Those consumers haven't disappeared, and we consider it unlikely that people have en masse turned away from video games. Rather believe that consumers are finding their gaming in other areas. The NPD Group has attempted to measure the money spent by consumers in these other areas, as part of their Games Industry: Total Consumer Spend (2010) report, the full version of which is due out in March 2011.
The figures that the NPD Group has released so far regarding 2010 provide at least one measure of where the money is going. Here is what they have said:
Consumers spent $6.3-6.6 billion in the first half of 2010 on new physical games, used games, game rentals, subscriptions, digital full-game downloads, social network games, downloadable content, and mobile game apps.
Consumers spent approximately $15.4-15.6 billion in all 2010 on those same types of content.
That annual figure reflects a flat to 1% decline over the same measure for 2009.
Taking into account the known physical retail game sales figures (again from the NPD Group), we arrive at a few conclusions.
First, consumers spent approximately $5.3-5.5 billion on content outside of new physical games in all of 2010. That represents 33%-36% of the full video game content market.
Second, we can estimate that consumers spent between $4.9-5.1 billion outside of new physical games in all of 2009, or roughly 31-33% of the full video game content market.
Those figures show that the extra-retail market is growing, but modestly. The annual rate is around 4-12%. If the extra-retail market continues to grow at a rate in this range through 2011, we can expect that that segment of the market will reach $5.5-6.2 billion.
However, there are also some parts of the NPD Group's data that make us skeptical. Specifically, if the total extra-retail market was worth $2.6-2.9 billion during the first half and only $5.3-5.5 billion for the full year, then these other areas of consumer spending don't appear to be nearly as affected by seasonality as the new physical game market is.
While it is possible that the extra-retail market that the NPD Group is attempting to measure is dominated by some forces that are not seasonal (e.g. social network games need not generate more revenue at Christmas than during the spring season), the data provided so far does not suggest as much.
For the sake of comparison, the new physical game market is heavily seasonal. According to 2010 figures, new physical software sales generated $3.5 billion during the first half of the year and $5.9 billion during the second half, an increase of nearly 70%.
There is one other point worth noting. When the NPD Group released its first estimates of extra-retail spending for 2009, it specifically left out social network games and cited a total market value of $15.0-15.25 billion. Given the differential between this result and its revised result, one arrives at the suggestion that social network games were worth about $250-350 million in 2009.
It is possible that these estimates provided by the NPD Group are the very best currently available. However, the value of social games and the non-seasonality of the revenue streams give us pause.
Therefore, we again renew our call for more transparency from publishers and platform holders, either independently or in conjunction with a third party like the NPD Group. They alone can provide substantial data on unit sales and revenue in areas like Xbox Live, the PlayStation Network, Steam, and even Facebook.
[As always, many thanks to the NPD Group for its monthly release of the video game industry data, with a special thanks to David Riley for his assistance and Anita Frazier for her helpful analysis. Additional credit is due to Michael Pachter, analyst for Wedbush Securities, for his perspective and instrucive conversations.
We also wish to thank Doug Creutz of Cowen and Company for his insights. Finally, many thanks to colleagues at Gamasutra and particularly regular commenters on NeoGAF for many helpful discussions.]