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Recessive Traits

Is the games industry really exempt from the worldwide economic downturn?

Watching the world's markets - and some of its leading financial institutions - stumble and trip their way through the past fortnight has been genuine "car crash television" for those with an interest in finance and economics. For the general public, bemused as to the meaning of most of what's going on (admittedly, many financiers seem equally in the dark), it has simply served to deepen the existing gloom over the economy.

Even before major firms started collapsing or being rescued left, right and centre, economic indicators were far from positive. In most developed economies, property prices are falling, food and fuel bills are driving up inflation - and in many nations, output is falling, with the consequent threat of rises in unemployment. Much debate exists over the scale and duration of the difficulties. In the short term, however, a bumpy economic ride is guaranteed, one whose effects will be felt in consumers' wallets as well as on the markets.

For the videogames industry, this probably doesn't seem terribly important. Conventional wisdom states that videogames can happily grow through a recession, and several previous economic slowdowns have done little to stunt the growth curve of the interactive entertainment market.

Two factors influence this. Firstly, this sector has a very healthy basic growth figure, which is created by the rapidly growing demographic of videogame consumers. The industry's ability to broaden its appeal has always, thus far, outpaced any contraction in consumer spending.

Secondly, interactive entertainment - although a relatively expensive pastime in terms of initial outlay - can actually be a very cheap form of entertainment in cost-per-hour terms. As belts are tightened, consumers tend to cut down on expensive, out-of-home types of entertainment first. With consumers staying in more often, videogames - which can offer weeks of entertainment for a USD 50 outlay - are an appealing option.

These two factors have always guaranteed that videogames are a 'recession-proof' sector - and for many within the industry, that's enough to leave them feeling pretty good about the next few years.

However, as investment firms are fond of saying (however bitter it may now taste in their mouths), past performance is no guide to future results. The games business is proud of how far it has come and how much it has changed in the past number of years, and rightly so. One major consequence of that change, however, could be that the sector is far more significantly exposed to prevailing economic conditions than ever before.

Part of the reason for this is simply that the games business is bigger than ever before. The larger your sector is, the more likely it is to be buffeted by economic winds - it was possible for a USD10 billion industry to find a niche during a recession, but it's vastly harder for a USD 50 billion industry to do so.

Some other industries do buck that trend, of course. Alcohol is often presented as a perfect example. The drinks business experiences no major pinch from recession - but what it does see is a significant shift in patterns. Cheaper brands take precedence over premium brands, spirit sales rise in the face of falling sales of wine - and in some countries at least off-license sales soar while bars face lean years.

In other words, while alcohol as a whole is a recession-proof industry, individual businesses and brands still face upheaval when the economy turns rough. Even if we work from the assumption that game sales will continue to grow through this period of economic difficulty (whether it'll be a recession or not seems to depend largely on how you define the dreaded R-word), that level of upheaval within the industry would force publishers, developers and even platform holders to be exceptionally flexible and nimble in their strategies. For some, that could be even harder than facing straightforward shrinking margins or sales.

That same assumption - that sales will continue to grow - could also be founded in shaky optimism. The other huge change that the sector has seen in recent years is the introduction of a vast, rapidly growing and immensely profitable casual sector. This area is largely made up of demographics previously untapped by the games industry. The Wii and DS are the flag-bearers, of course, but there are also large revenues in PC gaming, mobile gaming, and on Sony's platforms which owe their existence to the expansion of the games market into new areas.

The question is, will the industry's new consumers consider their latest affectation to be a worthwhile continued investment as pennies begin to be pinched? In previous years, the industry's most dedicated consumers fell into two easy categories - dedicated games enthusiasts, and parents buying games for younger children. Both of those categories keep buying through a recession, because both consider games important (or rather, in the case of parents, their children do).

Those markets will probably stay strong through any forthcoming recession - but in the past half-decade, videogames have attracted a huge and diverse following around the edges, and that following may well drop away if the climate becomes tough. Publishers who have focused on 'core', enthusiast-led games won't feel the pinch - those who have put all their eggs in the casual basket, however, may find their market contracting significantly.

None of which is to say that we should all go back to making first-person shooters and hardcore strategy games. The market expansion achieved by Nintendo and Sony isn't about to go away. The casual sector is going to remain a large, profitable and powerful part of the videogame spectrum for the foreseeable future, and much of the industry's growth is likely to come from this sector. Even future growth in the hardcore market is likely to be a consequence of the expansion of the casual sector, providing a gateway to bring new users to the industry's more traditional products.

What could happen, however, is that the casual sector might take a few steps backwards in the coming years. If recession does bite in the world's developed economies, some of the growth we've seen in the past 36 months or so could be wiped out - perhaps even enough to trigger the games business' first overall recession.

It was inevitable, of course, that the games market wouldn't stay entirely recession-proofed forever. The end to that particularly sheltered existence, however, may be closer than many people would like to believe.

About the Author

Rob Fahey avatar

Rob Fahey

Contributing Editor

Rob Fahey is a former editor of GamesIndustry.biz who spent several years living in Japan and probably still has a mint condition Dreamcast Samba de Amigo set.

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