Is It Game Over for the Gaming Industry?

Last week we had the USA October sales statistics from NPD showing game sales of $573 million, down from $698 million last year. So are we in trouble? Is gaming on a downwards spiral? Are people finding better things to do with their time and money?

The answer is no, and here’s why:

• The industry has moved online and away from paper and cardboard massively during the last year. There is a plethora of new MMOs, for instance. Even the game consoles are moving increasingly to downloaded content. And the iPhone has grown from nothing to become a major gaming platform. NPD only measures the high street retail spend.
• Over the last year there has been a massive rise in secondhand game sales. So people are still buying games, but the same physical units are often sold multiple times and only the first time shows up on NPD.
• The game industry turnover at retail revolves around a small number of blockbusters. October this year was very light on these, as is the whole of Q4 this year. A lot of this can be put down to the industry running scared of Modern Warfare 2. People don’t even want to launch in the same quarter as this.
• Music/dance games were largely a fad and that is now over. Sales have more than halved in this sector.
• Another high value sku, Wii Fit, is tapering off in sales compared with the craze that it was last year.
• The games industry has structural and management problems. These will be worked through, but there is no doubt that the industry is not making the most of the opportunities open to it.

So there we have it, the whole industry doesn’t need to go on a burger flipping course just yet.

Comments

[None-Too-Gr...:]

I think when people read a question headline like yours, they are expecting a YES answer and some reasons why. I know I was.

Nov 16 07:00 AM

[Alan Skoreyko:]

i don't know 1 person who has cut back on their spending in this area. they are just finding it hard to find games to buy.

Nov 16 09:29 AM

[Hey Apples:]

I get to see an inside perspective on this industry from time to time, and it strikes me as quite a gamble to invest in.

Consumers are fickle, piracy is rampant, the delivery models are problematic, the competition is cut-throat, and the investment requirements are high (both in time and money) for a top quality title.

Over the years I've seen some of the best of development shops fall apart, even with the best of ideas and the best of talent.
Aside from a handful of triple-A franchises, nothing is a sure-bet winner, and it is very difficult to sustain success over the long term.

Nov 18 03:52 PM

[Moon Kil Woong:]

The gaming industry is more and more like a burger shop swapping existing monsters and character wireframes and putting them in the same boring scenarios. No wonder people are moving to simple facebook games and free to play platforms.

Many of the new titles a group of college grads could produce on their spare time. That is a good thing for gamers but bad for people trying to make a hundred million off of your kids.

Nov 19 09:24 AM

[User 432951:]

No surprise people are questioning weather gaming industry is dead. ERTS, TTWO, ATVI are all in a slump and game prices are $50 - 60. However, how can we justify the activity which took place with ATVI's Modern War 2 ? It broke all of the records. (Article posted yesteday on seekingalpha)

After five days and an estimated $550M in sales, Activision (ATVI +0.6%) calls "Call of Duty: Modern Warfare 2" - "the largest entertainment launch in history and a pop culture phenomenon." Sales have outdone those of the previous videogame record ("Grand Theft Auto IV", $500M); the largest worldwide movie release ("Harry Potter and the Half-Blood Prince", $394M); and first-day book sales ("Harry Potter & The Deathly Hallows", $220M).

Could it be that game developers just need to step it up and create some real hits? Making the same sport games year after year can only draw so much "new" audience. We need to hang tight and we should see some rebounding in the gaming insdustry shortly.

Nov 19 02:18 PM

[GhostOfSpec:]

On Nov 18 03:52 PM Hey Apples wrote:
> I get to see an inside perspective on this industry from time to
> time, and it strikes me as quite a gamble to invest in.

Yes, the industry has some tough aspects that you point out. But keep in mind that at the end of the day, the industry sells a plastic disc and cardboard box that cost $3 for around $60. So there is money to be made.

Some of the problems you mention are developer problems . . . those problems are smoothed out at the publisher level that averages out hits and bombs.

But all things considered, this biz is doing MUCH better than other 'media' businesses like newspapers, magazines, music publishers, television, and the movie business.

Nov 19 03:37 PM

[BioGuy:]

I started with Atari in ~1980 and now own the Wii, Xbox and Playstation.
Speaking as an adult old enough to remember his bell bottoms, the biggest problem with the gaming industry is pricing and marketing.
Guess what guys, if you target 17 year old kids, you are missing most of your market. I have money, and I want good quality games- your immature marketing irritates me.

Many games have ~70-100 hours of play time, and some are re-playable. The games cost about $50. Yes, $50. I spend that on mimosas every Saturday, and more for my weekly round of golf.
I would pay about $150 for a game, and probably $600 for the console. (What else can you buy for $1.50 an hour?)
Most adults I talk to (anecdotally) think that game designers pay too much attention to "online game forums", populated by youngsters who basically want loud noises and blood. One of the best games I've played is an adaptation of an Agatha Christie mystery (a book!).
The gaming industry needs to learn from the book publishing/movie industry- there are many markets, and every adult you successfully market to is likely worth 10 kids. So fire your product management people and start over.
This about sums it up;
www.packagedfacts.com/.../
I'm sure Sony and Microsoft can afford this report, but it sure doesn't seem like they read it.

Nov 19 04:02 PM

[GhostOfSpec:]

@Bigguy. There definitely other markets . . . and companies are trying for the various different markets: social networking games, iPhone games, MMO games, exercise games, etc.

But the big money remains in the male 17 to 30 demographic as shown by the massive success of Modern Warfare 2. You can't blame them for chasing after the big money.

Nov 20 12:00 PM

[brasdhonneur:]

Your “$3” figure is simply the COG's associated with the media on and in which games are packaged. You neglected to include any mention of development or marketing costs… which greatly out shadow COG’s.
Your comment also insinuates that the $60 price associated with a title is basically a rip-off. Do you have any idea what development costs these days amount to? Even including cost-cutting measures such as off-shore outsourcing? Apparently not, or I would assume you may have thought twice about leveling such an unfair and ungrounded criticism at developers.
Consumers demand an awful lot from their games and game developers; yet don’t take the time to wonder how all of the features they demand can be paid for without increases at the pay-point. A current triple-A title is vastly superior in almost every way to a similar title from 5 years ago, yet the price has increased very little. Publishers worry about increasing prices for fear that their products won’t sell because they see and hear your constant complaining about price. So they push the developers to cut costs. Developers in turn have no way to balance the costs associated with meeting those consumer demands without either off-shoring, reducing or eliminating COG’s (by direct DL, etc), reusing assets and engine elements and reducing workforce. All of these measures and more, are taken, yet it’s still not enough…
The margin is very tight and comments such as yours don’t take into account the struggles made at every level in development houses to manage costs. I think it’s pretty low of you to have made such scathing assumptions about your developers without the benefit of more information beforehand. Finally, to cap this of; I have been in game development for over a decade and was just laid off this year. I may resent being laid off (as I certainly do), but that doesn’t stop me from standing up for the industry at large when I see someone unjustly characterizing it. Please do us the favour of assuming we are innocent before being proved guilty.


On Nov 19 03:37 PM GhostOfSpec wrote:

> On Nov 18 03:52 PM Hey Apples wrote:

Nov 23 09:12 PM