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NPD: Behind the Numbers, November 2008

December 15, 2008 Article Start Previous Page 3 of 7 Next
 

Economic Conditions and Growth

There are several facts which deserve careful consideration when assessing the current videogame industry.

  • Consumers are extremely pessimistic about the current economic outlook, according to the Conference Board Consumer Confidence Index. The Index reached a record low in October 2008.

  • The National Bureau of Economic Research has determined that the American economy has been in recession since December 2007.

  • Despite those factors, the videogame industry is still growing, up 22 percent for the year and up 10 percent in November alone.

The conventional wisdom holds that videogames as a medium offer a significant entertainment-to-dollar ratio compared to alternative media, and therefore the videogame industry may survive or even thrive while others struggle through hard times.

So the correct question to ask is not "How can the industry possibly still be growing?" but rather "How robust would the growth be if not for the poor state of the economy?" That is, if the industry can manage 10 percent growth in the midst of the worst economic downturn for decades, what could it be doing if consumer confidence were higher, unemployment were lower, and the credit markets were functioning properly?

Sony in a Pinch

Moreover, it is clear that not every player in the videogame market enjoys the same warm consumer reception. Sony's situation in particular is worth examining.

Sony is still trying to make the PlayStation 3 business profitable and start paying off the costs of developing the hardware. Its software sales are strong, despite weaker hardware sales, but both will need to improve significantly, and soon. Given Sony's ironclad devotion to profitability in the near term, the quickest route to higher PS3 sales -- a price drop -- simply is not feasible.

As an alternative, Sony could publish a must-have software title that attracts more consumers willing to pay the price for its hardware. Short of Metal Gear Solid 4 in June 2008, it would appear that no exclusive software has really driven hardware sales. Even Sony's flagship holiday title, LittleBigPlanet, only managed 141,000 units during November.

The PSP hardware business is actually robust and profitable, even though November hardware sales were down year-on-year. Software sales are still miserable. Until it finds a way to monetize the PSP market, Sony will never begin to make the kind of money from its handheld that Nintendo makes from its Nintendo DS.

For its part, the PS2 is still selling well in its ninth Christmas season, but is slowly fading out. Two years ago, or even a year ago, Sony might have been able to point to the PS2 as a solid source of revenue while the PS3 was finding its footing. That is less feasible with each passing month.

If Sony can find solutions to its PS3 and PSP problems (price reduction for the former, much greater software sales for the latter), then it should compete well against the Xbox 360 and Nintendo DS in 2009.


Article Start Previous Page 3 of 7 Next

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