that is more expensive, big publishers such as Electronic Arts and Activision-Blizzard can inhibit smaller ones from gaining footing. Driving players who can’t afford to compete on these terms will further reinforce the association between “good games” and “high production values,” making it even harder for smaller studios to be taken seriously.

At the same time, even these companies have not been immune to mass layoffs: Activision-Blizzard laid off 600 employees just months ago after burying Guitar Hero last year, and Electronic Arts laid off about 1,000 individuals in 2008.

Mark Rein, VP of Epic Games, the creators of the popular Unreal Engine, insists that next-gen consoles need to be at the head of the curve in terms of hardware specs in order to survive:

Rein: “If next-gen consoles aren’t bleeding edge, Apple will beat them. That’s the console gaming model, and if you don’t do that – if you don’t stretch just far enough, you don’t just have enough of a difference to make people want to take the leap with you… it all falls down. Now, I don’t think that’s going to happen – I think the console guys are going to blow us all away. But as you say, we’re on them.

“There’s no end in sight for what we can do with unlimited technology. So we’re always going to be pushing and I’m sure we’ll be pushing for more than is possible to give. But yes, we feel that’s kind of our duty. That’s what Epic is here for.

(My reading of the bold: “We have a vested interest in establishing the attitude of ‘pushing for more than is possible to give’ as ‘the console gaming model’ so more people are compelled to ‘take the leap’ and invest in our game engine, no matter how expensive it is.”)

To put the financial impact of this kind of thinking into perspective, in 2006 Rein admitted that they pushed their Gears of War prototype to Microsoft in order to convince the company to include twice as much RAM for the Xbox 360 in order to handle it at full specs—a decision that cost Microsoft $1 billion. Rein’s response?

Rein: “I got a call from the chief financial officer of MGS and he said ‘I just want you to know you cost me a billion dollars’ and I said, ‘we did a favour for a billion gamers‘.”

(Stating the obvious: There are not a billion people playing dedicated game hardware, and certainly nowhere even close to that playing Gears of War.)

Do you know what this is? This is hubris. It’s very cleverly-disguised hubris, framed in the context of consoles needing to remain competitive against non-dedicated platforms which are growing more and more capable with yearly hardware models.

In reality, however, Epic Games’ main interest is not in the competitiveness of consoles against tablets and other devices—their interest is in their expensive cutting-edge development engines being available for as many platforms as possible. Naturally to achieve this end their official PR lines are going to expound upon how greater system power is absolutely necessary for success in the coming generations of game hardware. And the best way to bring “unlimited technology” to “a billion gamers” is of course by signing up for Unreal Engine.

Sony and Microsoft have their own larger business interests to serve. PlayStation 3 was a huge driving force behind the expansion of the Blu-ray format, and its predecessor had the same relationship with DVD. For Microsoft, the Xbox line exists for two reasons. The first is to provide competition for PlayStation, which was cannibalizing the PC gaming market. The second is to promote DirectX — did you know that Xbox’s name is actually shortened from “DirectX-Box”?

The Gaming Press by and large seems totally on board with this kind of behavior, serving as an additional driving force for the big-budget AAA approach. Exceptions do exist, but they’re rare, and the praise granted them tends to come with some kind of backhanded complement regarding the graphics, lack of voice acting, or missing online play.

The only viable way to compete effectively in this kind of environment is if you can afford to beat the big boys at their own game, and that’s frankly just not possible if you’re a smaller studio trying to spread your wings.

But all is not lost! There is a way to survive in this industry without spending more on development costs than you can afford: refuse to play by these Rules and strive instead to deliver on a different set of consumer demands.

That’s where Nintendo comes in.

Wii ignored the conventional wisdom regarding generational leaps in system power altogether. Instead of focusing on cutting-edge production values and the reinforcement of the trend towards tailoring content to better suit the perceived “hardcore” and “mature” male audience, Nintendo was interested in keeping development and consumer costs low and creating unique software with broad appeal in order to expand their audience (and consequently their profit margins).

This pool of games included a number of new software proposals that offered unique value based on Wii’s motion controllers and peripherals, such as Wii Sports and Wii Fit, but would also include more traditional software such as The Legend of Zelda: Twilight Princess, Super Mario Galaxy, Metroid Prime 3: Corruption, Mario Kart Wii and New Super Mario Bros. Wii. The feeling among consumers was that new types of fun were possible while old types of fun had been enhanced.

Neither category of fun saw adequate representation on other systems, which instead promoted big-budget cinematic and other kinds of “hardcore” games. It was not until 2010 that Sony and Microsoft attempted to compete in the motion controls space with their Move and Kinect peripherals (themselves marketed as higher-tech motion devices), and to date neither has enjoyed either widespread support or lasting success.

In short, it’s all about the games, and more specifically about the kinds of games that Nintendo has always thrived at making: platformers, action-adventures, and family games. These games, when well-made, have always been industry powerhouses…in terms of their popularity. When Wii reached its high points, it was because those were the moments where Nintendo really delivered on this demand.

As a result, Wii was able to became the best-selling home console and only true big phenomenon of the seventh hardware generation despite failing to adhere to the status quo set by its competitors—indeed, it did so thanks to the fact that it intentionally rejected their direction.

(Of course, I wouldn’t dare to make the claim that Nintendo’s strategies for courting a wider audience have been consistent or perfect. I have my own ideas about the company’s mistakes, but that’s another subject for another time.)

This kind of strategy is nothing new for Nintendo.

When NES hit the market in America, the Sega Master System, which was technically superior across the board, was not far behind. Nintendo’s entire handheld line also followed this philosophy, with GameBoy being less powerful than Game Gear, GameBoy Advance rejecting the trend of incorporating non-gaming functions into handheld systems, and most recently DS and 3DS being substantially less powerful than PSP and PS Vita.

This might surprise you, but the “non-competition” strategy exercised in the development of these systems and their software without exception corresponded to the periods where Nintendo commanded the most market share. And attempting to show up competitors on their terms has always resulted in a loss of market share.

Given the negative correlation between system power and success, however, it shouldn’t surprise you that Nintendo does not hold much confidence in higher specs as the solution to invigorating the gaming market. Here are some quotes from Nintendo’s business leaders during Wii’s early years on their attitudes towards more sophisticated hardware and increased production values:

Miyamoto: “If anyone makes a game for HD, the hardware machine power must become more than quadrupled just to make it HD applicable. A similar thing can be said about the memory size. When developers are told that they can use as much memory size as they want, some use them indiscriminately without thinking how it will affect other development activities, and it is becoming difficult for game directors to control the whole game development process.

“Such uncoordinated activities by each developer make the hardware work less efficiently and unnecessary development efforts must be taken for these activities. What we are trying to do is to create brand new freestyle entertainment that can be enjoyed by all the family members as well as by a single player. In making such entertainment, I have never felt stress about the power of Wii. Honestly, I have not been able to use 100% of GameCube’s power yet, so I am very happy with Wii’s far superior functionality.

(Source: VideoGamesBlogger – New Q&A Session with Shigeru Miyamoto, Satoru Iwata, and others, June 2006)

Reggie: “I just saw a survey from the Center for Media Research that showed only 17 percent of U.S. households have a TV set capable of high definition. Flip that number around, and that means that a full 83 percent of households do not have the means to produce the kinds of visuals that high definition devices require. Of course, we’re intensely interested in better technology, but sometimes our definition of the right technology is different from other people’s.

(Source: GamePro – Nintendo Q&A: Reggie Fils-Aime talks future of Wii, Jan 2007)

Miyamoto: “However, the question is, will the software made in that fashion [with higher production values] really become the software with that competitive edge? Also, even when they compete on the market, will it make economical sense in terms of costs spent by the company? After all, only a handful of software among the ones with competitive edge eventually win in the market. Between the technological ability and an unique idea, I think that many critics evaluate products with a bit more bias to the technological side than to the unique ideas.

Iwata: “(When we were developing Wii,) simply because Shigeru Miyamoto and I concluded that merely intensifying the horse-power of the system would never differentiate us from the others and that we would not be able to create a system that would be attractive enough to sell, we have deliberately chosen another way.

“Please don’t misunderstand us – we are not saying that we dislike nor hate high performance technology. When we are presented with beautiful photorealistic picture, we sincerely appreciate its beauty. We are anticipating that the time will come in the future when anyone can manipulate these technologies without any difficulties and when we can market the software at reasonable price points, and so we are already thinking about how we can make use of them. So, we are preparing for the future, and I do not feel like we were left behind at all.

“However, always keeping up with the emerging new technologies for the future is one thing, and creating something today that is distinctly different and attractive to our customers’ eyes is another, so we should not mix them up. Trying to compete with the others in the same battle ground can always end up being the tiring war of attrition, and even if you win, you can’t keep winning forever. Accordingly, we are trying to create a new battle field altogether for ourselves, which I believe is more of Nintendo’s style.”

(Source: Nintendo – Financial Results Briefing, 31 Oct 2008)

Allow me to summarize these viewpoints briefly in my own words and supply the comparable industry perspective in order to demonstrate the difference between Nintendo’s way of thinking and the ideologies of the industry at large.

Nintendo: “We have not even fully utilized the technology that is available now, so we do not think that such large increases in system power are an efficient use of resources.”

The Industry: “We must invest whatever resources we have in utilizing whatever increases in system power are available.”

Nintendo: “There is not a wide audience for HD televisions, so that direction is not compatible with our goals of attracting a wide audience and providing value that is affordable.”

The Industry: “There is not a wide audience for HD televisions, so we should make our games in HD so that people will buy HD televisions to play our games.”

Nintendo: “The costs of high-power development are not productive enough in terms of generating a competitive edge. Our competitive edge will come from providing value through products that more people can enjoy.”

The Industry: “Even though high-power development is costly, we must accept these costs to gain a competitive edge. If this does not enhance our products’ perceived value for a large gaming audience, it is because we are not spending enough money.”

There’s a common theme that runs across each of Nintendo’s discussions of the high-definition issue. It’s this billion-dollar question: “Is HD [or some other facet of hardware performance] a necessary or appropriate move given current conditions?”

Nintendo’s answer to this question is “until HD becomes a widely-accepted and affordable format, the conditions are not set to invest in HD development.” When the industry is faced with this question, the answer tends to be “HD is the superior format from a technological standpoint, so of course HD development is the appropriate move.”

Which of these responses is more consumer-friendly and more financially sound? I hope I don’t need to give you any hints.

New Super Mario Bros. Wii serves as a symbolic example of Nintendo’s successes coming precisely from bucking the technological superiority approach. The game carried Nintendo through to the end of its most profitable fiscal year ever and went on to become one of the top-selling games of all time. Before it hit the scene, were there any other companies with the balls to put out a high-profile low-budget side-scrolling platformer instead of more HD blockbusters? It was only after the game was revealed that games like Sonic the Hedgehog 4 or Rayman Origins were first proposed.

What about the critics and “hardcore” gamers? Many of them praised the heck out of Super Mario Galaxy but were more reserved about New Super Mario Bros., even though in the end the side-scrolling game outperformed its technologically superior 3D companion by an almost ridiculous margin. It sounds as though they don’t have as much of a handle on how video games are valued as they believed.

Clearly something about New Super Mario Bros. Wii delivered a level of appeal that none of the 3D Mario games ever enjoyed. At the same time, it’s not as though Nintendo left big-budget games behind altogether: Super Mario Galaxy 2 was released six months later, and though it didn’t come even close in terms of performance it still enjoyed moderate success.

Wii U is set to be significantly more powerful than Wii, but Nintendo assures that these power increases come at a reasonable cost. Satoru Iwata described the approach towards enhancing Wii U’s value over its processing power at an Analyst Q&A Session during E3 2012:

Iwata: “Of course, because we have designed a new hardware system, we are using new technology and we are using new GPUs. But as we have to devote significant costs to the Wii U GamePad, if we were to apply the same level of enhancement that other console manufacturers shoot for to the processing power component, the Wii U would become extremely high in price, and it would not be affordable. In other words, we think that the way that the various console manufacturers are allocating their budgets to the hardware is different from the way that we allocate our budget to the hardware. Ultimately, we’re looking to maintain a price point for the Wii U that is reasonable in comparison to the value to be offered.

Sound familiar? This is a similar tune to the one Nintendo sang for Wii. Wii U features HD capabilities, but only now that HDTV adoption rates have increased and HD development costs have somewhat declined. Instead of simply increasing the raw specs, Nintendo has designed the Wii U GamePad controller and its touch screen to enhance the value of the system, similar to their strategy with Wii Remote’s motion controls.

As long as Nintendo can produce software that is considered must-have and the Wii U GamePad doesn’t drastically increase the price of the system, Wii U looks to be a moderately-powerful, reasonably-priced system that matches the capabilities of previous generation hardware but does not stretch overwhelmingly beyond them.

Doubtless Nintendo is hoping for another Wii-like hit. With known low-budget high performers like New Super Mario Bros. and Wii Fit set to be available at launch, they might just pull it off. And Nintendo’s already stated that bigger HD games like The Legend of Zelda will follow. We’ll see what form these games take when they’re revealed.

Aside from continuing to feed the Mario hunger, I think the early presence of New Super Mario Bros. on the system is meant to be a message to all those developers who have suffered the rising costs of game development and are afraid to take the hits that further leaps in technology will bring. The world economy is not what it was six years ago. The U.S., Europe, and Japan are all suffering. It’s likely that consumers may not be willing to shell out the cash for high-powered hardware.

Nintendo is banking on the early success of Wii U, driven by this kind of lower-budget software combined with inexpensive hardware, to convey to the industry: “Our priorities are the way to success in the face of today’s market conditions.”

Let’s face it: with development costs already ballooning this generation with negligible ROI for those increased costs, even if the leap to next generation tech is half of what we’ve seen this time around, it’s altogether possible that studios aren’t going to be able to handle it. It will likely be more advantageous to shoot for more conservative development budgets and focus instead on making games whose appeal is based on the fundamentals of having fun.

And as long as the games really are fun, that’s totally fine.

A few companies seem to get what Nintendo’s going for, with Ubisoft taking the lead. Sure, the company’s bringing over an enhanced version of Assassin’s Creed III, the king of their big-budget projects, and developing a new zombie shooter in ZombiU, but they’re also working on high-profile lower-budget projects like Rayman Legends, Just Dance, Rabbids Land, and Sports Connection.

Instead of cracking into Wii U with brand-new expensive development projects, a number of third party companies are looking to enhance the profitability of their existing big budget games. Examples include EA/Bioware’s Mass Effect 3, Warner Bros./Rocksteady’s Batman Arkham City Armored Edition, Team Ninja’s Ninja Gaiden 3: Razor’s Edge, and Vigil Games/THQ’s Darksiders II.

Others have already begun to embrace the low-budget option with games like Platinum Games’ The Wonderful 101, Traveller’s Tales’ LEGO City Undercover, Warner Bros./5th Cell’s Scribblenauts Unlimited, and Namco Bandai’s TANK! TANK! TANK!

That last one is particularly interesting. It’s an enhanced port of a 2009 arcade game. And how did Nintendo first get its footing in the home console market? By building on its arcade games.

Yet so many developers continue to look at success as a power equation. Despite Wii proceeding to soundly kick the asses of both of its competing systems, and this regardless of the fact that high-profile third-party properties were mostly located on Xbox 360 and PlayStation 3, they continue to cling to hubris, believing that their way is the superior way.

But can the industry take it? That’s going to become this generation’s billion-dollar question.

A developer working on next-generation Xbox hardware says that “I’m having to double my budget for models. If we want to take advantage of Durango’s capabilities it takes a lot more time for each model.” This is just the cost for modeling. Imagine the implications for other facets of development.

Junction Point’s Warren Spector, director of the Epic Mickey franchise, has this to say about next-generation development costs:

Spector: “Honestly? I don’t care much about hardware. Nintendo games are some of the best games in the world and from a more graphical standpoint, the Wii can’t do what a PS3 or 360 can do. It’s about design and not so much about tech for me. Honestly, I’m more scared about what will come next than I am excited.

“Once we can do Pixar-quality graphics rendered in real time with interactivity, I could see games costing $200 million to make and all of a sudden you have to sell a lot of games just to break even, so I’m a little worried someone’s going to do that. Someone’s going to spend… well, there are already people spending $100 million on games, that’s not even insane anymore.

“I think the power of the platforms is outstripping the size of the audience. We can’t charge $150 for a game. And when the best-selling game of all time has sold only 20 million copies, at $60, do the math! If you’re spending $200 million on a game and you’re making $60 on 20 million copies sold, oh wait, you’re losing money if you’re the best-selling game of all time basically, right? I don’t know how the business works anymore, that’s the problem.

“It already takes three years to take a game, when all of a sudden creating assets at an even higher level of quality and animations that are even a higher level of quality, I don’t know how we’re going to do it. We’ll figure it out but right now I’m content where I am.”

With Wii U, Nintendo offers an alternative to the out-of-control cost increases that other next-generation hardware might potentially bring. Wii U also continues the Wii tradition of featuring experiences that resonate with a wider number of customers. I think doing things more in line with the Nintendo way is going to be the key to success next generation… just as it was this generation.

Skeptics may believe that Wii U will become obsolete within a couple years and that that will spell doom for the company, but Nintendo seems confident that there’s nothing to fear:

Iwata: “We cannot promise that the Wii U will never be excluded from multiplatform software for eternity, but we can at least assure you that the Wii U will not have such a big difference as the Wii had in comparison to how, on other platforms, developers could expect very different graphic capabilities of generating HD-applicable high-resolution graphics. Other companies might launch a next-generation console with more power, but we don’t necessarily think that the difference between the Wii U and such console will be as drastic as what you felt it was between the Wii and the other consoles because there will be fewer and fewer differentiators in graphics.”

What’s missing from Iwata’s assessment here is that even if next-gen systems have significantly more power than Wii U, that doesn’t mean that your average developer has the money to fully tap into that power. It certainly doesn’t mean that companies are going to find high-end development more profitable than before. With economic conditions as they are, higher processing power may lose its attractiveness from an investment standpoint.

The end of absolute and sustained Nintendo dominance this generation only came when Wii development grinded to an abrupt halt in 2011 so the company could shift resources over to Wii U. In the same year, Nintendo itself fell victim to hubris regarding the value of the 3DS’s 3D display (backed by—you guessed it!—a massive marketing budget), resulting in its first-ever operating loss.

As such, I don’t think it’s really appropriate to say that Nintendo is going to be “behind” with Wii U because they’re not embracing big-budget tech. That’s the same thing the pundits said last time around, and they were stumped at basically every turn. If GameCube and 3DS have taught us anything, it’s that Nintendo is most “behind” when they’re focused on promoting powerful tech over core fun.

I have no problems with games that use the best of what’s available — but I think developers have to be smart about it, or else it becomes a liability that may not be worth it in the end.

Thank you to Emily Rogers at NotEnoughShaders for her hard work and research, which served as a big inspiration for this article. Check out her essay, “The Rise of Costs, the Fall of Gaming” for more information on this topic.