14 DAY TRIAL // There's no denying that the United States is in the middle of an economic downturn launched by the real estate lending crisis and compounded by the bank crisis that has seen most important financial players lose millions and even billions of dollars in bad deals and bad credit. The question is whether the videogame industry will be affected by the wider economic downturn.
Watching the February NPD data and also hardware sales related to gaming, one could draw the conclusion that the sale of dedicated gaming devices has not slowed down in the early part of 2008. Sales are up more than 18% overall when compared to the same period in 2007, a period when an economic downturn was just a prospect and not the reality it is now. And there are no significant price reductions that could justify the rise in sales. Major console producers, like Microsoft, Sony or Nintendo, do not report on the specific revenue that comes from console sales, but the number of units sold is on the rise. Analysts also believe that there are currently clear supply chain issues with both the Nintendo Wii and the Microsoft Xbox 360 and that sales will continue to rise in April and May as these issues are resolved by the respective companies.
Nick Williams, who is analyst for market research firm OTX, commented to Gamasutra that the games industry seems largely unaffected by the credit crunch, saying that: "Thanks in large part to Nintendo's ambitious mass-market strategy, the traditional gamer boundaries have officially been broken. While the expansion of the market beyond hardcore gamers has undoubtedly contributed to the record growth in 2008, these new gamers will likely be the first ones to stop buying games if they need to cut their entertainment budget."
His only immediate concern is that a lengthy financial crisis could hit the more casual gamers and that could spell trouble for the Wii, a console that is targeted more towards the casual gamer with a host of games and that put the emphasis on innovation rather than graphics or story.
A long-term concern could be the way console developers and producers rethink their strategies as a recession progresses. There was much talk on the huge development costs of current-gen consoles and how it will be difficult for Sony and Microsoft to recoup their investment. An economic recession could mean that planned expansions for the consoles, be they add-ons or full on next-gen developments, are put on hold by the companies while the economic situation sorts itself out.
Jesse Divnich, of the simExchange, believes that many other activities could get reduced monetary inputs before gamers reduce their games-related investments. He thinks: "Movies, music, theme parks, vacations and restaurants are some of the activities consumers will likely scale back on, before they cut out their video game budget, especially in the core video game sector."
But even if the end user doesn't reduce his spending related to videogames, we might see a recession effect on the side of the game companies. With escalating development costs for games, there's a chance that less titles will get financing if the economic crisis continues or even worsens. The marketing budget for some games might also be cut back and some developers might see profits slip.
But all in all, it seems that the videogame industry will escape the economic recession, that is hitting the US in particular and the world in general, with just a few bruises.