Just How Screwed is the Gaming Business?

Just How Screwed is the Gaming Business?

* Editor’s Note: Article syndicated in partnership with Gaming Business Review.

Console game sales had their worst August in four years according to the latest retail receipts released by NPD Group, putting 2010 one step closer to going into the record books as a down year. Yet with the industry still holding out hope for the fall, traditionally a time of generous spending by game buyers, eyes are turning to see if the first sign of salvation might come with another Halo.

NPD reported game console sales fell again in August, the fifth straight month of year-over-year decline in 2010.  And the drop wasn’t a blip.  Overall retail sales of console hardware, software and accessories slumped ten percent to $819 million. The tally puts year-to-date sales now nearly nine percent behind 2009, a year when sales also dipped from the industry’s peak take of $21.3 billion in 2008.

Software had the biggest category decline, falling fourteen percent from last August to $404 million for the month. EA’s Madden NFL 11 led NPD’s top ten chart. The game sold 1.8 million units on Xbox 360 and PlayStation 3 combined, with the Xbox 360 version edging out to take the top slot. But the next closest bestseller was Nintendo’s three month old Super Mario Galaxy 2, with the Wii title placing a distant third with just 125,000 units sold.

Aside from EA’s football game, August had two other high profile releases, both action game sequels with solid-selling predecessors. The first, Take-Two’s Mafia II, managed to break the top ten for both Xbox 360 and PlayStation 3 versions, placing fourth and seventh respectively. The other, Eidos’ well-promoted if not quite mass marketed Kane and Lynch 2: Dog Days, didn’t even manage to break the top 20.

After bright spots earlier in the year, both hardware and game accessory sales have managed to reverse their positive trends. Accessory sales fell in August by about six percent year over year to $132 million, although the category remains the only one on track to beat 2009. Sales of console hardware fell five percent to $283 million for the month, and are now down twelve percent year-to-date.

Hardware’s biggest drag in the second half of this year has become handheld systems. Nintendo’s once brisk-selling DS, a record setter in lifetime sales for handhelds, continued five straight months of decline by selling just 342,700 units for the month. The system is likely now affected by its distinction as on the cusp of becoming a legacy product, with Nintendo’s anticipated 3D-capable successor, the 3DS, on the horizon.

The bigger concern among handhelds has to be for Sony and the PSP. Despite the launch and heavy rotation of a PSP TV campaign from Deutsche, the agency behind the popular PlayStation 3 ads starring fictional Sony executive Kevin Butler, sales for the handheld tanked from 140,000 units a year ago to just less than 80,000 sold last month. Sales were even down month-over-month, falling by nearly 5,000 units compared to July.

Among big box consoles, Xbox 360 was the top seller for the month with 356,700 units, an impressive increase from 215,400 units sold during the period last year. Nintendo Wii sold 244,300 units compared to 277,400 a year ago.

PlayStation 3 sales rose slightly year over year, from 210,000 to 226,000 units for the month. But after starting to make up ground to Xbox 360 earlier this year, Sony’s console is again sliding behind its rival in install base. It has lost nearly a half-million units in market share in the past three months. The growing gap comes at a troubling time for Sony, as it gears up to face  Microsoft in a battle over holiday sales of not just consoles but also pricey new motion-controller peripherals, not to mention hot exclusive games.

That’s where Microsoft’s Halo: Reach comes in. While there seems to be plenty of hope on deck for Xbox 360’s Kinect and PlayStation Move, high price points and some early consumer sentiment make it doubtful that these nifty motion-controllers and the casual games they enable will significantly buoy sales this year. On the other hand, holiday blockbusters are the big winter swell the industry has gotten used to riding, and this year’s lineup has titles based on some of video games’ most successful franchises.  On release timing alone, the festivities are starting with Halo: Reach.

The game is developer Bungie’s last entry in the record setting game franchise. It was one that arguably put Microsoft on the console gaming map. It was one that definitely set the groundwork for game launch sales targeting Hollywood box office openings, after Halo 2 made $125 million on launch day in 2004.

The buzz around Halo: Reach seemed to snowball as it neared release, fueled by Microsoft’s massive marketing push no-doubt, but also helped along by ever growing hints among press and early previews that Bungie was going out with a bang. It’s now on shelves as a bona fide critical darling, holding on to a 92 percent average review score based on more than 50 reviews aggregated by Metacritic.

Girded now by critical acclaim and a no-holds barred push by Microsoft, there is every reason Halo:Reach should meet or beat expectations. With the state of the console market, that puts the game in an interesting position. CNBC got insight from two analysts into how the title play’s into the industry’s current slump.

Billy Pidgeon of M2 Research, of which Gaming Business Review is an affiliate, looked at it as potential trouble for the industry even if the game succeeds, given its robust multiplayer. Pidgeon said, “From what I’ve seen of the game, it’s going to keep people playing online for quite some time. It will create a sizable vacuum in the multiplayer space.”

That could affect sales of upcoming big-budget shooters such as EA’s Medal of Honor and Activision’s Call of Duty: Black Ops, creating problems for the publisher’s lofty expectations for how these will sell when they’re released in the fourth quarter of 2010.

But Colin Sebastian, analyst at Lazard Capital Markets, looked at the performance of Halo: Reach as an industry litmus test. Sebastian told CNBC, “Franchise games like Halo and Call of Duty are important to judge the health of the market.  If Halo comes in lower than expectations, there’s an assumption that there’s something wrong with the business.”

About Gaming Business Review
Meelad Sadat is a 10-year game industry veteran. Prior to joining Gaming Business Review, Meelad headed corp comm, product PR and marketing strategy at both publisher and developer levels. He has more than a dozen shipped titles under his belt.

3 Comments

  1. A couple of points:

    1. I didn’t see any mention in the article about the corresponding, widespread economic slowdown (again) during the period. I would attribute slumping sales to that more than anything. August is a prime month for back to school shopping and families already tightly holding onto whatever money they have will buy necessities like that over luxuries like games. The fact that the economy re-slumping isn’t helping at all.

    2. Based on knowing the vibe among gamers, I don’t think Halo:Reach’s multiplayer will create a huge slump for MoH or CoD; I know many gamers who prefer one or the other, i.e., they really like Halo’s multiplayer style or they would rather be playing CoD. There’s always crossover, but look at the historical record: how much affect was there in the past? Not much from what I recall…

  2. If I understand well, these figures come from *retail* sales. What are the figures from online sales? Did online replace part of the retail? In units sold (even software units), if you add retail and online sales, how big is the slump (if there is one)?

  3. The gaming business isn’t screwed. It is severely misinterpreted. The methods used to gauge the industry are outdated and misleading. A lot of good people lost their jobs because of the panic created by poorly analyzed statistics. I believe that the right questions aren’t being asked. The question shouldn’t be, “how is our industry doing?”. It should be, “what can we do to make it better?”. If you focus your energies on that last question, you’ll be the ones driving the industry rather than be the ones trying to survive it. Have some imagination and create the future!

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