Apple Rewrites the Rules for Games

7 out of 10 games lose money* - yet there are now over 1,800 games in the App Store after just four months, more than on the Nintendo DS and Sony PSP combined.

Nearly 400 of these are free, and often 8 of the 10 most popular paid downloads are games.

Mac Gaming a Backwater

Gaming on Macs is a backwater. Attempts to move it more mainstream and away from ports of top selling PC titles always seemed to go nowhere.

When it was about to release Halo on Mac, Bungie was taken over by Microsoft so that the Xbox had a great title. The Mac version of Halo appeared months later.

Occasionally John Carmack of id Software showed up for a Steve Jobs keynote. There was desire in Apple, games would help in the home and student markets, but not the user base nor the power to really attract developers.

Then the market changed. PCs offered such a wide range of hardware that it became difficult to position games. Make a high-end game needing a high-end graphics card to get high scores from reviewers, and the risk was not a big enough market to pay back the ever increasing development costs, especially when you take piracy into account.

Consoles became more powerful. The hardware specs for Xbox 360, PS3, and Wii are standardised. Piracy is less of an issue. However distribution is more expensive as much of it requires proprietary games media and is sold through retail. As only Nintendo prices its hardware to make a profit, Sony and Microsoft need to make their profit from the games, leading to prices of $40 to $60.

Games for the DS and PSP aren't cheap either - typical online prices start at $20 and $13 respectively. Its only when you get to the Xbox 360 xna community games that prices start to look like the App Store, $2.50 to $10 (after currency conversion from Microsoft points), and even there, free games are not allowed. Just like Apple is paid for games sold through the App Store, Microsoft also takes 30% - but Microsoft also has the right to charge a further 10% to 30% for promotions, and no-one has the right to opt out.

Developer Costs

Over and above the percentages paid on sales, games writers need development kits. After Sony cut the prices in half, a PS3 kit was over $10,000 and the PSP SDK over $4,000 (Gamasutra.com). Using the xna tools, which cost nothing, developers need to belong to the Creators Club at $99 a year.

Compare this to the iPhone SDK, which costs nothing, and if and when a game is ready then you pay $99 to submit it.

Apart from wooing major developers like Sega, Electronics Arts, and id Software, Apple is supporting indie developers much better than they are used to. From a kotaku.com article, Kuju's James Brooksby says, "Support has been excellent - more than you might expect from other companies that work in the games sector. Everything they tell us is very useful."

Another area that Apple is top dog in? Speed. Bad Management's John Cook notes, "If you work in the console space you are used to a lot more control in almost every area. It's an amazing service, especially for things like the speed with which they turn around the release of content patches."

Gaming on the Go

Despite selling over 40 million by the end of March, with another 16 million forecast for this financial year, Sony's PSP looks in trouble. At $170, it is squeezed between the $130 DS, with more titles, and the iPod touch/iPhone at $199 and $229, with many more and cheaper titles.

According to Sony's annual reports, it is also designed as a music player, for video playback, Internet browsing etc. - exactly the same market as the iPod touch and iPhone. Apart from some success with films at close to DVD prices, the PSP has been held back by Sony's proprietary memory sticks and UMD discs needed for transferring any protected content. The total for all PlayStation Internet browsing (0.03%) was, according to data for last month from NetApplications, about 10% of the iPhone's (0.33%).

The latest PSP 3000 has a 4.3" screen, but with worse definition than the iPhone (480 x 272 compared to 480 x 320). It also has less power. According to John Carmack of id Software, "The iPhone, as a device, is in the same generation power-wise as the PS2 or Xbox," he says. "The graphics are a little lower but the RAM is a lot higher." He is looking at an exclusive and a good range of exclusives sell gamers on platforms.

The numbers are moving against the PSP too. iPhone plus iPod touch sales to users in the last quarter were around 7 million. With an achievable 8-10 million sales this quarter, Apple will have sold in 6 months as many units as Sony hopes to sell over the year.

Apple Leading the Way

Sony and Nintendo, seeing the writing on the wall, are now moving to Internet distribution to get the prices of games down. Neither has any history of success in Internet commerce, this takes time to get right, and they will have to compete with the iTunes/App Store juggernaut. Sega has already sold over 500,000 copies of Super Monkey Ball at $9.99 on the App Store, and "games sold via the App Store are the most profitable in terms of any of the formats we work on," said Simon Jeffery, the US president of Sega.

It's not only the large developers that are benefiting. "Tap Tap Revenge game for the iPhone is a runaway hit with over 2 million downloads" said Bart Decrem, CEO at Mobile Content & Marketing Expo. With 100 million downloads in the first 60 days and 100 million more in the next 44 days, we will see in the next 10-20 days just how fast the ramp up is.

Full Circle: Gaming on the Mac?

So what do the new rules for games look like? 30:70 revenue sharing between the console seller and game developer, Internet game distribution, and much cheaper games that will sell many more units. This will also lead to the end of subsidised consoles unless, like for the iPhone, AT&T or another network provider pays it. As many games are now ported to the PC after they appear on a console and big developers are getting used to writing OS X games for iPhones, can Mac gamers look for more too?

* Chris Deering, ex Sony, Edinburgh Interactive Festival