Can The Video Game Industry Weather Any Economic Storm?
While there are few industries that can claim to be truly recession proof, the video game industry is showing little sings of slowing down in light of what most analysts agree to be an overall economic downturn. According to the NPD Group, a leading market research company, the latest data available for March of this year shows that U.S. retail sales of game consoles, software and accessories grew 57 percent to $1.1 billion. “You’d never know the U.S. economy was under distress,” said Anita Frazier, NPD’s video game analyst. “People still want to be entertained and to enjoy a diversion from their everyday concerns.” In a research note to clients earlier this year, Colin Sebastian, an analyst with Lazard Capital Markets, wrote that the video game industry is entering the “largest, most robust cycle in history” with software sales predicted to exceed $10 billion in 2008. As if on-cue the latest installment of “Grand Theft Auto” from Take-Two Interactive Software Inc., which was released this April, sold $500 million in its first week on shelves, and Amazon.com has already sold out of pre-orders for the much anticipated addition to the Nintendo juggernaut, “Wii Fit,” an exercise game aimed at groups not traditionally associated with video game sales.
These figures bring up an interesting point. What has driven this unprecedented growth? And can that growth really be sustained in the face of a lagging economy? In a gamasutra.com interview, Ed Barton, Screen Digest said, “Of greater importance to industry growth is the hardware cycle and games release volume and pipeline rather than the wider economic environment.” With the expanded market provided by Nintindo’s Wii fueling the interest of the casual gamer, and high profile established title releases like GTA keeping the hard-core gamers in tow, this seems to hold true. But as Nick Williams of OTX Research says in the same interview, “While the expansion of the market beyond hardcore gamers has undoubtedly contributed to the record growth in 2008, these new gamers will likely be the first ones to stop buying games if they need to cut their entertainment budget.” If the this industry is to thrive in the coming year, it may be on the backs of the hardcore gamer. “Although the hardcore represent a small percentage of all video games consumers,” said Ed Barton, “their purchasing power and frequency should not be underestimated.” An April 22, 2008 NPD Group report on consumer entertainment spending would seem to back that up. A little less than half of those who responded to the survey thought they would spend the same amount on entertainment in 2008 as they did in 2007. “Teens were the only age group where spending tipped positive; 30 percent believed they would spend more than last year, versus 25 percent who thought they would spend less.”The report went on to say that “consumers who plan to spend more on entertainment this year are primarily focused on buying new devices (e.g., Blu-ray Disc players and the latest gaming consoles), rather than on purchasing new entertainment content (e.g., DVDs, music)… The uncertain state of the U.S. economy, and worries about disposable income had little to do with these consumers’ entertainment spending outlook.”