By now it’s common knowledge that when a new generation of consoles is poised to hit the market, game developers must adjust their strategies for serving last season’s systems, which still dominate living rooms the world over.

Many studios learned this lesson the hard way in 2001, as Microsoft’s Xbox, Nintendo’s GameCube and Sony’s PlayStation 2 began to permeate the market. Unlike the cartridge-based systems it replaced, the first PlayStation (which has now been rebranded as PSOne) refused to fade gracefully into the shadows and continued to sell well into 2004. But most studios failed to anticipate this possibility and were focusing all their manpower and resources on producing titles for the new cadre of consoles.

‘The publishing industry walked away from PSOne too quickly after Xbox and PS2 became available, and retailers were all pointing out that their sales remained robust for content for the older generation,’ says Anita Frazier, an industry analyst at the NPD Group. She adds that pumping out more kids and family titles can be an effective tactic for dealing with the growing pains associated with rollover because ‘not only do last-gen systems get passed down to younger siblings and kids, but the budget-priced games released for them often attract a broader demographic.’

Game publishers will have a chance to redeem themselves and capitalize more fully on two streams of revenue over the next year, when Microsoft’s Xbox 360, Sony’s PlayStation 3 and Nintendo’s Revolution enter stage left. THQ, for one, plans to continue making games that play on the current generation of consoles for at least the next four years. And given that the combined installed base for PS2, Xbox and GameCube has hit a whopping 53 million units in the U.S. alone, the company is opening up the scope of its development efforts to include more titles for girls and families.

Namco business director Jeff Lujan says the hardware developers have made it very clear that they intend to support development on their current systems, so the trick is figuring out how to serve a family audience that takes a far more casual approach to gaming as an entertainment option. Games have to be fun, relatively simple to pick up and immediately sticky.

And it certainly doesn’t hurt to work with well-known characters, which is where licenses come into play. Namco’s Pac-Man World Racing couples a familiar racing play pattern with classic arcade icons that both parents and kids are fond of, which should increase the title’s chances of making an immediate brand connection from the shelf when it launches in 2006.

Global brand management director John Ardell says THQ is also working hard to unlock the family formula by designing more multiplayer titles that let kids and parents play as a team. The new Incredibles sequel, Rise of the Underminer, and four-player party game SpongeBob SquarePants: Lights, Camera, PANTS! are just two recent launches that showcase this strategy.

Activision’s head of global brand management, Robin Kaminsky, expects that dropping hardware prices will also help widen the kids market for current-gen consoles and software. Parents shopping for their eight-year-olds, she posits, are far more likely to be comfortable dropping US$100 to US$150 for one of the older models than US$300 to US$400 for the new incarnations. Kaminsky says Activision plans to make the most of the transition by releasing game titles across all generations, and then eventually phasing out current-gen versions of hard-core game titles as the cycle wears down.

But one of the first challenges lies in capturing the attention of a mass audience, since the gaming mags and websites that provide such easy access to core gamers aren’t on this broader demo’s radar at all. Lujan says 80% of Namco’s marketing budget currently goes into gaming magazines, so there’s quite a need for a strategy redux. ‘Right now, we consider mass-market publications to be magazines like Stuff, Maxim and Playboy,’ says Lujan wryly.

But rather than concentrating a huge amount of dough on family-oriented print buys, in-store marketing may be a more effective tactic since casual gamers are more likely to make impulse buys. And Namco has also used guerilla marketing and street teams to draw in sizeable youth audiences in the past.

Impulse buys are largely driven by pricing, which has been rapidly dropping on console software over the past year. Particularly in the kids and family realm, a premium license or franchise is a must to come out at full price and stay competitive. ‘A year ago, all first-release titles were US$49.99 at retail,’ Lujan says. ‘Today, about 60% or so are coming out at US$39.99, and there’s also a market for US$19.99 and US$29.99 titles that didn’t exist before.’

In fact, a 2003 Namco title called Katamari hit shelves at US$19.99, and went on to sell around 500,000 units, prompting a We Love Katamari sequel that rolled out late last month. The game is about as casual as it gets: Players simply roll a giant ball and rack up points for the debris they collect (everything from thumbtacks to skyscrapers) as it grows in size.

Part of the reason why these games are only viable late in the hardware cycle can be put down to development costs. On the new systems, developers are starting from scratch. So the teams are bigger, the tech costs are steeper, and it takes much more time, which raises the price-point. With current consoles, developers have amassed a lot of experience with the technology, and they can even reuse previously developed game engines.

‘There is a correlation between the quality of a game and the cost of development, but it’s not necessarily a direct one,’ says THQ’s Ardell. ‘There can be a product that is well received, but that didn’t cost a lot because the developer made it in a smarter way.’ He adds that at the US$20 price level, most consumers aren’t expecting a premium game experience; it simply needs to be fun and high on replayability. These titles can be shorter as well, since casual players don’t always see the games through to the end.

Lower price-points often affect retail placement, and can sometimes open up new distribution opportunities in channels such as grocery stores. If a hot game comes out at full price, it’s typically displayed behind glass, which means it skips the impulse market entirely. Casual games also tend to exhibit different sell-through pacing than premium titles, often chugging along steadily at US$19.99 for a couple of years, rather than posting huge sales for a few weeks and then dropping to the value-priced greatest hits rack. THQ recently put out a sequel to its redneck trucking game Big Mutha Truckers, which maintained its US$19.99 price-point for two years and sold between 750,000 and 800,000 copies in the U.S.