Overall Industry Measures

In August, the videogame industry eked out a mere 9% growth over the same period in 2007. In September, sales were down 7% year-on-year, due in large part to the Halo 3 effect last year.

The key question right now appears to be where will things go from here. Across a broad range of indicators, from consumer confidence to credit availability to manufacturing, the American economy is undergoing a great deal of turmoil and the key question is how much those factors will affect the videogame industry.

Analysts seems to generally agree that the videogame industry demonstrates a large degree of independence of economic conditions.

Anita Frazier, analyst for the NPD Group, says that “even looking at sales results this year when the economy has been tough, we've never seen a correlation between the economy (good or bad) and industry sales.”

That distinction appears key: there is no correlation, even when the overall economy has been strong.

She goes on to add that “there has not been any evidence of an impact on the industry from the economy so it's really impossible to say what might happen if the current conditions prevail.”

Similarly, Michael Pachter and Wedbush Morgan Securities expect “continued software sales strength through the holidays.” Moreover, “any perceptions of consumer weakness” will be erased if the market bears out their prediction “solidly higher” October sales.

This optimism also comes through in Ms. Frazier's expectations for annual sales: $22 billion. To meet that prediction, sales in the last quarter of 2008 will have to realize a 19% increase over the last quarter of 2007.

Here is one way of visualizing where the analysts feel the industry is headed. Below is a graph of the weekly revenue in each month, from May through October, for 2007 and 2008.

(Please note that the data for October 2008 is a conservative estimate of a 10% increase from sales in October 2007, which seems appropriate given analyst expectations.)

As the figure clearly shows, industry growth in October will be a dramatic turnaround given the trend from the previous three months.

On paper, October looks like a very solid month. The Xbox 360 should produce another month of very solid sales as holiday shopping begins and consumers avail themselves of the reduced hardware prices.

Demand for the Wii will again be met by increased supply from Nintendo. And there are many important software releases in October such as: Guitar Hero: World Tour (Activision), Dead Space (EA), Saints Row 2 (THQ), PS3 BioShock (Take 2), Fable 2 (MGS), Spider-Man: Web of Shadows (Activision), Fallout 3 (Bethesda), LittleBigPlanet (Sony), MotorStorm: Pacific Rift (Sony).

Obviously, the proof will come when October 2008 sales are released. If sales are flat, or down, it seems inevitable that expectations for the remainder of the year will have to be revised downward.

However, if the hardware and software drive increased sales, the industry will stand out once again for its resilience in the face of an otherwise gloomy economic environment.