"We continue to believe that the video game software sector remains highly recession-resistant," says Pachter, "but expect more modest gains in 2009 due to a weak start and continuing difficult year-over-year comparisons."

You can believe that all you want. Meanwhile, reality will continue to hit game developers and publishers.

Why do they mention that the industry is not contracting with all the data on job losses that is available? The games they are selling now were made when employment was good. What happens when they can not pump out as many games because they let people go?

That's an interesting point, James.

Maybe instead of big, high-production titles we'll see bunch of iPhone/iTouch, PSN/XBLA, DS(i)/PSP games. According to the theory on a coming video game Renaissance, that should be the case, right?

M.,
The recession does not seem to be affecting the industry particularly heavily. There's indeed a lot of trouble at a number of publishers and developers, but it doesn't seem to actually be mainly spurred by the recession, it seems to be largely the case of existing problems that are finally coming to a head. Actual overall industry performance has not been heavily impacted, particularly compared to many other industries.

James,
I think in this context, contraction refers to the industry's performance and not the size of its employed workforce.
As far as fewer games being made, I don't think that will necessarily have a big negative impact on sales. This is a hit-driven industry--a relatively small percentage of the games end up being the ones that garner the highest sales. Reducing the total number of titles probably won't affect that very much, because publishers will likely continue to allocate their bigger budgets to the surer bets. I don't think the industry's traditional success is due to having lots of titles available; if it were, the sales spread would be more even.

Chris,

What are those existing problems? It seems obvious at this point that the game industry has been hit just like everyone else. We're looking at year-to-year double digit negative growth in an industry that had been posting growth rates in the postive double digits for the last three years.

a year or two ago ( in most industries )
CEO 'how can we improve profits?'
X 'sack 20% of the workforce'
CEO 'Im not gonna do that it will make me look bad'

today
CEO 'how can we improve profits?'
X 'sack 20% of the workforce'
CEO 'excellent, we can blame the recession, and what with everyone else doing it the media wont make a fuss'

Everything that Patcher says is geared toward guiding investors. He's explaining why sales are lower so that investors don't feel bad about throwing down their cash. It should follow that publishers and developers ought to do the things that Patcher suggests (or avoid business decisions that cause decline, according to him) in order to be successful. This is where EEDAR comes in with their research.

This is more investor fluff than it is news.