The Video Game Recession

The holiday season should be the best part of the year for video game hardware and software makers. But research firm NPD said industry sales fell 21% in December to $3.99 billion. Hardware sales dropped 28%; software sales were down 14%. NPD experts commented that some of the fall off was due to the migration of games to smartphones and other portable devices. However, this did not account for the entire drop. Games are relatively inexpensive, even for traditional platforms, so their sales over the holidays should have been at least modest.

The NPD figures can be read in two ways, and neither is good for the industry. The first is that as gamers move to smartphones they pay less for games. It is a sort of “creative destruction” as one business model gives way to another. In the meantime, revenue across the entire industry falls, which means from a sales standpoint it is a secular retreat.

The more ominous theory about the drop in game sales is that consumers felt pinched during the holidays — more than some retail figures indicated. However, when the government released December retail sales, the information showed an increase of only 0.1% to $400.6 billion. Consumer spending shows that the caution that marked the early part of the year never really disappeared.

A game console costs about $250. A game retails for $50 or so. These prices are within the reach of many American consumers. A game console is a gift that keeps on giving, game after video game. Yet, fewer people were giving them, by far, than they were a year ago.

Douglas A. McIntyre

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