Michael Pachter interview

Getting an interview with Michael Pachter wasn’t easy. Luke and Patrick had to last ten rounds with him in a UFC cage fight in order for him to agree. They did it, just; it was as though Pachter could predict their every move.

During the interview, he preceded each answer with ‘I knew you were going to ask me that’. It turned out he’d written a list of answers before we’d even prepared the questions…

CG: How did you become an industry analyst in the first place, and what motivated you to become one?

MP: I began my career as a tax lawyer, specializing in mergers and acquisitions, and ultimately became a financial executive at an oil company. The first 20 years of my career involved many different jobs, among them in investment banking, corporate finance, strategic planning, and M&A, and I took the job at Wedbush to run the research department. When our video game analyst left, I decided to pick up his coverage, as I thought the industry was fascinating. I got lucky, and was at the right place at the right time.

CG: The sales of GTA and Dead Space games on HD consoles versus Nintendo consoles are almost night and day. Are the audiences truly that different? Who are these almost 60 million Wii owners and 120 million DS owners? Is it safe for Nintendo to bank so much of their future on them?

MP: I think that the audience on the Wii and DS are completely different from the PS3/360 audience. The DS skews very young (my guess is that 70% of DS owners are 12 and under), and the Wii skews very casual. On the other hand, the PS3 and 360 tend to be adopted early by more serious gamers, and later by the casual audience. I think that the success of the Wii accelerated purchases by casual gamers, and expanded the installed base to encompass more women and older people than have been historically attracted to consoles in the first few years. Both the DS audience and the Wii audience are tough to attract to mature games; in the case of the DS, it’s because the average user is too young, and in the case of the Wii, it’s because the average user is either disinterested in or unaware of hard core content. The messaging for hard core games is tough to get across to a casual gamer in a 15 second television ad, especially if they have never heard of the IP. I think that Nintendo can reach them because first party titles all say “Nintendo” on the box, and many of these owners think that Nintendo is the only video game company

CG: How is Microsoft able to get away with selling such proportionately expensive wireless adapters and hard drives, with virtually no protests from consumers?

MP: I’m not sure I accept your premise. I’ve heard dozens of complaints about the cost of Microsoft peripherals, but it seems that consumers who want to play online resign themselves to the cost of doing so. On the hard drive side, I think that a small subset of users has actually purchased one (certainly not as many as those who have bought wireless adapters), and the cost, while very high, seems more reasonable than the wireless adapter cost. While $149.99 is expensive for a 120Gb HDD, it’s not as onerous as $99.99 for a wireless adapter. By the way, there is a 60GB starter pack that has an Ethernet cable and a headset for $99.99, which doesn’t seem like a crazy rip-off. In any case, I know few people who think that the prices are reasonable, and I believe that many have vociferously complained.

CG: How is Microsoft likely to react to Sony charging PSN users in 2010 for ‘premium services’? Can we expect the Xbox Live subscription to go up or down, and if so, by how much?

MP: I think that Xbox Live subscriptions will be tiered in the future, and expect a modest increase to the Gold subscription. It’s currently $50 per year for Gold, and the subscription includes online gaming, Facebook, Twitter, Last.fm, Netflix, photo sharing, video chat, and a few other features. I could see Microsoft changing the Gold tier back to what it was (essentially online gaming and a few chat features), and charging more for a premium tier with the other features. My guess is that we’ll see Gold go to $60 per year, and the premium tier go to $100.

CG: Is 3D technology – as companies including Avatar: The Video Game publisher Ubisoft claim – the inevitable future of video games?

MP: Of course we’ll have 3D in the future, but it’s hard to pull off with current technology. I think we will require an upgrade cycle for monitors/displays first, and don’t see that commencing until 2013 or later.

CG: 2009 seemed to be a great year for Sony, with games like Uncharted 2 receiving the highest praise, and the new ‘Slim’ model giving PS3 sales a huge boost. Do you believe it’s onwards and upwards for Sony now in the console war, with games like God of War 3 on the horizon?

MP: It’s really hard to say where Sony is in the console war. On the one hand, sales of the PS3 have really picked up, almost doubling in November. On the other hand, the PS3 was outsold by the Xbox 360 at the same price point, which surprised me. Additionally, sales of Uncharted 2 fell precipitously in November, and other than pressure from Call of Duty, it’s really hard to fathom why. I’m sure that the game will get a boost from winning the VGA’s Game of the Year, but it’s only sold 650,000 in the U.S. so far, which is really shocking given its review scores. I expect God of War 3 to perform better, but am troubled by the relatively lacklustre sales of Uncharted 2.

CG: How long do you expect it to be until so – called ‘cloud gaming’ is a mainstream part of the industry – if ever? If it’s viable could it be Nintendo, whose games are generally much less technologically demanding than those of its competitors, who lead the way?

MP: I think that cloud gaming will emerge with the rollout of OnLive, and if the technology works, I think it will grow dramatically when the next generation of consoles launches. Depending upon the price, I think that OnLive could be a realistic alternative to a new console for many. I don’t see Nintendo participating, as they like to own the hardware format, and I don’t see them licensing to a third party that delivers the cloud experience.

CG: Will the distinctly lukewarm reception to the PSPGo make publishers think twice about so enthusiastically whooping about, and pushing for, a download only future?

MP: I don’t think that the PSPGo floundered because it was download only. Rather, I think that the device has sold poorly because of price. It’s currently $80 more than a PSP-3000, and arguably doesn’t do anything more, so it’s not cost justified for many consumers. If Sony were to discontinue the 3000 (I do not think that this is likely), my guess is that PSPGo sales would pick up.

CG: Are you a keen gamer yourself? If so what systems and what are you playing the most now – and if not, why not?

MP: “Keen gamer” is a bit of a stretch. I play all systems, based upon content. In the last few months, I’ve played Uncharted 2, Ratchet & Clank Future, and Little Big Planet on PS3; Assassin’s Creed 2 and Modern Warfare 2 on Xbox 360; Super Mario Bros. Wii, Wii Fit Plus, Wii Sports Resort on Wii; Mario & Luigi Bowser’s Inside Story, Zelda Spirit Tracks, and Professor Layton and the Diabolical Box on DS; and GTA Chinatown Wars and Gran Turismo on PSP. I probably play the Xbox 360 the most, because I like a lot of Xbox exclusives, and because most of the publishers send me copies of multiplatform games on the 360. I’m not particularly good at anything, but like to play.

CG: Do you ever feel that, being such a high profile analyst, you sometimes shape trends rather than simply predict them?

MP: I don’t think I’ve ever shaped a trend. The only thing I’ve done that has had any impact at all is to become a lightning rod for the hatred of 16 year-old boys, all of whom know more about everything than I do, and each of whom could perform my job more professionally. I suppose that by attracting their venom, they are less likely to kick the dog, so that’s a good thing.

CG: Over the years, what sort of success rate have you enjoyed with your predictions regarding the games industry?

MP: The only “predictions” I make that matter are predicting the earnings of the companies I cover. In order to do so, I have to make reasonable guesses about sales, and software sales are driven by console sales. I “predict” a number of different things, but none except earnings matter, and I’m very good at predicting earnings. I have finished as a five star analyst in the Starmine rankings (top 15%, I think) all but one year this decade, and have finished first twice, so I’m doing just fine.

CG: Would you feel confident in saying that we will never again see an industry crash as we did in the eighties, before Nintendo came to the rescue with the NES?

MP: I don’t think that the industry is crashing, and don’t think that it will crash. We had a difficult year, primarily due to tough year-over-year comparisons for Wii hardware sales and for music genre sales, and I think both of these correct next year.

CG: Is there any seismic shift in the industry you can see approaching… be it in two years or ten?

MP: I don’t see a seismic shift. Gamers are a growing population, and I think that they will continue to get the content they desire.

Related posts:

1. Mario helps out Sony?
2. Michael Pachter: Uncharted 2 sales “lacklustre”
3. Pachter predicts Xbox Live tiered payments
4. Michael Pachter – 2009 a difficult year for gaming
5. Console Christmas