Come In and Play

The computer game industry is winning new fans, even in the still-skeptical supermarket business.

Overall sales of video game and PC software increased 11 percent from $5.5 billion in 1998 to $6.1 billion in 1999, according to the Washington, D.C.-based Interactive Digital Software Association (IDSA). More than 215 million computer and video games were sold last year, a 19-percent increase over 1998. The entire electronic entertainment category took in between $7 billion and $7.5 billion in 1999, surpassing theatrical box office revenues for the first time.

"Growth in 1999 was driven almost entirely by the video game software market," says Matt Gravett, game analyst for Reston, Va.-based PC Data.

However, supermarkets have still not shared in the success of the category, though many retailers are anxious to at least test computer and console games in their stores. Industry research says less than 3 percent of total computer and console game sales are made in the supermarket; however, sales reportedly grew by 10 percent in food stores last year.

With some luck and proper merchandising, the supermarket could become a key outlet for certain types of games. Price points are in a continual downward spiral, with some prices dropping by 70 percent or more within six to 12 months after the product first hit retail shelves. In addition, some suppliers, including industry leaders Hasbro Interactive, Disney Interactive, and Mattel, are introducing product targeted to children under 16 at suggested retail prices of $20 or less.

"Supermarkets have emerged as a viable channel in the last few years. This is particularly true as we expand into more casual players and attract more price sensitive mass market consumers," says Trip Hawkins, CEO of 3DO. "There's a lot of opportunity, particularly for strong brands that are priced effectively to sell in those channels.

"However, the titles need to be marketed and priced differently. We've had a lot of success with brands like Army Men, because it's a strong brand, it's promoted on TV, people can understand what it is fairly easily, and [the supermarket] channel tends to have more price sensitivity because people are not destination buyers going into a store to look at video games. It's going to be more of an impulse buy from somebody who's in that store for other reasons."

Still, there is work to be done. In the view of Jeff Nuzzi, director of retail marketing for Fox Interactive, the supermarket is not yet a viable channel, but could be in the future. "For PC games, there's always been an issue of system requirements, and not getting into situations where you turn a drug store sales staff into PC experts," says Nuzzi. "But that's less an issue these days as more products are made for the average computer owner. Also, packaging standards are starting to normalize so you don't have a lot of boxed air. So I think there is an opportunity with jewel-cased products in the future at supermarkets, especially for lifestyle-type programs and hit-driven licenses.

"I think there's also an opportunity for video games as the price points for the mature markets, such as PS and N64, start to move down more towards the impulse buy level. That's much like video was maybe four or five years ago, when it first started emerging in drug stores and grocery."

Nuzzi adds that supermarkets that tie in computer games with such items as cereal and candy could help build consumer awareness of the category in the food store. Already, he notes, a number of promotions have offered CD-ROMs in-pack, creating a win-win situation for the consumer, the product, and the software publisher.

"Sampling and demos are major sales tools for publishers," he notes. "Our best sales tool is the game itself. Now with the incredibly high installed base of PC users and console video game owners, it makes sense for a packaged goods company outside of games to partner with us to pull in key demographics whether it be kids, teens, or adults."

Craig Howe, brand manager for sports titles at Konami, says games have sold well in convenience stores and supermarkets in some foreign countries. "In Japan, they sell video games in 7-Elevens and AM/PM," says Howe. "It remains to be seen what promotions specific companies do with a drug store or supermarket over here, but it's definitely an untapped area."

He also adds that teaming with such companies as Post or General Mills could benefit the overall gaming community as it enters food stores. "Obviously [the cereal makers] have years and years of experience with the grocery channel, and teaming up with companies like that would really help us succeed," Howe says.



Perception vs. Reality

Virtually everyone involved with the computer and console game industry agrees that changing perceptions among both consumers and retailers is the key to building sales in supermarkets. Right now, they say, most consumers would almost never think of a supermarket as an outlet for computer games. At the same time, retailers may not see the opportunity to sell computer games in their food stores.

But the lower price points, more sensible packaging, and proper placement of merchandise could change the entire paradigm. "Make computer games an impulse purchase through lower price points and targeted titles to children, and shoppers will buy them almost anywhere?including the supermarket," says one retailer who has experimented with the category.

Peter Von Schlossberg, a vice president of marketing/business development, Simon & Schuster Interactive, says retailers must become more aware of the value/price equation with this category as well as placement. "One of the issues is: You have a very large box, so where do you put it in any of these non-traditional channels?" he asks. "It's hard to figure out?is it going on an endcap, is it going on a shelf? We've actually taken products in the past to small boutique retailers, for example, and it's very hard to figure out where to put the product; they just don't have the store space for it."

There are certainly tremendous expectations for the category this year. "We anticipate continued growth in 2000, though not at the explosive levels of the previous five years as the industry glides through a transition to new video game console systems," says Doug Lowenstein, president of the IDSA. He adds, "As we move from one hardware generation to another, there is a dip in software sales as demand for software for the retiring platforms wanes before the installed base of new machines can fill the void. It's natural for there to be a pause, but the long-term outlook is for sustained, high-level growth."

Suppliers are also becoming more active. With a host of titles forthcoming based on popular movies and TV shows, Fox is looking to leverage key licenses to draw in consumers that may not necessarily be gaming fans. This year, the company is unveiling Alien Resurrection for the Sony PlayStation; Buffy the Vampire Slayer for the Dreamcast, PlayStation and PC; Planet of the Apes for Dreamcast, Play Station and PC; Simpsons Wrestling for PlayStation; and Titan AE for PlayStation, based on the upcoming Fox animated feature. Fox also is releasing several sports titles for PlayStation and PC including NBA Basketball 2001, NHL Championship 2001 and NFL on FOX 2001.

Konami's Howe agrees that mass retailers are a vital channel for the gaming industry. "I think mass merchandisers play a critical role in the industry, especially with the PlayStation because it has become a mature mass market platform," he says.

The company is highlighting several titles at E3 with a recognizable brand name to create a mass market appeal. These include a line of ESPN branded games, beginning with ESPN Baseball Tonight for the Sega Dreamcast. "In addition to the platforms being much more mass market, we are bringing a real mass market brand to consumers," says Howe. "With ESPN being the No.1 sports network on TV, in over 75 million households worldwide, we really open up the category to new levels."

Hasbro Interactive has an extensive lineup of products to show at E3, with offerings for all ages and platforms. The company has two big titles in its motorsports line, including NASCAR and Formula One licensed-products?NASCAR Heat and Grand Prix 3, which is being launched in conjunction with Formula One's return to the U.S. later this year. Hasbro is launching several popular game show titles in its family line?Wheel of Fortune 2, Jeopardy 2, and Family Feud?for PC and PlayStation. Under its MicroProse line, Hasbro is unveiling Risk II, a remake of the classic board game with more territories and attack routes.

The company is also launching its first PlayStation games for the children's market. "We think it's the right time now," says Daryle Lamoureux, public relations associate. "With Sony's price coming down [to $99], a lot more homes have PlayStations. They're much more affordable now, so parents will go out and buy games for their kids, not just for themselves or older children." The titles include CatDog in Saving Mean Bob, NASCAR Racers, Nicktoons Racing, Tonka Space Station and Action Man.



I See Dead Dinosaurs

Simon & Schuster Interactive is introducing its first console titles. The company is releasing a Dreamcast version of its popular Deer Avenger game as well as Miss Spider's Tea Party for the PlayStation. On the PC side the company has M&M's Lost Formula; a math game with the M&M characters; I See Sue, an educational title about dinosaurs featuring Sue, the most complete T-Rex ever found; two mature titles, Last Call, a bartending challenge, and Panty Raider, where gamers try to save the earth by photographing supermodels in lingerie; and two Star Trek: Deep Space Nine titles, The Fallen and Dominion Wars.

Mattel Interactive is showing a variety of titles in its Learning Co. Division, including two games featuring Arthur, the famed children's character?Arthur! Ready to Race for PlayStation and Arthur's Absolutely Fun Day for Game Boy Color. The company is also showing PokeROM for PC, building on the Pokémon craze; Elmo's Undersea Adventure and Ernie's Space Adventure for PC, the premier products in a new line of Sesame Street adventure titles; and Fisher-Price Rescue Heroes Meteor Madness, which comes with a special headset and Voice-Tech technology.

LucasArts Entertainment is also offering titles across multiple platforms. The company's showcase title is Star Wars Episode I: Obi-Wan for PC, which it sees as the next evolution of its first-person action game series. De-signed with a brand new game engine, the title enables players to take on the persona of Obi-Wan Kenobi in a Star Wars Episode I setting. LucasArts is also unveiling its first PlayStation 2 game, a Star Wars title to be released in the first quarter of 2001.

Nintendo is introducing several titles, hoping to sate gamers' appetites until the release of its next-generation console system and the Game Boy Advance handheld unit in 2001. At E3, Nintendo will have a big presence with the release of two new Pokémon titles for the Game Boy? Pokémon Gold and Pokémon Silver?featuring new characters, storylines and whole new adventures. For the N64 system, the company is launching Hey You Pikachu, a voice recognition game featuring the Pokémon character Pikachu.

Continuing to gain market share, 3DO is looking to leverage the success of the popular franchises it has created in the last few years. 3DO is releasing new titles in its Army Men and Might and Magic brand lines, each of which has sold millions of units across multiple product categories. Along with the recently released Army Men World War, the company is offering Army Men Sarge's Heroes 2 and Army Men Air Attack 2, as well as Might and Magic 8 for the PC and a new title in the Crusaders of Might and Magic console game line.