As Console Market Drops, Game Developers Seek Second Life On Android

As the current generation of video game consoles winds to an end, the game industry is facing eager challengers from all sides.

Freemium app developers have already eclipsed traditional game developers in terms of sheer number of users by titanic proportions – Call of Duty: Modern Warfare 3, one of the best-selling retail games of all time, has sold more than 29 million copies since 2011 according to the industry sale tracker vgchartz, while Zynga (Nasdaq: ZNGA) says it tracks well over 300 million users on Facebook (Nasdaq: FB) alone on any given month. Beyond the advent of mobile, console developers are also facing new challenges from cloud-based services, and even prospectors from major cable companies. And, of course, there are the constant incantations of the near-death of the PC.

Still, despite its scale, the video game industry is hardly an entrenched commercial entityn compared to other areas of entertainment also chafing at the rise of digital media. And as gaming hardware and software producers alike scramble to find footing in a changing marketplace, console developers are turning more and more to one platform of particular promise: Android, friom Google Inc. (Nasdaq: GOOG).

Android has already been an integral force behind the explosion in mobile app development and casual gaming, thanks to the open-source platform it was granted under the Apache License. But what is unique about the latest sea change in game development is that it is attracting a higher tier of game production talent that was previously only associated with console and PC video games. Historically, the bifurcation of the industry between “casual” and “core” video games has led many consumers, if not industry insiders and analysts, to see mobile and social gaming as a lightweight counterpart to console and PC titles.

Kris Soumas, Head of Games for AETN Digital Media, recalled in an interview going to conferences in 2008 and 2009 for casual games and feeling like a “little sibling” compared to the major players in the console market.

“We kept saying, ‘you really can make money off it,' " Soumas added, laughing.

With the old guard of the industry in free fall, it seems like the “big brothers” are finally listening.

Capturing the television audience

This past July, a small, slate-colored box known as the Ouya, describing itself as “a new kind of video game console,” appeared on the crowd-funding website Kickstarter, asking for $950,000 to fund the project. By August, Ouya had raised over $8.5 million, becoming the second most-successful Kickstarter campaign in history.

So what made the Ouya so successful? The company had arrived in a marketplace that had already vetted out prospective competitors in its short history, leaving only three major hardware developers -- Nintendo (PINK: NTDOY), Microsoft (Nasdaq: MSFT), and Sony (NYSE: SNE). This same competition had driven away so many defunct video game consoles of the past, resulting in a risk-averse creative climate for both customers and developers alike.

It would be safer for Electronic Arts (Nasdaq: EA) or Activision Blizzard (Nasdaq: ATVI) to focus on making yet another “Call of Duty” or “Madden” title than to risk a multi-million dollar budget on a more innovative product. As David Denby recently wrote about movies in The New Republic, it’s become too expensive for many to make good video games, or at least revolutionary ones.

Julie Urhman, the creator and founder of Ouya, remembered going to E3 this year and noticing a gaping hole where new console models were supposed to be, a sign of the “brain drain” that had been sapping innovation from the market over the entire course of the latest console generation. Still, Uhrman is quick to note that the Ouya is not, in many ways, a new or particularly novel product.

“We’re not building anything custom,” she said of the product in a phone interview. “What’s innovative is our business model.”

The Ouya is built on a modified version of Google’s Android mobile operating system, a choice driven by the device’s core value of openness. And the very problem that Ouya hopes to disrupt in the mainstream gaming industry is the impossibly-high barriers to entry for consumers and creators alike. Uhrman says that even the “o” in Ouya’s name is meant to signify its open-source ethic.

“Openness leads to creativity,” she said. “Openness for gamers themselves. It shouldn’t cost so much to play games.”

Ouya’s only requirement for developers is that they make at least part of their games free. That could mean making what is now the standard free-to-play game -- an otherwise “free” game that offers different monetization incentives such as time acceleration or virtual economies in which to trade -- or just giving users a free preview of the game that users can play before unlocking the full game.

Android is based on Linux, the freely available operating system that many programmers and developers prefer for a similar ideological affiliation with the open-source movement. As the main computer software giants like Microsoft and Apple continue to build more walls around themselves and their products, Linux has remained something more of a cult phenomenon, inspiring everything from hack-friendly gadgets like the Ouya to certain dissonant elements of the Occupy Wall Street movement (an article last year in The New Yorker called Linux an “influence that is often cited by the movement”).

For an industry stuck in the midst of an identity crisis, the benefits of Android are significant. Like Linux itself, the SDK is free, which levels the playing field between blockbuster icons and aspiring indie developers. Compared to the harsh restrictions of the iOS’s heavily curated App Store, the Google Play store may be considered vast and unruly, but with that comes the benefit of unregulated opportunity. Generally, the iOS App Store is still considered more prestigious since it attracts a higher class of more recognizable brand names, but Android nonetheless leads in terms of sheer market share in mobile games by a substantial margin. And Google is fast approaching Apple’s (Nasdaq: AAPL) leading apps figure; just this week Android reached the 700,000 mark.

Renewed Mobile Focus

At the same time, one concern that tech journalists have raised throughout the Ouya’s meteoric rise is the fact that it overlooks one of Android’s greatest assets: the fact that it’s tablet and smartphones iterations suits general-purpose consumer electronics rather than gaming-specific devices. Both Nintendo and Sony have reported consistently disappointing sales for their mobile gaming consoles, after all, and all the major home console developers have struggled to rebrand their devices as general home entertainment products as opposed to the gaming gadgets they are still seen as.

The most serious criticism leveled against the Ouya by critics like Forbes’ Erik Kain, therefore, is that Urhman’s plan to disrupt the console marketplace assumes that the console marketplace can be saved in the first place. And if the traditional retail market -- both for boxed video games and the game-specific hardware used to play them -- is stuck in a position of rapid and irreversible decline, then smartphones may be the only platform developers can turn to.

Noticing this trend, other companies such as Nyko and BDA-subsidiary PowerA have begun to build accessories such as the Playpad and MOGA, which are handheld devices designed around the current Android smartphone and tablet systems with hopes to attract a higher class of gamers who will spend more time and money in the market than casual “Angry Birds” and “Words With Friends” players.

While these companies can’t match the market value of a publisher like Activision or Electronic or a hardware developer like Sony or Microsoft, the very fact that industry insiders are building products around the most “hardcore” gamers to suit the prospective Android user says something of the industry’s own sense of imminent upheaval.

Chris Arbogast, Nyko’s director of marketing, said he thinks the current hype of smartphones, and the possibility they may eclipse the console market entirely, is “overplaced.” But he admitted in an interview that mobile gaming “certainly had time to develop” during the relative absence of new products from Sony, Microsoft, and Nintendo.

“The console industry will surge back to its former glory,” he said. “But in the interim, mobile’s market share has caught up.”

“The only problem is, controls hadn’t caught up yet” to suit these advances.

Both Arbogast and John Moore, PowerA's vice president of product development and marketing, agree that the main problem keeping Android games firmly in the “casual” category, despite the enormous improvement in mobile processing power, is the weakness of their control schemes to manage any features more complicated than the casual finger-swiping of “Angry Birds” or “Temple Run.” This, in turn, creates an incentive for developers to essentially dumb down their products in the absence of a device as robust as a Playstation 3 or an Xbox 360 gamepad.

“There is a new generation of mobile games that are very impressive to look at,but not very fun to play,” Moore said. “This leaves publishers two choices: either only make a game for a console, or make it much simpler to play.”

Unlike the Ouya, neither Nyko or PowerA has a particular allegiance to Android beyond mere convenience -- Android is not only hack-friendly, but it’s also cheaper and far more secure in legal terms to develop third-party products compared to iOS, which is famously obstinate in allowing anyone develop anything that might compromise their patents or designs. Really, both Nyko and PowerA are hoping to make a significant enough dent in the Android market with the best chips they have available with hopes to court Apple’s attention --and quite possibly Microsoft, with the Windows Phone 8 on the horizon.

Further down the road, of course, everyone is hoping to be able to actually begin charging mobile users for content.

“There’s a reason everything is 99 cents,” Moore said of the ubiquity of cheap, low-quality apps. “That’s their value.”

Each company has a different model for how they plan to reinvigorate a stagnant gaming ecosystem. Ouya is supporting itself with a 70/30 revenue split for all its game developers. PowerA is essentially recreating a console-like business on a smaller scale, selling the device at a lower price point (around $50) than mobile gaming consoles and licensing the SDK to prospective developers. Nyko, meanwhile, is making its SDK freely available and hoping to support itself through hardware sales alone, possibly making it ubiquitous enough among mobile game developers to help lead its entrance into the market.

“We’re not looking to make money off the app,” Arbogast said to explain why Nyko company won’t charge companies for any promotion or discoverability features as well. “All we really want is more people to start using Playpad as the new standard.”

Measuring Success in a Changing Marketplace

Given how new the field remains, it is impossible to judge even the short-term prospects for success for these companies. Of the three new products mentioned, only the MOGA has been released so far. While the device received generally positive reviews, critics noted the lack of apps and games tailored to the controller’s (admittedly impressive) features. Like their larger-scale rivals in the home console market, or really any hardware developer include tablet and smartphone manufacturers, another round of competition will be determined by what software developers each company will be able to lure to their brand.

Yet even here companies face a unique challenge due to the same openness that made Android so appealing in the first place. By lowering the barriers to entry, hardware developers using Android’s operating system inherently limits their ability to feature exclusive offerings -- the kind of “app ecosystem” offerings that draw so many users to choose the iPhone over other smartphones or make customers considering purchasing Microsoft’s Surface tablet over an iPad or Nexus device.

At the same time, this encourages hardware developers to compete over what really matters most for gadgets—the quality of the hardware itself. Urhman admitted to the possibility that the most console-like part of the Ouya -- the standalone box -- may ultimately be replaced along with all other consoles by enhanced features included in televisions. Instead, she said they focused more on developing the best handheld controller possible.

“We consider our controller to be a ‘love letter’ to console gaming,” she said in an email. “It has fast buttons, accurate sticks, and substantial weight -- it feels good in your hands!”

One of the reasons that the Ouya garnered so much attention in the first place, for instance, was the fact that it was produced in a partnership with Yves Behar, the noted designer who has worked on everything from Bluetooth-enabled mobile phone headsets for Jawbone to high-class vibrators for the San Francisco-based startup Jimmyjane -- work that’s gotten him profiled everywhere from Esquire, The Atlantic, and Jezebel to tech-friendly publications like Gizmodo and Wired.

Ethan Imboden, the co-founder of Jimmyjane and Behar’s personal friend, said that his eagerness to enter into the console market comes from a desire he shares with Urhman to question the entrenched assumptions of the industry that may have helped lead to its current weakening state.

“Yves likes disruption,” said when asked about their work together. “While he’s knowledgeable and thoughtful about how things have been done in the past, he’s not one to respect tradition”

Given this common desire for disruption, the final promise of Android might just be that “success,” by any of these companies’ standards, may not even result in a market share even close to the Nintendos and the Microsofts. A new generation of hardware developers may not even need to command such a significant portion of the market in order to remain financially solvent as their older rivals clearly do. Given Android’s penchant for disruption, developers may be happy with further proliferation in the marketplace instead of a crystallization around another three major players.

“It’s going to be a bit of a wake up call in the near future,” Moore said when speaking of PowerA’s hope to eventually approach more companies with their product. Unlike Urhman and the Ouya team, both Moore and Arbogast’s company Nyko hope that their command of the Android market will eventually win over Apple and Microsoft to cede some control over their own hardware development and finally let outside companies like theirs make licensed peripherals for the iPhone and Windows Phone 8.

Given how stubborn Apple and Microsoft can be, it’s hard to imagine either of them being won over by a Playpad or MOGA anytime soon. But Moore is confidant that the continued growth of the app market will prove reason enough.

“Everybody’s buying apps now,” he concluded, “and the majority of those apps are games.”