subsequent software sales.41
During the planned life of a game console, console
manufacturers reap the bulk of their profits from video game sales.42
Hence, the real
threat posed by emulators lies in their ability to deprive console manufacturers of recurring revenue from software sales. Emulators, which enable consumers to download video game ROMs for free, result in a loss of video game software revenue, amounting to approximately thirty-nine dollars retail per game title. This phenomenon impacts the entire value chain, as demonstrated by Figure 4. 43
Epsilon, Realityman’s 1999 introduction of UltraHLE, an N64 emulator, marked a significant milestone for the emulation community since it was the first fully-functional emulator of a current generation console.44 Consumers quickly and easily downloaded the UltraHLE and the N64 ROMs, posing a serious threat to Nintendo. Figure 5 illustrates the revenues associated with the sales of N64 software from 1996 to 2002.
Terry Lefton & Todd Wasserman,
h t t p : / / w w w . f i n d a r t i c l e s . c o m / c f _ d l s / m 0 B D W / 1 8 _ 4 1 / 6 2 0 0 1 1 8 2 / p 1 / a r t i c l e . h t m l ( l a s t
visited July 4, 2004). In a classic “installed base” model, Gillette marketed a shaving razor product whose base, the razor's handle, was a “give away” while the components, razor blades, were sold at a profit. A
proprietary locking feature in the base (handle) and components (blades) ensured that competitors could not create components that work with the base. However, the manufacturer of the base can then license others
to make the complementary component.
. Richard Brest et al,
http://www.ranjaygulati.com/new/research/SPACE.pdf (last visited July 4, 2004).
Any loss in sales as a result of emulation impacts all participants in the value chain.