As we enter 2011, the industry looks forward to what is hoped will be a brighter future, and we of course find it natural to write the obituary on 2010. Looking back, the news throughout 2010 was generally about declines and poor performance for the video game industry. However, when looking at it from the view that video games are a naturally cyclical business, 2010 looks more like a stronger than expected year. Based on 2010, DFC Intelligence is actually in the process of raising its forecasts for 2011 and beyond.
On a global basis, DFC had initially forecasted a 7% decline for the video game industry in 2010. However, when all the numbers are added up, it looks like the overall industry will be essentially flat over 2009 and probably up a slight amount. On a worldwide revenue basis it looks like 2010will be the second best year for consumer spending on games (2008 was the best year). Almost all categories except mobile and portable did as well as, or better than expected.
The biggest concern going into 2010 was that the current generation of game consoles was starting to show its age. This was especially true of the Xbox 360 and Wii. However, both systems outperformed DFC's forecasts. In the U.S., the Xbox 360 had a record year and the strong sales for the Kinect showed how eager consumers are for new game hardware. Meanwhile, the PlayStation 3 showed strong steady growth and on a global basis is positioned to pass the Xbox 360 in installed base in 2011.
As expected the Nintendo DS and Sony PSP portable systems both showed declines. But going into 2011, there is the promise of new hardware systems that should rejuvenate the portable market. Meanwhile other mobile platforms significantly underperformed even DFC's modest estimates. Mobile systems are looking like the PC platform has for years. There are many users but it is hard to monetize those users. It is like throwing a big party where everyone shows up to eat and drink all the free food and booze. Games for systems like the iPhone/iPad Touch started to look much like the casual PC games and games on social networks like Facebook: everyone seems to play, no one seems to pay.
Meanwhile the PC as a game platform continues to show steady but slow growth with an incredible diversity of products and business models. The market is of course saturated with products, but the PC is now the core platform for most of the most profitable game franchises.
So overall, 2010 can be seen as a year that was better than expected. The industry had been forecasted to decline but most markets performed better than expected. So why have reports about the industry tended to talk about 2010 in negative terms? DFC Intelligence's new report, The Year in Review 2010, examines the key challenges the industry faced in 2010 and what will have a major impact going forward. The biggest issue is the increased fragmentation of the game industry. Fragmentation is occurring across geographies, platforms, business models, consumer demographics and most importantly distribution. In obtaining a full understanding of what happened in 2010 it is important to understand this fragmentation.
Arguably the biggest story of 2010 was the activity swirling around Activision Blizzard. Activision Blizzard's experience the past year set the tone for much of the rest of the video game industry: some diverse monster hit products trying to cover up some crucial underlying flaws in the foundation of the business model. The multi-platform Call of Duty games continue to set sales records even as the underlying development teams fracture. Meanwhile, on the PC, Blizzard has two massive franchises with very different models, World of Warcraft and Starcraft II. However, outside of these major franchises most products underperformed and Activision Blizzard has seen a major downturn in its core music business.
This reliance on a handful of hit products to bolster balance sheets is the biggest challenge facing the game industry as it gropes with acclimating to the free-to-play model. The movement to digital distribution and emerging free-to-play and virtual item models shows long-term promise to increase industry profitability. However, in the short term, the big retail products continue to dominate at least Western markets. All the games combined on Facebook or Apple platforms can not yet equal the revenue of one hit retail game.
DFC Intelligence is proud to be providing IndustryGamers readers the opportunity to purchase the new DFC report: The Year in Review 2010 combined with an initial outlook for 2011 for $500. Thisreport consists of two PowerPoint presentations that examine key industry trends, individual company and product performance for 2010 and forecast sales and performance potential for the top 2011 products and companies.
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:
