The video game industry continues to see the after effects of the recession, as revealed by the latest data from market research group NPD. According to the NPD research data, software game sales were down 8.0% from the beginning of the year, down more than $200.0 million from the comparable year-ago period.
Year to date, total revenue from software game sales stands at $2.5 billion. Nintendo Company Ltd. leads the video game industry with five titles in the top 10, while Electronic Arts (ERTS) holds the second spot with two titles. Sony Corporation (SNE), Square Enix and Activision Blizzard (ATVI) hold the third position with one title each.
Although the video game industry was in the red in the first half of 2010, new titles like Red Dead Revolver from Take Two Interactive (TTWO), Medal of Honor from Electronic Arts, Alan Wake and Halo: Reach from Microsoft, Call of Duty from Activision Blizzard and Epic Mickey from Walt Disney (DIS) are expected to boost revenue in the second half of 2010.
Game sales in the second half should also benefit from the launch of motion control devices — Natal from Microsoft Corp. (MSFT) and Move from Sony Corp.
Sony’s Move is expected to cost less than $100 and the lower price could pull in more buyers. Move features a black remote with a ball on top that changes color. The device is based on Nintendo Wii’s and includes a camera called PlayStation Eye for tracking the remote’s position in a 3D arena. Microsoft’s Natal uses a camera and gesture recognition to turn players’ bodies into controllers.
Nintendo’s focus appears to be on handhelds delivering a 3D gaming experience. However, since the devices are not expected to hit the market until next year, there will not be any impact on sales in the seasonally stronger second half. The company plans to announce the handheld gaming system at the upcoming Electronic Entertainment Expo. According to sources, Sony may also come out with new handheld designs.
Although second half video game sales will be better than the first half of 2010 on the back of a strong product pipeline and new launches, industry analysts do not expect 2010 sales to be on par with 2008 numbers (a record year for video game sales).
Digital Content Could Drive Sales
The gaming industry is experiencing a major paradigm shift, as console makers and software publishers are delivering their content directly to the consumers, bypassing retailers.
Due to higher development costs for new game titles and considerable lead time on game development, publishers continue to depend on safe franchises to sell games. However, the introduction of consoles, such as Sony’s PlayStation 3, Microsoft’s Xbox 360 and Nintendo’s Wii enabled publishers to release their content digitally.
Digital downloads are growing at a rapid pace. Sony said total downloads on the PlayStation Network increased 60% from 2009 to 2008, while digital-only revenue rose 155% in 2009 from 2008.
However, the aggressive use of digital media has intensified competition, as smaller players are also entering the video game market. It has become easier and cheaper for smaller companies to market their products with the help of digital distribution.
But it is not all that easy for publishers. Industry analysts and executives believe the transition to digital remains sluggish, as the industry continues to rely on subsidizing consoles in the hope of selling software to make up the loss. The analysts believe that by going digital, the retail side of the business will completely die.
Additionally, mobile gaming is an upcoming business wherein a complete transition to digital distribution is possible going forward.
Apple Inc. (AAPL) has established itself as a formidable competitor in this space with its iPod Touch, iPhone and now iPad. More than 50,000 game titles are currently available on the Apple App Store. However, we do not expect it to be smooth sailing for Apple either, since there will be cut-throat competition from Electronic Arts, Activision Blizzard and Nintendo.
Although the first half remained weak for the video game industry as it has still not recovered from the recession, we believe that new product launches and the entry into digital content will drive growth beyond 2010.
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