For the past 15 years the video game industry has liked to promote the idea that it is now "bigger than Hollywood." The reality is the game business is nowhere close to the size of the motion picture business in Hollywood. However, in one area video games are starting to rival movies. The opening days of a hit new game are now substantially bigger than top box office film releases. A large number of game consumers love rushing to the store to spend money on the latest release that costs $40 to $50 more than the price of a theater ticket.
Where video games are coming out on top of the movies is in the potential excitement associated with top products that can generate unprecedented amounts of revenue at a product launch. Top video game launches are now major events and sales for these top products continue to reach record highs. On that level games are now the top entertainment product of all-time.
However, a stable industry is not entirely built solely on the back of hit products. When television came along the movie industry was forced to scale back production. Nowadays, there are still blockbuster films, but the bulk of revenue for Hollywood comes from consumer sales and rentals of DVDs, production and distribution of television shows, and running cable networks. Box office revenue is only one small piece of the pie.
The game industry is slowly heading in that direction, but right now retail revenue remains crucial for major success in North America and Europe. On top of that the industry remains highly seasonal. There has been much handwringing about the decline in sales so far in 2010. However, most of the story of 2010 will be written in the fourth quarter…in other words, the jury is still out.
Given the importance of the holiday season for the overall video game market, DFC Intelligence has released a trend and forecasting analysis report on the fourth quarter of 2010. This report looks at general industry trends and analyzes the outlook for key software products, plus the impact the new Xbox 360 Kinect and PlayStation 3 Move will have on industry sales.
One conclusion is that consumers are extremely hungry for new hardware. It has been four years since a major new console system launched and consumers are clamoring for some shiny, new plastic. This means initial sales for the Kinect and Move should be quite strong. However, the long term potential for these add-ons to increase the overall market is still questionable.
In terms of DFC Intelligence’s early 2010 forecasts, the first nine months of performance of most game systems have closely followed DFC predictions. The one exception is Xbox 360 hardware sales that have significantly outperformed forecasts. Nevertheless, despite increasing hardware sales, software sales for the Xbox 360 have not shown a comparable pickup indicating many systems being sold are replacement units. Because of this, DFC still believes the PlayStation 3 will overtake the Xbox 360 in 2011.
The Wii and the DS have both faced the sales decline DFC had forecasted. However, with a strong hardware bundle for the Wii and the launch of the 3DS in early 2011, DFC now believes Nintendo systems may actually outperform forecasts over the next year.
Overall, the video game industry is a cyclical business. The current console systems are reaching the peak of their lifecycle and face an inevitable decline. The PC game business is the fastest growing segment of the industry, but it is not growing fast enough to offset the decline in the console systems. What's more, the companies who are reaping the benefit of this growth in PC gaming are primarily start-ups that have adopted the subscription or free-to-play micro-transaction model that has yet to migrate to console systems in any significant way. Games for platforms like the iPhone and Facebook may also be showing growth, but they are still a small fraction of what is seen from retail games.
Overall, DFC forecasts a revenue decline in 2010 and small declines in 2011 and 2012. However, it is important not to make too much of revenue downturns. The industry is a cyclical business and revenues in all years are expected to be higher than the years prior to 2007. Furthermore, consumers are spending less on expensive hardware systems which should open up the market to a wider variety of consumer products.
DFC Intelligence is proud to be providing IndustryGamers readers the opportunity to purchase the new DFC report Video Game Trends: Q4 2010 for $250. This report is a 35-slide PowerPoint that looks at key industry trends and forecasts sales for the top holiday 2010 titles.
This report is part of a new series of custom targeted DFC Intelligence reports and briefs that will be available for purchase online through the IndustryGamers web site. The reports in this series will provide poignant analysis and forecasts on key topics facing the games industry worldwide.
Other available DFC reports include:
