When it was announced back in late September that Sony had cut its initial shipment of PlayStation 2 game systems to the United States from one million to 500,000 units for the October 26 launch, a chorus of dire predictions resounded throughout the gaming industry. The concern was that because of the limited number of consoles available, caused by chip shortages and a production slowdown, third-party software producers would be hurt, some perhaps even fatally, because they had based their plans around higher sell-through projections than would actually materialize.

And in fact, a review of sales figures for December, on the surface at least, seems to bear out the fear. According to PC Data, the estimated total game sales for PS2 in the month of December 2000 was 1,868,137 units. Those figures seem particularly anemic when compared to Dreamcast’s 3,511,066; Nintendo 64’s 5,808,534 and PSX’s robust 14,043,100 units. According to the projections, PlayStation 2 garnered only 5.4% of the total market.

Although Sony Computer Entertainment America announced on January 10, 2001 that it had eventually shipped over one million hardware units to North American retail chains by year’s end 2000, there was still a lower-than-anticipated level of performance at retail.

Ralph Gethings, assistant manager at a Compucentre store in Ottawa, Canada, says initial projections convinced the retailer that it would sell out of PS2 software for the October launch, so it certainly didn’t expect soft sales during the holidays. Despite the large number of launch titles available (approximately 30, with the retailer receiving anywhere from five to 10 of each title), ‘we didn’t even go through 10% of that at the launch.’ Gethings adds that if more PS2 systems had been available at Christmas, ‘we would have easily tripled our sales.’ What did sell? ‘PSX software did fantastically well,’ Gethings reports, ‘and as far as platform games go, PSX is our best seller.’

Despite lackluster retail reports, representatives from several companies that invested heavily in PS2 software say they didn’t feel much of a Q4 pinch at all.

According to Jeff Brown, VP of corporate communications for Electronic Arts, the company’s six PS2 titles-including Madden NFL 2001, SSX, NHL 2001, FIFA 2001 and NASCAR 2001-received ‘a 40% marketshare, and even if you’re just selling corn flakes that’s good news.’

Brown, who believes PlayStation 2 will eventually sell the 100 million units projected by Sony, says Electronic Arts was not dependent at all on the PS2 titles to net a strong fourth quarter. ‘We are a large company with our assets spread out.’ That said, Brown adds that while it would have been better had Sony been able to roll out with more units, EA’s Christmas sales were solid.

‘They set high expectations and didn’t quite meet them, but the tie ratio was 2.5:1, meaning that for every console sold, over two games were bought,’ says Brown. ‘That’s very good. And if you compare the rollout of PS2 to Nintendo 64 or PSX, you will see PlayStation 2 is doing much better.’ Although, according to Compucentre’s Gething, ‘we were warned in advance by distributors to bundle [PS2] sales, so we forced the sale of one game with each system.’

Mike Fischer, director of marketing for Namco Hometec, says part of the perception of doom was based on the assumption that companies had built their target sales around the inflated expectations swirling around PlayStation 2 after its E3 debut. But in fact, publishers refrained from getting swept up in the hype and chose to play it more conservatively. While acknowledging it would have been a big plus had the software numbers hit big, sales by and large met software producers private expectations.

‘From a business planning point of view, we did not put together our budgets and plans assuming Sony would hit all of the numbers they initially announced,’ Fischer says. ‘We did not build a business plan that depended on Sony hitting three million units by March 31.’

Although Namco wasn’t dependent on PS2 sales in the short term, Fischer admits, ‘in the long term, obviously Namco and any software company needs these new platforms to become successful or, on a larger scale, we’re all in trouble. I’m confident, though, the demand will pick up.’

Fischer says Namco’s conservative approach was based solely on experience. ‘Namco is a company that has been in the video game business for more than 20 years. We’re the company that created Pac-Man, so we have a little more experience when it comes to dealing with new console launches. We were aware from the start that not only was this a new console, but it was an entirely new manufacturing technology as far as that emotion engine was concerned, so we took into account there was going to be some risk on the manufacturing side.’

Namco, which puts out the PS2 titles Ridge Racer, Tekken Tag Tournament and Moto GP, has no plans to use promotions or on-pack offers to try and goose sales-because, according to Fischer, it’s not necessary.

‘Early on in the lifecycle of a hardware system, promotions aren’t so important because your consumers are the hardcore gamers. These guys are going out of their way to find out about your product, so it takes relatively less effort and expense to reach them. You really have to make that effort later in the lifecycle, when more casual gamers come on-board and the system’s popularity grows and the price comes down.’

Matt Atwood, public relations manager for Capcom, located in Sunnyvale, California, echoes the sentiment that his company was pleased with their holiday sales. ‘Actually, we did very well. Our original launch game, which was Street Fighter EX3 sold very well. In fact, it sold more than we expected.’

Despite the initial console shortage, Atwood says the launch is viewed as successful. ‘There was a lot of speculation, but the bottom line is everything that Sony put on the market sold. They had a bigger launch than Dreamcast as far as units, and software did pretty well. They are moving quicker than we expected.

‘I think you’ll find it was much ado about nothing. Fulfilling units at the beginning is always difficult for a company-chip production and all those kinds of things. But when you’re sold out after putting half a million products in the channel, you can’t complain.’

Even smaller companies such as Calabasas, California-based THQ survived the holidays in good shape. ‘We only had one title-Summoner,’ notes Tanya Stein, THQ’s media relations coordinator. ‘We did great. We have no problems with the sales.’

Nor has the slower-than-expected demand for PS2 software over Christmas dampened the enthusiasm of publishers who have yet to get into the PS2 fray. Southpeak is preparing to release a title, and Majesco still plans to release its first two titles in fall 2001.

According to Capcom’s Atwood, the apparent lack of financial crises-or panic-is a result of the changing face of the gaming industry. ‘We were not put in the position of having to depend on PS2 for a strong fourth quarter because we have a really strong multiplatform strategy and our income is not dependent on one system. Right now, especially in transition stages, companies can’t afford to put all their eggs in one basket.’

Konami, for example, which publishes ESPN NBA 2Night and Silent Scope among other PS2 titles, also sells trading cards and has an amusement machine business.

Namco’s Fischer agrees that diversity is the key. ‘You could argue the success of PlayStation was built on the backs of third-party games like Tekken, Ridge Racer and Resident Evil-and Sony kind of built its strategy around that. For this new generation of systems-Xbox, Gamecube, PlayStation 2 and so on-I see more publishers opting to put out on multiple systems. This means that the strategy maybe shifts from having all the third parties in your camp-which is still a factor-but I think, relatively speaking, it may shift toward having the best first-party game.’

In the end, few, if any software producers are ready to bet against PlayStation 2 living up to the hype. As Kazuo Hirai, president of Sony Computer Entertainment America once noted when the first PlayStation went on sale five years ago, ‘we were perhaps written off in some circles. We’ve proven everybody wrong.’

Matt Atwood of Capcom sums up the overall feeling of publishers like this: ‘At the end of the day, the software producers fared well. And the day’s not even close to being over. It’s still morning.’