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Video game retail sales declines are finally slowing down - sort of
Video game retail sales declines are finally slowing down - sort of Exclusive
September 25, 2012 | By Matt Matthews

September 25, 2012 | By Matt Matthews
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    30 comments
More: Console/PC, Business/Marketing, Exclusive



For a while now, I've been harboring the notion that the retail video game industry isn't so much in utter collapse as retreating quickly to a lower steady state.

In a sense, the industry was running all-out for a few years when newly initiated video game consumers were flush with money and demanded Wii games and music games as fast as they could be delivered, all atop a bedrock level of sales to the heavy-spending veteran consumers. When consumer interest shifted, that easy money fled and much of what remained was that veteran bedrock.

Below that level, I believed, sales were unlikely to erode further until a new generation of hardware ushered in day-one access to new releases as digital purchases. Then, perhaps, retail would reset to yet another lower level, perhaps one that would persist for several years.

So, when the UK and U.S. retail software markets seemed to fall off a cliff last July and August, I looked forward to full results for those months this year. Perhaps, if my guess were right, we could see the market level off.

In the UK that kind of did happen, since every month this year had seen a 25 - 38 percent decline for software at retail, but then in July the market was down only 20 percent and in August that improved to a decline of a mere 7 percent. This is illustrated in the figure below.



What happened in the UK to cause the turnaround? Consumers snapped up a sequence of big releases including Sleeping Dogs (Square Enix), New Super Mario Bros. 2 (Nintendo), LEGO Batman 2: DC Super Heroes (Warner Bros. Interactive), London 2012: The Video Game (Sega), Darksiders II (THQ), and Guild Wars 2 (NC Soft). Of course, the launch of New Super Mario Bros. 2 roughly coincided with the launch of the new Nintendo 3DS XL model, so that also probably helped boost Nintendo 3DS software sales in general.

Let's be clear, however: so far the rate of descent has slowed dramatically. The UK retail market is still contracting, but it's no longer in the terrifying free-fall we've saw for the first six months of the year.

In the U.S., however, the effect of leveling off isn't as pronounced. Just look at the graph below and compare to the one above for the UK.



With the exception of May which had sales down only 16 percent, every month prior to July had seen sales down between 24 and 42 percent, much like the UK market. However, the market was still down 22 percent in July and 12 percent in August.

I believe part of the difference we're seeing is the way in which Sleeping Dogs was received by the two markets. While Darksiders II did sell well in the UK, I believe it was still outdone by Sleeping Dogs in that region. In the U.S., where we only have monthly software rankings, Darksiders II sold 247,000 units, far better than the 172,000 units for Sleeping Dogs (all according to the NPD Group's retail estimates). We certainly can't attribute the difference to one being on the market longer, since they launched on the same day. It's true that the Microsoft Windows version of Sleeping Dogs wasn't released at retail in the U.S., but I am not convinced that that version alone would have made up for the difference.

We won't know for a while yet, but I also think it's possible that the Nintendo 3DS XL might have had a warmer reception in the UK that it did in the U.S. We can look back at that question when Nintendo releases some global sales figures in a little over a month.

I think I need to amend my notion of a new market reality with another idea I've discussed previous in my column: this is increasingly a hit-driven industry. Clearly Sleeping Dogs and Darksiders II, among others, didn't have the same kind of hit status in the U.S. market that they had in the UK market, so sales haven't been as robust. When titles that do interest the U.S. market return, so will the sales.

Which brings me to September. In a few short weeks we'll be looking to see how September fared, and I suspect that there will be a lot to discuss about the retail market.

The weekly results so far in September in the UK are dreadful. The first full week in September was reported by MCV UK as the worst week on record, with retail software sales of a mere 7.8 million. Then the very next week was worse, with sales of a mere 7.4 million. If sales for the two remaining weeks are equal to last year's sales, then the month of September will be down nearly 12 percent. That's hardly reassuring, but still better than the 30 percent declines of earlier this year.

Fortunately, these aren't just any two weeks. Already Borderlands 2 (2K Games) is off to a great start and Pro Evolution Soccer 2013 (Konami) has charted already, with FIFA 13 launching in a few days. In the U.S., not only will those games be on the release list for September's sales, but also two more EA Sports games: Madden NFL 13, which came out at the very end of August, and NHL 13. The sports games have built-in audiences, and should do well. In fact, EA has been quick to point out that NHL 13 is outselling last year's edition.

Borderlands 2, the sequel to the 2009 hit, has reviewed exceptionally well so far and has a lot of positive word-of-mouth. Given that the first game sold over 500,000 units in its first month as a practically unknown quantity, I see no reason that the sequel's first month of sales won't be two or three times larger, at a minimum.

But, of course, I'm too conservative by nature. When I asked industry analyst Michael Pachter of Wedbush Securities for his take on launch month sales for Borderlands 2, he put the number much higher: 2.8 million. That would be fantastic, really, and wouldn't count the people like me who opted for the digital release.

After months of doom piled upon doom, a multi-million hit like Borderlands 2 leading in a month packed with other big games is just what the market needs.


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Comments


k s
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I've been saying for quite a while that when the super casual players (who artificially inflated the market) lost interest in the Wii the retail sales plummeted and are now returning to more natural levels.

k s
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Cameron to them gaming was a fad nothing more, the traditional market cares more about gaming as a whole and will not just buy a game cause it's a game.

Josh ua
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My parent in their late 50's, who are the last people in the world to play video games, bought a Wii to play bowling and Wii Fit. They played with us kids and some of their friends. Guarantee they will not be buying another console, since they barely played their Wii. Yes it was a fad for many people, then they realized they aren't gamers. People often get caught up on the latest toy to have.

Michael Joseph
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"Elitism is always a sign of decay."

I bet you can not explain to us why that should be true and have it still make sense in the context you used it.

Adam Rebika
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@Cameron
By artificially inflated, I think he meant that these casual players are a whole other market, but since their sales were registered in the same numbers than the core market, people felt that said core market actually grew bigger.

Russell Carroll
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"the traditional market cares more about gaming as a whole and will not just buy a game cause it's a game"

As yearly Madden and CoD sales prove!
...no wait that didn't prove what I wanted.

I know!

There must be a market that is a sub-section of the traditional market, but not the traditional market such that it includes people who don't just buy a game b/c it is a game. What can we call that market so that we can feel distinct from the subset of masses within the larger set of masses that we want to distinguish ourselves from? Then we can use that term and not feel elitist!

Michael Joseph
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@Christian Keichel

I got that you were calling another poster an elitist for expressing his views, what I don't get is how him expressing his views (be they "elitist" or not) is a sign of decay of anything. And your meandering explanation did nothing to change that.

And your suggestion that some genres dont do as well as others in the marketplace because of prevailing elitist views ("went into elitist oblivion" as you say) is the kind of argument one starts making when they have no argument.

Further, it's beyond ironic to start labeling some gamers, developers or game critics as elitist and others not. Talk about splitting hairs! lol I'd be much more receptive to a discussion about cultural decadence and decay as it relates to frivolous leisure activities by mainstream society and the people who promote those activities during a time when the culture is beset by major problems.

Uzoma Okeke
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"...when the super casual players (who artificially inflated the market) lost interest in the Wii the retail sales plummeted and are now returning to more natural levels."

And all this time I just thought that the core consumer had a harder time to afford their cost of living so they were becoming more consciously aware of their purchases, and would rather not buy a game that they can't guarantee won't be collecting dust in their collection while they focus on reality. Hmmm.

Michael Joseph
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@Christian Keichel

It's not meant to be ironic. I simply mean that such an argument would be more consistent than the one you've attempted. Because trying to split video game critics (specifically critics who like and play games) into elitist and non elitists camps is rather rediculous to me.

Gamers or game developers citing what they perceive to be qualitative differences between different types of games or gamers has nothing to do with snobbery or elitism. To accept otherwise is to accept that McBurgers are as equally good as a porterhouse steak and that the people who disagree are elitists.

Kristian Roberts
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"and wouldn't count the people like me who opted for the digital release."

Really, I think for this analysis to be truly reflective of the overall state of the industry it needs to include digital sales figures -- and DLC revenues for that matter. (Yes, I understand that those data are not easy to come by.) Are these segments also declining? Are they growing? If so, how much does that growth offset the decline in retail sales? The answers to these questions would be far more telling that an examination of retail sales.

Also, I think that it is an (increasingly egregious) error to conflate the "video game industry" with those games that happen to be sold in physical stores.

That's not to say that retail (i.e. physical sales) aren't interesting, but they present an increasingly incomplete (and potentially misleading) picture. Without such a fully rendered image, it will be hard to know if the sky is, in fact, falling.

Groove Stomp
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I fully agree with your first paragraph. I only buy games through Steam now. Literally.

Joe Wreschnig
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I too see a healthy, bright future for the industry when there is only one retailer left, and they are also an indirect competitor to every publisher and developer selling through them.

Joe Zachery
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Are will still blaming so called casual gamers for the decline of the market? Let's look at every release this year on all consoles. Where the so called hardcore gamers tend to play their games, and make their purchases. All the games are way down, and in some cases completely bomb! If you look at the games that came out last month for example Sleeping Dogs, Darksiders, and Transformers. The fact that those hardcore AAA releases on Hardcore HD consoles didn't sell at least 500,000 copies combined is real issue. There are about 60 million HD consoles in the US. We have been told that those are mostly hardcore gamers who consistently buy video games. How can out of 60 million only 274,000 of them buy a sequel to a game. They seem to buy a lot of in the past? People are not buying games plain and simple. Stop placing the blame on the people who didn't care to begin with. Start blaming the people who said they were the only ones who actually cared.

Bob Johnson
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Amazing isn't it.

k s
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If by hardcore you mean the CoD/Battlefield/etc crowd then yes I totally agree otherwise I disagree.

Dave Smith
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i dont think AAA is about quality. its mostly about budget and production values. but it depends on who you ask.

Joe McGinn
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Sleeping Dogs is every inch a AAA game. It's got better gameplay than GTA IV (and I *loved* GTA IV). Joe Z's point is entirely valid - to blame this on a loss of just casual gamers is an excuse, and a dangerous one at that, that denies the reality we are losing some of our core audience.

Johnathon Swift
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Sure sure, Borderlands 2, AC3, Halo 4. They'll all pile it up along with new IP that will do "better than expected" like Sleeping Dogs and Dishonored.

Up and down and all around the games industry goes. Winners and losers abound and round, and where it stops, few people know. But it's not like people are just going to STOP buying games. At least, not quite yet. Maybe if and when the US gets into the same absolute and total decades long funk that the Japanese industry has we'd have gotten there. But with things like Kickstarter and people like Peter Molyneux and Gabe Newell still here we're not going to get there yet.

Freek Hoekstra
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also this is hardly surprising, the industy has relied on part X for years and really innovation on gameplay level has been scarce this whole generation (aside from motion control something that has only appeared super successfull in the (fleeting) casual market.

and to make matters worse this generation is outlasting every generation before it, with also the next gen possibly not bringing huge inovation capabilities, (where we with twice the power used to make a huge leap in graphics and gameplay we can now put 10% more polygons on screen and slightly better shaders...)

we need technological and gameplay breakthroughs to keep people interested, and I do hope that a lot of the casual market will slowly joing the more hardcore markets also with free 2 play helping to lure them in (even into hardcore games/communities like league of legends)

however we do need to realise that there is a cap, at some point there will be little to no growth and untill next gen hits we have probably hit that level.
and this might be a good thing, cause now we finally get to put our money on innovation and fun instead of shinier polygons.

David OConnor
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Do these figures include online download sales, like Steam and Origin? If not, I would suggest that the reduction in sales is about what I'd expect as PC customers switch to buying downloads. Overall, I'd suggest that game sales are increasing, but physical sales are decreasing.

I haven't bought a game from a physical retail store for more than 10 years, though I have a big Steam library.

Robb Lewis
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The article indicates these are NPD numbers (2nd para below US chart) so they do not include digital downloads, subscriptions or other pure digital transaction. I commented on this when venture published their story on the report -

"While HARDWARE and PHYSICAL BOX SOFTWARE at U.S. retail has declined 20% in August from $646 million to $516 million that is only about 50% of market and excludes the rapidly growing digital commerce segment.

NPD also estimates digital format sales (see footnote) of games reached $391 million in August. The confluence of consumer preference shifting to digital and games shifting business models to F2P microtransactions is helping propel digital growth. "

NPD classifies digital format sales as: Full game and add-on content downloads, microtransactions, subscriptions, mobile apps, and the consumer spend on social network games.

link to source article - http://robblew.tumblr.com/post/31150235655/videogames

Matt Matthews
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Robb: The digital side isn't really the focus here. The focus of the article was that retail might finally be contracting more slowly. Any trend in digital, unless somehow specifically correlated to this, is kind of beside the point.

Kristian Roberts
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@ Matt

With respect, I disagree. While your article does clearly discuss the "retail video games industry" it goes on to use retail sales as inidicative of overarching industry trends. For example: "this is increasingly a hit-driven industry" I imagine you're talking about the whole industry, not just what Walmart and Game Stop are up to.

I don't think that you can draw any such conclusions without considering the entirety of the business models associated with the games you discuss (i.e. the "digital side"). In fact, unless you're talking only about the retailers and the effect that this decline might have on the distribution channel (e.g. if GameStop was closing stores), the conclusions are incomplete. Retail might be leveling off, yes, but the "so what" of it all (i.e. what does this leveling off tell us about the wider games industry?) would seem to require a more complete picture. (Again, unless we're only talking about the effect on retailers themselves or on the distribution channel.)

Beyond that, I would imagine that any analysis of retail sales decline (or leveling off) should at least account for whatever shift is occuring towards digital distribution. For example, a slow in the growth/adoption of digital sales might logicaly contribute to a slow down in the decline of retail sales.

Dave Smith
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arent there fewer games coming out now as well? this is rarely mentioned as a factor.

John Gordon
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There are fewer games, because there are fewer companies making them. This is the real underlying problem. Too many companies have gone under this generation.

E Zachary Knight
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John,

Part of why that happened is because of too high cost, too high risk and too little return on development. When a game costs $30 million to make it needs to sell multi millions in order to break even. If it can't the developers get canned. Sucks.

Of course this is also part of the reason for the Mobile and Kickstarter boom we have going right now.

Dave Smith
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most of these games were in development for years. did other companies predict the sharp fall off?

Robert Swift
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People are simply bored of the current console generation. Games don't really look any different from 1, 2 or 3 years ago and gameplay is the same as ever anyway. More exciting stuff is happening somewhere else, that's there the money goes.

And if you can get decent entertainment for much less money or even for free somewhere else why spend $60US on something you have seen and experienced 10 times before already?

Robert Swift
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"I would argue that for $60 dollars, you would hope to buy something more entertaining than a free flash game."

Sure, but the price is judged in relation to similar items. The cheaper you can get something similar (albeit not as refined and luxurious) the more expensive it looks. And nowadays you can arguably get more decent entertainment for small money than a few years ago.

Patrick Roeder
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Lets look at the film industry at the tail end of the 60s. 3 hour epics (Ben Hur, 10 Commandments....) and Musicals (Sound of Music....) were becoming uninspired. The audiences quit paying for movie tickets. It wasn't until a movie called Bonnie and Clyde came out in 68 that things changed. The movie was an example of Artistic Direction and Risk Taking. It is looked at as the catalyst for the Hollywood Renaissance of the 70s. Production companies started taking more chances on auteur cinema. This risk taking lead to some of the best movies ever seen and the rise of many, many actors.

Lets hope our Video Game Renaissance is coming soon, because I feel our FPS's and MMO's have become uninspired.


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