After a decade of growth and two consecutive years of record-breaking grosses, sales of video games – which at first seemed immune to the Great Recession – are finally falling.
More like avalanching, actually.
A host of advances and all-new revenue streams are on the horizon, some coming as early as this year, that industry insiders hope could turn things around.
But the beginning of 2010 delivered the industry a body blow of economic reality.
Game sales dropped nearly 9 percent in 2009 from the previous year, dipping to $20.2 billion from $22.11 billion, according to digital entertainment market researchers NPD Group. Then a stellar December – a record sales month, thanks to holiday spending – seemed to be a sign that things were rebounding quickly.
They weren’t.
Last month’s sales were off 13 percent from January 2009, according to the NPD Group.
While there was some good news in accessory and controllers sales being up 2 percent, software declined 12 percent and hardware sales took devastating hit, sliding 21 percent from a year before.
Last week Electronic Arts, one of the industry’s largest game publishers, saw share prices hit hard. And layoffs have come to the seemingly untouchable industry: after tough third quarter declines, Activision announced that hundreds of employees would be laid off, and Los Angeles-based game studio Luxoflux would close.
Across-the-board price cuts to the existing Xbox, Wii and PlayStation 3 consoles, meant to stimulate sagging prices, didn’t help the bottom line, either. And some analysts believe supply problems – especially in the case of the Wii – hurt overall sales.
"We attribute a portion of the large decline to lackluster sales of Nintendo hardware," industry watcher Michael
Patcher of Wedbush Morgan said in a note to investors on February 12th, "which we think were caused by supply shortages."
Much of the trend has to do with the decline of the once-roaring music genre - which last year declined 46 percent over 2008, according to NPD.
Despite the release of some big names like “Beatles: RockBand,” the music sector peaked, dragging game sales dramatically down.
On the plus side, downloads from those games continue to surge. Since 2007, over 60 million tunes, ranging in price from 99 cents to $1.99, have been downloaded from “RockBand” and “Guitar Hero” games.
Both Activision and Harmonix are considering adding subscription services and even creating a competitor to iTunes.
The industry holds some promise in other development areas too.
While traditional homebound gaming models are hurting right now, the new outlets of mobile, portable, online and social networking games (like Playfish’s “Who Has The Biggest Brain?”) are actually doing better than ever.
Additionally, Gamefly, the game-rental-by-mail subscription service has seen its profits and membership grow steadily over the last year.
Back in the living room, all is not lost, either.
Almost 60 percent of U.S.
