Forecast ’97

Following a raft of company buyouts and closings, what do software publishers and developers see as the outlook for the industry in the year ahead?...
December 1, 1996

Following a raft of company buyouts and closings, what do software publishers and developers see as the outlook for the industry in the year ahead?

As they near the end of 1996, software publishers and developers are preparing for another year of intense competition following a recent wave of company acquisitions. Get ready for more consolidations, a tougher retail landscape and increased Internet activities, say the insiders.

The ‘rapid consolidation’ that has characterized this past year is likely to last another six months, says Ray Musci, president of San Jose, California-based Ocean of America. Big buyouts in 1996 have included Edusoft and MECC by SoftKey International (now operating as The Learning Company, Inc.); Humongous Entertainment by GT Interactive Software Corporation; and Davidson & Associates, Sierra On-Line and, most recently, Knowledge Adventure by CUC International. Musci predicts the industry will shrink because ‘the vast majority’ of companies are not making money.

‘What the retail marketplace has told us is that there’s just not room for all the product that exists,’ says Tim Zuckert, vice president of marketing for Virgin Sound and Vision of Los Angeles, California. The number of consumers is growing, but supply outpaces the available shelf space. Zuckert agrees there is more consolidation down the road because publishers and developers can achieve economies of scale by merging.

As the retail marketplace becomes more competitive, companies will cut prices to attract consumers, says Patti Saitow, Dallas, Texas-based Powerhouse Entertainment’s director of product marketing. Already, some have slashed prices from the $25 to $35 range to below $20. The move is also in response to ‘value-conscious’ consumers who are buying titles for the first time.

Along with lower prices, consumers will see more premiums, video offers with titles and tie-ins with packaged goods, says Louis Roitblat, director of marketing for Creative Wonders, headquartered in Redwood City, California. ‘The industry is young in terms of promotional activity, but it’s learning very quickly.’

On-line features will appear on more titles as a way to add value, says Mauricio Polack, national sales manager for American Laser Games and Her Interactive, located in Albuquerque, New Mexico. The falling price of Internet access and the upcoming launch of higher-speed modems will encourage Internet links. Also, Polack says, competing with other players on-line is ‘much more compelling’ than playing against the computer.

As a promotional tool, the Internet, along with media coverage and retail efforts, will play a bigger role, says Kenni Driver, Richardson, Texas-based 7th Level’s vice president of marketing. That’s because television is less effective as a way to reach children, since fewer kids are watching TV now.

Corporate Web sites ‘are great marketing tools, but right now, I don’t think they’re great sales vehicles,’ says Ralph Giuffre, executive vice president of marketing and licensing for Humongous Entertainment of Woodinville, Washington. Retail outlets will still be the places where shoppers buy their software titles in 1997.

So what will succeed at retail? Games will continue to sell, but most of the growth will come from the educational side, forecasts 7th Level’s Driver. Parents like titles that teach their children, computers are becoming more common in classrooms, and education is high on politicians’ minds when it comes to kids.

More good news for parents is that the quality of products will keep rising, says Ron Frankel, executive vice president and general manager of MGM Interactive of Santa Monica, California. In part, companies like Disney have raised the standard. As well, the industry has another year of experience under its belt when it comes to appealing to children.

Branded products will remain hits with kids, says Virgin Sound and Vision’s Zuckert. Licensed properties and well-known software lines, such as Knowledge Adventure’s JumpStart series, will have ‘increasing importance.’ Both retailers and parents tend to be more comfortable with brands than with unfamiliar releases.

Older children represent an opportunity to boost sales, says Roitblat of Creative Wonders. Because preteens and teens typically spend less time on computers than their younger counterparts, they’ve ‘always been the toughest market to crack.’ But educational products, for example, could do well with this age group.

Girls in particular offer an audience with room to grow, says Polack of American Laser Games and Her Interactive. While several girls titles hit the shelves in 1996 (see ‘The hard facts on girls software’ on page 18 of KidScreen’s August issue), sales haven’t hit their peak because most girls are still not aware that products that suit their interests are available. Polack expects it will take another year or two before this market gains momentum.

What will be the winning platforms of 1997? For PCs, Win 95 is poised to take the lead, says Polack. For one thing, it’s easier to program for than Windows 3.1 or DOS. As well, most PCs sold today are bundled with Win 95, and PCs make up the majority of home computer purchases. On the video game side, Ocean of America’s Musci says early results favor Nintendo 64 over the Sony PlayStation and the Sega Saturn.

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