Michael Pachter of Wedbush Morgan Securities today released an updated video game forecast for the U.S. and European markets through 2013. Other than a so called "Wii HD," Pachter does not think that any new consoles will hit the market for the next four years, and his forecasts are based on this assumption. A number of executives have commented that this generation of consoles would have a much longer than traditional cycle, and the impending launches of Project Natal and Sony's "Arc" could play a role in that.
Looking at the game software market (combined U.S. and Europe) for the next several years, Pachter's forecast shows 5% growth in 2010, 7% in 2011, 8% in 2012 and 5% in 2013 "with slight variations between the regions." Breaking it down between U.S. and Europe for this year, Pachter sees Europe growing more (7% vs. 4% in the U.S.) but both regions will experience hardware declines. Total hardware is expected to reach 52.0 million compared to 60.1 million last year. The forecast shows sales of 1.4 million PS2s, 9.8 million PS3s, 3.1 million PSPs, 9.0 million Xbox 360s, 14.7 million Wiis, and 14.0 million DS units.
Regarding tie ratios, Pachter continued, "Our forecast projects that video game software unit sales (console, handheld and PC) will grow to 562 million (from 520 million last year), reflecting a decline in tie ratios of approximately 10% and a decline in average pricing of around 2.5%. In contrast, tie ratios declined approximately 25% and prices declined approximately 3.1% in 2009; we think that the larger than normal drop-off in tie ratios in 2009 was attributable primarily to a decline in demand for music genre games, and we think that further demand declines for the genre will be less impactful in 2010, allowing tie ratios to decline at a more normal rate."
The PC market is also expected to have an impact, thanks mostly to Blizzard's upcoming releases. "We expect PC software sales to grow by 16% in 2010, due to our high expectations for StarCraft II and World of Warcraft Cataclysm. Our PC software forecast reflects growth of only $292 million at retail, implying that overall PC software demand will be roughly flat, with contribution of approximately 7 million units of the two Blizzard titles making up all of the growth," Pachter said.
Overall, Pachter's forecast projects a compound annual growth rate of 6.2% for packaged goods for the 2010 – 2013 period, with hardware sales declining each year. Of course, none of this takes into account the burgeoning digital sector, and Pachter acknowledges that there will be "relatively steep growth for digitally-delivered games, including downloadable console game content, free-to-play PC games, mobile phone games, and subscription-based PC content."
He continued, "Business models for each of these segments continue to evolve, but we expect the publishers we cover to compete for a reasonably large share of the future growth, and anticipate that the evolving business models will ultimately translate to profitable sales. We think that the combined addressable packaged products and digitally-delivered markets will grow from approximately $26 billion in 2009 to around $36 billion by 2013, or a compound growth rate of approximately 9% per year."
And even looking strictly at retail, coming off a disappointing 2009, this year should reveal a nice rebound for the industry. The first half is already quite loaded. "The release schedule over the next four months gives us great confidence in our forward forecast. In addition to highly anticipated titles like Sony’s God of War III, Square Enix’s Final Fantasy XIII, Nintendo’s Super Mario Galaxy 2 and Metroid: Other M, and Activision’s Starcraft II, we expect no fewer than 12 games released in the first half of 2010 to sell more than 1 million units apiece, with at least six selling more than 3 million units. In the first half of 2009, there were only eight games that sold more than 1 million units, with only one selling more than 3 million units. The combination of a solid release schedule and easy comparisons (March through August software sales averaged down 21%), leave us quite optimistic that the industry will record sales growth in 2010," Pachter concluded.
5 Comments
March 1, 2010
Not that Pachter is usually right(he isn't) but that would be nice if we had atleast another four years of the current gen. It's really not that far of a stretch considering how much each company has invested in the current systems. And I suppose alot of it will be determined by how well Natal and Arc do this fall when they are released.
March 1, 2010
I don't know if it'll be a full 4 years, but I definitely think we could see 2-3 before MS or Sony dive in with another console. I don't think either company is chomping at the bit to launch another console because it costs so damn much now. We all know how much the PS3 costs. Sony can't afford to do that again for a while.
March 1, 2010
I'm sure all the publishers would love to avoid releasing a new console, and thus will hold off as long as possible. I'd look to whichever publisher starts really lagging behind the others; they would be most likely to introduce new hardware, especially if price cuts on their existing console fail to produce a significant, long-lasting sales boost. Right now I'd guess that Nintendo will be the first to release new hardware; the "Wii HD" may count, but if it's only higher resolution output without a horsepower increase it may not help all that much. Microsoft and Sony have much more headroom on their existing consoles, especially if Natal and Arc can create sufficent excitement (and compelling titles that use the technology).
I'd say Nintendo faces the greatest challenge, since they basically gave up on horsepower as the leading reason to buy a new console and went with a clever interface technology. Once the Wii's competitors have equal or better interface coolness, the Wii's lack of power will become more apparent. Lack of enthusiasm among 3rd party publishers is a related problem... Nintendo needs a shot in the arm in the next year or two to avoid losing share.
March 3, 2010
Frankly, no one really benefits from a new console - publishers would have to deal with another geometric increase in the cost of their games, the manufacturers would have to invest hundreds of millions of dollars into selling a machine at a loss and consumers would have to drop another half a grand on an expensive new piece of hardware. Because of this, new consoles will be put off as long as possible.
March 3, 2010
The last set of console releases was especially painful for Sony and Microsoft, given the amount of money they lost. Sony is sill not making money from the PS3 hardware, even with the cost-reduced hardware, due to the price reduction. Those two at least will want to avoid that situation for years, knowing that the next generation of consoles will likely be even more expensive to produce and generate even higher losses. Developers have no desire to spend time learning how to program a new machine just as they're getting comfortable with these devices.
Only drastically slowing sales, or rapidly declining market share, can force the new generation of consoles into being. Even more than that, companies would have to be prepared to demonstrate why added horsepower would be worth a new $500 investment from a consumer... would gameplay really be all that much better? Part of why this generation of consoles has taken so long to get significant traction in the marketplace is because it wasn't clear why the games were worth a big new investment of money... except for the Wii, which was clearly different in its interface and much lower in price. No coincidence the Wii was selling out for a long time... and now that the Wii software is uninspiring and the price differential with Xbox 360 and PS3 is much less, Wii sales are flattening.