Pachter has responded to his critics on NeoGAF {link no longer available} with a forum post titled “A little context” about his Wii U comments during the keynote:

“I believe (and please feel free to disagree) that a large portion of the Wii audience comprised casual gamers–those who bought one or two games a year the first two years, then put the Wii aside–and that those casual gamers moved on to another platform,” wrote Pachter. “The ‘other’ platform may have been Facebook games, smart phone games, tablet games, or one of the other consoles, but once they moved on, they are not likely to come back.”

“At the same time, I believe (again, please feel free to disagree) that the growth of smart phones and tablets has attracted many potential dedicated handheld game customers, and these people also are unlikely to come back to either 3DS or PS Vita,” he continued. “Summing this up, I think the addressable market for the Wii U is around half of the market for the Wii, and I think Microsoft and Sony will compete for a portion of that market if the Wii U is priced too high. I think that the dedicated handheld market is permanently impacted by smart phones and tablets, and think that Nintendo’s addressable market is probably also half of its former market.”

“Nintendo is in disarray because they waited too long to launch the Wii U,” Pachter detailed. “I know that this sounds like (and is) sour grapes because they didn’t launch the Wii HD in 2009 or 2010 as I ‘predicted’. They should have, and because they didn’t, the decline in Wii and DS hardware and software sales drove them into generating LOSSES. For those of you who aren’t financial analysts, losses mean that the company is worth less than it was before. Nintendo stock has dropped by over 80 percent in the last few years, and the market has appreciated over the same period. I’m paid to advise investors, and none have made a profit owning Nintendo stock. I don’t think that many will make a profit over the next few years, because I don’t think Nintendo’s strategy will return them to profitability.”

“If the context above infuriates you, go back to school and pay attention, then read it again,” he concluded.

[Original Story]

Michael Pachter, Managing Director of Equity Research at Wedbush Securities, gave the keynote address at the [a]list game marketing summit in San Francisco on Thursday, and he had a number of provocative observations for the assembled crowd of game marketers.

Pachter lead off with his prediction for the industry standby of packaged console products.“I think console packaged products are going to be around for a long, long, long time,” said Pachter “When they do go away, they’re going to be replaced by console download products. People are going to have that $60 – soon to be $70 – game play experience as long as there’s somebody who has a vested interest in making sure that happens.”

Pachter took exception with an observation by David Cole that was cited by Steve Fowler of the Ayzenberg Group, who introduced Pachter and the summit. “I think David Cole said something that’s wrong. He said there could be a social bubble, because all the games are copycat, there’s no originality… you could absolutely say that about first-person shooters. You could. They’re all the same game. Except they’re not. I would say that about Hidden Chronicles and Gardens of Time. I love Zynga games, and I get why they’re doing them,” Pachter said. He followed with double-edged compliment: “Zynga actually does a great job with their games. Even when they rip somebody off, they do a better job than the person they ripped off.” That’s one quote that Zynga probably won’t be using in their marketing materials.

Pachter went on to compare the evolution of the gaming industry to the evolution of the casino gaming industry. Pachter noted that to be a successful player, games like poker require a deep knowledge of the game and a lot of play time to develop the necessary skills. (He also said that he paid his through law school as a poker player, earning $250,000 per year for three years of law school.) Poker is played in long sessions; you don’t just sit down and play for a few minutes, Pachter noted. Casinos all have a poker area now, but they also have table games like craps and roulette, which are kind of complicated but not as highly skilled as poker. You spend time playing them, but you don’t have to spend as much time as when you play poker. The biggest area in casinos is devoted to slot machines, which anyone can sit down and play for a minute or two or for hours.

How is all of this like the gaming industry Pachter explains: “Texas Hold’em is like playing an MMO. Exactly like one. Nobody does it for five minutes, and when you play it you are immersed in it. The same kind of people do both, obsessive-compulsive people.” In Pachter’s analogy, the table games are console games. “You cannot just start playing Call of Duty. You tend not to play it for a few minutes,” said Pachter. In both cases you have to learn something about the games and develop some skills, and you tend to play them for at least an hour or two.

Then you have slots, which Pachter says “are just like casual, social , and mobile games. Everyone can figure them out, and they’re really mindless.” When Las Vegas was just table games, that was like the game industry with just console games. “Console games were really like Vegas thirty years ago. The 90s was when the MMO started to appear, and that’s when the poker rooms started to appear in casinos,” said Pachter. Now we see that casinos have devoted a huge amount of space to slots, and they generate a lot of profit for the casinos because they are so easy to play for anyone, and you can play them for a minute or for hours. The casinos still have the table games, and they still have the poker rooms, and they’ll continue to draw a good audience even though the slots may get the majority of the floor space.

Pachter now sees social games as a good business that will continue to grow, especially when the social game companies are able to refine their business model. “Free-to-play is free, and that’s a mistake,” said Pachter. “Free to play should not be free. In Western cultures, we get nothing for free. It’s ad-supported if you don’t pay for it.” He pointed out that we have no problem watching an ad in order to listen to music on the radio, or to watch television, or see movies on TV. The scoial game market needs to take that to heart, according to Pachter. “If publishers and developers can figure out a way to monetize the 98 percent of the people who don’t pay, this is a great industry to work in.”

Pachter had quite a lot to say about the console market, too. “Smartphones have absolutely destroyed the casual market for consoles. They also killed the casual Wii game,” Pachter noted. “The market for hardcore games is bigger today than it’s been. Nintendo inflated the numbers with a bunch of great casual experiences, which have been replaced by social games, and smartphone games, and tablet games. I can tell you that the women that were playing the Wii Fit are now playing FarmVille, CityVille, CastleVille. Wii was a bubble. The Wii bubble has burst.”

We took advantage of the question period to ask about the next generation of consoles. New consoles are in the wings, the Wii U’s been announced, but pricing hasn’t been announced. There are rumors that Microsoft’s next console might be as much as $600. Could the next generation of consoles really be successful at that kind of price point

Pachter didn’t hesitate to share his thoughts on the next generation of consoles. “Since Microsoft hasn’t settled on specs, I think that’s probably premature,” said Pachter, referring to the idea of a $600 price point for the Xbox 720. He moved on to his thoughts on the Wii U. “I think Nintendo’s in disarray. I think the idea that we don’t know the price point yet, but we do know what the console is, is just sad. I think they’ve completely blown that. It’s gonna launch at $249; because it has to. They’re dead if they launch at $259, I think they’re toast then. I think they’re toast anyway.” Why “I think the Xbox 360 with Kinect will be priced below that by the time they launch.”

Pachter went on to talk about the next console generation in general. “I’m a little worried about the next generation because I actually think we’ve gotten to the point where people don’t care any more. Look at television displays; we’re at 1080p (2K) already and they’re already talking about 4K and then 8K. Nobody’s buying a 4K TV or an 8K TV in the next ten years. They’re $15,000! All the consoles now are running in 1080p, so what are we gonna get 60 frames per second standard, and 120 frames per second occasionally Who cares Have you played NBA 2K? It looks like a frickin’ movie. The facial animation isn’t great, but the game looks like a movie. It doesn’t get any better than that. I’m actually worried about them in general.”

Pachter finally circled around to the pricing question. “So the answer to your question is, yeah, price I think is everything, because I don’t think features matter that much. I think what you’re going to see in this next generations of consoles is this: 4 GB hard drive, except for Nintendo which will be no hard drive, and maybe some type of built-in cell access or something, some way to connect with the television without wires, it’ll be like little features… but as far as gameplay, you’re talking about faster framerates, but I’m not even sure what manufacturers want. We’re in a really interesting time. I think the manufacturers better figure it out and better let consumers know, because we don’t want to make them to wait for something that’s not coming. If Microsoft launches at $600 it’s over.”

Nintendo’s pricing of the Wii U will be a very important part of the puzzle; not just the price, but when they choose to announce it, and then how Sony and Microsoft respond. The holiday market in 2012 will be very, very interesting to watch.