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Games retail in decline: Can industry recover this holiday?

Games retail in decline: Can industry recover this holiday?

Mon 12 Nov 2012 4:09pm GMT / 11:09am EST / 8:09am PST

The holiday got off to a miserable start in October in the US. Analysts discuss the all-important Q4

US games sales, according to The NPD Group's retail data, were down 25 percent in October - not exactly the strong start you'd like to see for the hugely important fourth quarter, when the industry typically generates a bulk of its annual revenues. Sales were even down sequentially from September by about $100 million. It prompted Macquarie Securities' Ben Schachter to question the importance of this year's holiday shopping season. "At this point, beyond a limited number of major releases, the holiday game season does not look like a major catalyst for the industry in aggregate," he said.

Does this mean that buying patterns are changing and that the holiday season is no longer that important? Has digital, which represents roughly half of revenues, lessened Q4's relevance? Or does the industry simply need a wave of new consoles to spur sales?

Interestingly, Nintendo's part in all of this is actually quite critical. A lot is weighing on the launch of the Wii U a week from now.

"Nintendo is the wild card that will determine whether the holiday season is viewed in retrospect as one of 'treading water' or one of sharp decline"

Lewis Ward

"I suspect that this holiday season will see relatively weak overall spending totals in the US. 
The reality is that sales of Xbox 360 and PS3 physical products this holiday season will probably be off 10 percent to 20 percent compared to last year, a noticeable but manageable decline," commented IDC Research manager Lewis Ward. "Nintendo is the wild card that will determine whether the holiday season is viewed in retrospect as one of 'treading water' or one of sharp decline."

"Most of the drop off in aggregate retail sales in the US in 2012 was the result of weak Wii hardware and disc sales - the HD platforms held up okay. If the Wii U storms out of the gate it will lift the video game industry back into 'treading water' mode - and allow Nintendo to breathe a giant sigh of relief. If Wii U doesn't preform well, total industry sales could be down 20 percent even once digital console game sales are taken into account. 

The holiday season will always be critical for gaming. In the past decade I don't think there's been a single year where at least 40 percent of all dollars spent on consoles hasn't been in the fourth calendar quarter and 2012 shouldn't be any different."


NPD's own industry analyst, Anita Frazier, chimed in to stress that what we're seeing at retail now isn't highly unusual. In fact, even the drop-off from September to October has been a regular pattern.

"Since 2006, only one October ('08) has outsold September (the month prior). In '09, the delta was also about $100MM. In '07, September was about $150MM higher than October. Lately, we've had Madden hit September which contributes to the last couple of years," she explained.

"I think the root of what we're seeing with retail game sales lies with the age of the console lifecycle as well as the more limited (notably more limited) amount of new content being introduced to the retail market, which is having an impact on not only launch month sales, but on catalog sales down the line too since this has been happening for a number of months."

Indeed, the length of this console cycle is certainly playing into the sales problem.

"We are late in a console cycle and 71 percent of new console purchases are done by consumers who are either replacing a broken console or are purchase a competing console--turning them into multi-console homes.  In either case, these consumers are already part of the ecosystem, so their contribution is minimal.  Those that are buying their first console, so late in the cycle, are generally extremely price sensitive and contribute little to software and digital sales," EEDAR's Jesse Divnich told us.

"The best way to describe this holiday season is 'status quo'. The holiday season is incredibly crucial to interactive entertainment, and its importance is just as much now as it has ever been," he stressed. "Who it is important for, however, is relative and depends on where we are at in the cycle.  Early in a cycle, the holiday season is crucial for new IPs and new hardware, but as we progress and get deeper into the cycle, the importance shifts to established brands. Just because we are viewing the 2012 holiday season as 'boring', it is far from being considered unimportant."

RW Baird analyst Colin Sebastian agrees. "I think the traditional video game industry is showing the same trend as it has the past two years," he said. "There are only a limited number of high quality, recognizable franchises that sell well, and everything else is basically underperforming.  This is not a new trend.  The reasons for this are multiple, but the console business won't really get a shot in the arm until new hardware is released next fall."

"Gamer spending is shifting to pre-owned console software and to digitally distributed console game add-ons and PC games"

Billy Pidgeon

Of course, it's also important to recognize the big impact of a much-weakened economy. Billy Pidgeon, senior analyst at Inside Network, remarked, "The significant declines in revenue from packaged software are due to a combination of factors, including a sluggish economy.  The current console cycle is far longer than previous cycles, so hardware is fairly saturated. This is slowing sales of new packaged console software, while gamer spending is shifting to pre-owned console software and to digitally distributed console game add-ons and PC games."

"I do expect increasing revenue from November into the new year with releases of strong titles like Halo 4 and Call of Duty: Black Ops II.  Also, the Wii U launch will bring in stronger hardware and software revenue."

So what do the months ahead actually look like? Wedbush Securities' Michael Pachter believes "there is finally light at the end of this almost four-year tunnel of declining video game sales." He continued, "We believe that good games will continue to sell well, and November is off to a solid start with successful launches of Assassin's Creed III and Halo 4."

That said, he doesn't believe Wii U software sales can offset expected sharp declines in year-over-year Wii software sales. Ultimately, November, December and January software sales should "moderate at close to flat, with slightly negative sales likely," he said. The big jump should come in February. "We expect results to rebound into sharply positive territory in February, when Take-Two releases BioShock Infinite, and we don't think that results will revert to double-digit negative sales growth again in 2013," Pachter noted. It's still going to be a bumpy ride, however, until 2014.

"We think that the industry is positioned for a rebound in 2014. Until then, there will be occasional huge months (from the release of games like Grand Theft Auto V, for example), and occasional modest months," he said.


Jim Webb
Executive Editor/Community Director

2,266 2,404 1.1
Popular Comment
Economy, digital sales, long console cycle, reduced Wii sales.

Exactly what most of us have been saying for a long time.

Can we have their jobs?

Posted:A year ago

Popular Comment
Bruce says no.

Posted:A year ago


Max Kaftanati

10 4 0.4
It seems to me these people get their jobs by connections, so out of touch.

Posted:A year ago


Craig Page

382 218 0.6
This holiday season I'm really looking forward to Call of Duty: Black Ops 2. It's going to be new and nothing at all like Call of Duty 2, Call of Duty 3, Call of Duty Black Ops, Call of Duty Modern Warfare, Call of Duty Modern Warfare 2, Call of Duty Modern Warfare 3, or Call of Duty World at War.

Posted:A year ago


Morville O'Driscoll
Blogger & Critic

1,536 1,336 0.9
"while gamer spending is shifting to pre-owned console software and to digitally distributed console game add-ons and PC games."
2 things:

1) Almost the entire article is about console games. As shown by the link above, PC games continue to sell well. There's a knock-on effect from console to PC markets in that the timings of releases are slowing down as companies wait for the next-gen to actually be announced/released (bets on HL3 being next-gen and PC?). Whilst you could also argue that new IP for the PC is also tied to the next-gen, that varies from company-to-company, and could also be outweighed by new-releases that are PC only (CoH 2/StarCraft 2:HotS/that WoW expansion).

2) For the love of god this industry needs digital sales figures.

Edited 3 times. Last edit by Morville O'Driscoll on 12th November 2012 8:11pm

Posted:A year ago


Justin Biddle
Software Developer

159 483 3.0
Popular Comment
Bruce must be a busy man so to save him time I will insert his obligatory post on his behalf.

Death of console games inevitable.
FTP and mobile gaming will rule the earth.
Peaceful coexistence of the two is absolutely off the cards.

Should just about cover it.

Edited 2 times. Last edit by Justin Biddle on 12th November 2012 10:08pm

Posted:A year ago

Ode to bruce. nice one!

Posted:A year ago


Daniel Hughes
Studying PhD Literary Modernism

436 496 1.1
Common sense from analysts???

Good grief.

Posted:A year ago


Tony Johns

520 12 0.0
From the way I saw things, the older generation of people who originally brought the Wii because of Wii Sports and Wii Fit, are the sort of people who view videogames as a luxury and while they had the money to buy games back in 2007 and 2008, they don't really have as much money because of the global financial crisis of 4 years ago that has caused their superannuation to go down and they don't see themselves as financially viable to afford any videogame consoles at this point in time.

Also considering they rely on having advertising for them to help them make their buying decisions, they are not really the ones who would go onto the internet and be as informed as those who are younger and more computer savy.

I hope the WiiU does go well, because of the way that people are loosing touch of Apple's iPhone and the ammount of shovelware on the system makes some of the older casual gamers think that games are not interesting anymore.

At least that is from what I have heard from those who are at least 20 or 30 or 40 years older than I am.

Posted:A year ago


Jim Webb
Executive Editor/Community Director

2,266 2,404 1.1
Lukas, I feel you might be missing something about the digital distribution capabilities of the home consoles. The X360, PS3, 3DS, PSP and Vita allow for the purchase and download of many full retail titles. It's not just PSN and XBLA titles we're talking about anymore.

Some publishers are claiming that nearly 50% of their revenue of full retail titles now come from digital distribution.

Edited 1 times. Last edit by Jim Webb on 13th November 2012 1:03am

Posted:A year ago


Lukas Arvidsson

5 21 4.2
Yes I know that. But these sources are still a very small part compared to retail. Regarding the publishers, Activision has a 50% split but that is because of WOW. I don't think EA or Ubisoft is close to 50%?

Posted:A year ago


Jim Webb
Executive Editor/Community Director

2,266 2,404 1.1
Even if it's only about 20%, if the industry of boxed retail is down 20%, that's a pretty big factor to simply ignore.

Posted:A year ago


Curt Sampson
Sofware Developer

596 360 0.6
Sony's really starting to push hard on selling full games through PSN, so even if that's not huge now, it may well be in a few years. Also, the vast majority of additional content (new map packs and the like) is sold via download, not retail. And then of course there's PS Plus, which must be eating at least somewhat into game sales with the AAA title they're giving to subscribers every month or two.

Posted:A year ago


Jeffrey Ates

24 1 0.0
Not to mention you consider the hardcore being shunned from the Xbox fanbase, given like what, 3 good titles a year? (Halo Gears and Forza, give or take)
And a general slowdown on major releases for both consoles (Hence why XBLA and PSN have been making some nice revenue)
Combined with the resurgence of PC from the likes of Steam sales, lower prices and accessibility of PC hardware, much more diverse genres and games and consistent releases, and no having to pay to play your game on the internet (Sorry MS, the recent update to the dashboard for more ads doesn't justify the price, those ads should have LOWERED the price.) makes it quite clear why the sales have been lower.
I was a huge Sony player (With the occasional awesome Xbox Exclusive) and for the past year, Ive been all PC and haven't regretted it since.
I mean think about it, twice the players on BF3 PC and other titles like the recent NFS, awesome games like Tribes, MWO, Hawken, Painkiller Reboot, The whole indie Scene, Planetside 2 and others to play, better visuals and lower prices. There is no loss from the PC side of things aside from shitty ports (Happens to the best of us) and the initial investment of a system.

Posted:A year ago


Curt Sampson
Sofware Developer

596 360 0.6
Having switched to PC myself earlier this year, I have to agree with you, Jeffrey. I was shocked at how much cheaper it is to purchase stuff on Steam outside of the latest and greatest new releases.There's enough older stuff out there that still looks and plays really well, and regularly gets deeply discounted, that I can't see myself going back.

It doesn't really change how much I spend on games (still many hundreds of dollars per year); I just get more games for my money.

The PC wasn't really all that expensive, either. I ended up spending less than $600 on a mid-range gaming PC that blows any current console out of the water, and may well be better than even the next generation of consoles. I can't see this being a true mass-market thing, though, since you do still need to know a lot more about what you're doing to put together such a system. Valve could go a long way towards fixing this if they wanted to; I'm surprised that they've not.

Posted:A year ago


Bruce Everiss
Marketing Consultant

1,692 594 0.4
Very telling: "71 percent of new console purchases are done by consumers who are either replacing a broken console or are purchase a competing console"
"Those that are buying their first console, so late in the cycle, are generally extremely price sensitive and contribute little to software and digital sales"

Posted:A year ago


Rodney Smith

81 40 0.5
Pushing the cycle this long this time may of destroyed the console market. Will there even be a Sony next year?

Posted:A year ago


Jim Webb
Executive Editor/Community Director

2,266 2,404 1.1
Hey Bruce, whats the replacement industry look like on mobile?

Posted:A year ago


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