The games industry defies the downturn – for now

A strong customer base has insulated the business, but the future may hold far less innovation and originality

Gaming Industry

Gaming Industry

Playtime … games customers defy the recession.
Photograph: Graeme Robertson

Everyone’s talking about recession – except gamers. A trawl of the game retailers in Brighton recently revealed plenty of customers, long queues waiting to pay and sales assistants saying that business is great, thank you very much.

A manager at a branch of Game said trade is as good, if not better than last Christmas, though people are being more discerning: they are only interested in the best games. Assistants in both Gamestation and Gamestar confirmed that the only hint of the recession is customers’ desire to get value for money. The only complaint wasn’t about demand, but supply: they simply haven’t got enough copies of some titles.

It’s not just in Brighton. Despite the recession, the computer games industry is exhibiting particularly strong sales. UK console software sales for the third quarter were up 15% year-on-year, with a total of 13.2m units sold. Projections by GfK Chart-Track, a research company, suggest that the harsher climate will not have a significant impact.

‘Best-ever quarter’

“The UK market in particular is gearing up for a best-ever fourth quarter overall. At the end of the year, 2008 should be 30% up on sales over 2007 with 75.5m units of console software sold,” says Dorian Bloch of GfK Chart-Track.

And that is just console software sales. The total UK retail games software market for 2008 is forecast to gross £2.2bn. Piers Harding-Rolls, an analyst for media business research company Screen Digest, says one reason that sales of videogames could be insulated from the downturn is its core consumer base. “For committed gamers, it’s not a discretionary spend, it’s part of their lifestyle.”

And the the games industry has actively widened its consumer base.Nintendo says it is seeing an almost a 50/50 breakdown between male and female players across all its platforms – gaming has traditionally been very male – and an increasing number of players aged 50 or over.

Another fortuitous aspect is the timing of the recession. The videogames industry is cyclical, fuelled the release of each new generation of console. At the beginning and end of each console’s lifecycle, the industry is under pressure: profits are tighter as resources are redirected from the old generation to the new. The good times are in the middle when an optimum number of hardware units have been sold and publishers consequently sell the highest volume of software.

Luckily for the games industry, consoles are in those healthy middle years. Nintendo alone is 76% up on Wii hardware sales across Europe year-on-year, with more than 3.5m units sold in the UK since release.

However, that trend won’t continue if people become less willing to buy expensive consoles in a recession, although so far that doesn’t seem to be the case. Figures from the Entertainment Retailers Association show that up until mid-November, hardware sales for 2008 were up 14.1% on the same period last year.

Certainly, Christmas is having a positive impact on sales, especially as games are perceived as good-value gifts.

However, no industry is immune to the effects of recession. Harding-Rolls sees two areas for concern. “Arguably the [Sony] PS3 is most vulnerable to a downturn. Generally consumers become more price-sensitive under these conditions and the PS3 is expensive, so they may delay their purchase or even buy a different console. Sony continues to be cautious with its guidance for PS3 sell-in over its current financial year. At 10m units it looks low based on recent sales rates, and part of that might be due to caution.”

Second, he says, there are questions over software sales. However, this uncertainty could be the result of that wider user base: “We are not sure how the recession will affect the buying habits of these new, more casual mainstream consumers. These consumers are more likely to view gaming as a discretionary luxury. There is a question mark over the staying power of those consumers during a recession.”

Another analyst, Nick Gibson of Games Investor Consulting, agrees: “As the market has become more casual-gamer focused, then it will be more susceptible to the economic rhythm.” However, he points to a potential casualty other than the PS3: “I would say that Nintendo therefore would be the most susceptible.” Anecdotal evidence suggests he could be right. Conversations with independent retailers around the UK suggest the interest for Nintendo titles is not what it was; they are already seeing more secondhand games brought in and fewer sold.

Says Gibson: “I suspect that most of the industry will plan for a stagnation in the market or a reduction in the value of the software market in 2010 simply because of the games industry’s economic cycle.”

What could really hurt the industry is the credit crunch. With new titles costing anything up to £20m before they sell a single copy, a long-term credit squeeze could make it hard for both developers and publishers to raise sufficient revenue to develop games. For Stuart Dinsey, publisher of the industry games trade magazine MCV, this is the cause for most concern.

“Is the games industry recession-proof? Probably, but it can’t take that for granted. Is it in a good place compared to other markets? Certainly. Is a greater challenge for the games industry the funding issue? Absolutely. If there are games developers or publishers out there that haven’t been making money during the incredibly profitable period of the last two years, how on earth are they going to get through the next two years? Do they really think the banks will lend them money?”

Flight to safety

Ultimately the impact of both the recession and the credit crunch may be qualitative rather than quantitative. For gamers, this could mean less edgy titles and more instalments of proven franchises. This is how Dinsey sees things playing out. “The result of all this economic turmoil is that there might be a propensity to go for the safer brands. The credit crunch could mean it’s going to be more difficult for new intellectual property to break through.”

A desire for safe investment bets could see less innovation, but as the shop assistants in Brighton already know, customers are looking for quality. In the future this could mean less diversity but better games.

How the numbers add up

£2.2bn
Forecast gross value for 2008 of the UK retail games software market

76%
Increase year-on-year in sales of Nintendo hardware in Europe

75.5m
Forecast for total units of console software sales this year in the UK

The Guardian, Thursday 4 December 2008

Read it here

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