Following the Money: An Economic Look at the Widening Games Audience

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Following the Money: An Economic Look at the Widening Games Audience

Mon, Jun 30, 2008

It would appear that we, as a society, are right to worry about the gaming behemoth seizing our children and overtaking society: We seem to be spending more money on games than ever before. In a press release issued this morning, market research firm DFC Intelligence made another optimistic proclamation about the health and future of the video games industry. Running contrary to overall concerns about our ongoing recession and economic woes, the game industry appears to be immune, continuing to experience strong, growing sales for both hardware and software. DFC is now predicting that, in 2009, interactive entertainment will see revenues of $57 billion.

DFC's predictions are even more optimistic than those of other industry analysts. Two weeks ago, professional services firm PricewaterhouseCoopers released a report on the games industry, estimating "a compound annual growth rate of 10.3 percent" based on 2007's global sales of $41.9 billion, which would see the industry reaching $68.3 billion by 2012. DFC's estimate for 2009 outpaces the 10.3% growth by $8 billion for that particular year.

The US market, examined on its own, has analysts predicting even bigger growth. The NPD Group, just this month, claimed the industry was "on pace to bring in revenue between $21 billion and $23 billion for 2008." This would represent an increase of 16-27% over 2007's $18 billion, which was itself a phenomenal 43% jump over 2006's figures of $12.5 billion. The NPD Group, for that matter, doesn't even take PC gaming into account in this particular report, making its figures decidedly conservative.

Pile of Cash No matter whose figures you use, the game industry is doing quite well, it would seem. It raises the question, however: How is this possible? Where is the money coming from? Here's a few more figures to eyeball: The average individual income in 2006 was $26,036. This was an increase of only 5.5% over 2005's average of $24,672, which was in turn a 4.83% increase over the 2004 average of $23,535. It's nice, of course, to see incomes going up (setting aside the problem of whether those increases are on pace with higher costs of living). But, even the most conservative estimates for the game industry's growth are nearly double those of our abilities to spend.

The reasoning, therefore, seems obvious on the surface. A fixed audience spending a fixed amount of money doesn't equal a growing revenue stream, and if the amount of available money per consumer isn't going up, then the number of consumers must be. As grows the expected sales for the game industry, we should expect to see the audience of active gamers growing at a nearly parallel rate. Entertainment-seekers, both domestic and abroad, are increasingly turning to games as the recipient of their disposable income.

Analysts seem to be at odds with one another regarding the reasons behind these patterns -- DFC's David Cole cites gaming as the poor man's ideal outlet for entertainment value, stating that "the game business seems to actually benefit from a recession because games are a relatively cheap form of home entertainment." Cole points out that a $60 game can provide countless hours of use, giving it an extremely attractive value over a two-hour movie or a day-long trip to an amusement park, or even simply going out for dinner.

Wedbush Morgan's Michael Pachter, on the other hand, seems to think it's the wealthy who are driving game sales. Speaking with GamePro, the analyst asserted, "Only wealthy or hardcore gamers have purchased consoles so far, given that the PS3 is still $399, the 360 is still $349, and the Wii is still $249. When prices drop below $200 (probably in 2010), the mass market [for 360 and PS3] will emerge." Pachter is also on record as predicting at least a minor price cut for both the Xbox 360 and the PlayStation 3 by the holiday season, yet even the pre-price-cut consoles have fueled enormous growth for the industry, as evidenced by the above figures.

Money Cat The key factor in these seemingly opposed viewpoints is that they are not mutually exclusive. Both Pachter and Cole's predictions are well-taken, and each one seems to speak to an equally vaguely defined half of the gaming audience -- the "casual" gamer, with cheap, innovative games he can enjoy on his Wii with the whole family, and the "hardcore" gamer, eager to show you each individually-rendered hair on Niko Bellic's head on his 54" HD screen. It's becoming clear from the staggering growth in nearly every sector that there's room for everyone's money. Continuing the argument over which audience publishers ought to be catering to is a pointless exercise.

The analysts themselves note as much in their statements. Cole, speaking in the DFC Press Release, reminds Wii worshippers that there is still a healthy hardcore market at work:

"The Wii does not appear to be a fad and it has the chance to be one of the best selling systems of all-time," says Cole. However, that does not mean the other systems will not do well. The Sony PlayStation 3 is expected to equal the Wii in annual software sales by 2012.

And Pachter is only too happy to remind vocal hardcore gamers and enthusiast websites -- bluntly -- that it's not just their playground anymore.

Pachter said that's not all there is to it, pointing to Nintendo's success in a mainstream market most gamers are less aware of. "There really are people who play games that don't read Kotaku - I know it's hard to believe," he said. "There are people out there who don't even know how to spell Kotaku, and don't even know that there are websites dedicated to games."

With the worldwide gaming audience growing every day, it's only sensible that a broader array of diverse tastes will be catered to by a thriving market. One should expect to see volumes of new games to continue to fill store shelves -- and for publisher pocketbooks to swell as more eager gamers arrive to snatch them up. The day may even already be upon us when we have too many games to know what to do with.

What a tragedy, eh?