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Not even November can save U.S. game retail now
Not even November can save U.S. game retail now Exclusive
November 12, 2012 | By Matt Matthews

November 12, 2012 | By Matt Matthews
Comments
    38 comments
More: Console/PC, Business/Marketing, Exclusive



Last week the NPD Group released its latest estimates for the retail video game market in the United States, and for yet another month both hardware and software sales were down. For those who watch the market, this came as practically no surprise, but it was still disappointing.

In the 44 months since February 2009, when this long term contraction began, the retail software market has shown year-over-year growth in only seven of them. The last month of growth was a year ago, in November 2011.

You might recall that I thought retail had hit close to the bottom, and that the declines might moderate. It was a moment of positivity, searching for a glimmer of hope in what appears still to be a market in free-fall. I'll try not to let such reversed optimism happen again!

So, let me discuss what happened in October, really for the year so far, and use that as a lens through which we can estimate where things will end up for the year. I'll let you in on the punchline now: November and December won't turn the year around, and by practically every measure this will be the worst year for retail since 2006 (as suggested in this column from six months ago).

Hardware

The best news so far this year in hardware is that the Nintendo 3DS has outsold its total for the same period last year. Regrettably, even this isn't actually good news because the 3DS was only available for eight of those ten months last year, and since August of this year its sales have been down year-over-year on a monthly basis.

Everyone else is down for the year, including Microsoft's Xbox 360 and Sony's PlayStation 3. The figure below presents this year's hardware figures compared to last year's, shown in shadow.

While the Xbox 360 has been the lead console at retail for 15 months now, it has still seen a very steep contraction in sales this year. In absolute terms, the Xbox 360 is down more this year than is the PlayStation 3 (down 1.2 million to the PS3's 0.66 million). It's also worse in relative terms: 31 percent to the PS3's 25 percent.

Unless Microsoft's hardware and service plan really takes off in the next month, this will be the worst year for the company's console since 2009, the year prior to the introduction of Kinect.

Every hardware push that the industry has tried in the past couple of years has run its course. Sony's Move system has only token support while Kinect is simply another part of Microsoft's shrinking monthly hardware sales.

Nintendo's revamped Wii with a lower price and new bundles doesn't appear to have much traction in the market (which should come as no surprise). And Sony's handheld is just now crawling across the 800,000 unit mark and probably won't make it to a million by year's end.

With the exception of the Wii U, due out in a week, there simply isn't anything exciting consumers and bringing them out to buy new models of old systems. There are several Black Friday deals worth watching, including a PS3 bundle finally hitting $200 and a Skylanders Xbox 360 for $150 (as I've been suggesting for months), but those will only provide modest relief in November. Microsoft will also probably see a modest bump from its Halo 4 bundle, but those sales will be difficult to discern from public data amongst all the other November sales.

Looking out into the coming year it appears that the next 12 months will be just like the last 12, since Sony and Microsoft have made no public moves yet that suggest they will bring updated systems to the market any sooner than November 2013.

Software

Of course, once a company like Nintendo or Sony or Microsoft has gotten a consumer to buy a console, they fully intend to make their profits by selling that consumer as much software as they can. And, unfortunately, consumers simply aren't doing that like they used to.

The figures below show just how dire the situation has become this year at retail. First, we can look at the market in terms of revenue, and the picture looks like this:


Yes, you're reading that right. The total value of the January through October video game software market has shrunk by nearly 46 percent since 2008. For every dollar made during the heyday of the market, when Wii Play and Guitar Hero made regular appearances on the software charts, the industry is only generating fifty four cents today.

Because software sold for a slightly higher average price a couple of years ago, due in part to the higher prices of software bundled with guitars and balance boards, the decline in units is not quite as steep (only 41 percent), but it is still shocking. Just look:


The industry is just now getting to 100 million units for the year at the beginning of November, according to my estimates. In previous years that milestone was reached as early as the first week in July.

In previous generations, I believe there have been contractions in the lull before and during the launch of a sequence of new platforms. However, I don't believe that the industry has grown during a generation and then returned to its starting size at the end of that generation - until now.

It's long past the time when the industry should be asking if retail will ever rebound. It won't.

If the Wii U does well and if Microsoft and Sony both introduce successful hardware iterations next year and if those systems all continue to lean heavily on retail for software distribution, then maybe in two years the retail software industry could return to the same $10 billion level it had in 2008.

But, really, do you expect all those ifs to go the right way for that to happen? I didn't think so.

The November Singularity

Now, having looked at the January through October sales, I know what some of you are thinking: What about November and December? After all, those are the two biggest months of the year at retail.

And, yes, they are important. In fact, one interesting dynamic that I've not written about before is the increasing importance of November and the diminishing importance of December.

Going back as far as 2006, software sales in November have generally been increasing. However, starting in 2009 and the launch of Call of Duty: Modern Warfare 2, we have seen December's software sales decline year-over-year.

With the Call of Duty franchise generating 30 percent or more of the software revenue and unit sales during just the month of November, and Activision Blizzard's focus on pre-orders and day-one sales, it's no surprise that the growth of that series has helped drive up November's numbers.

The confluence of Call of Duty: Black Ops 2, Halo 4, and Assassin's Creed 3 this year could help continue that trend of increasing November retail sales, and we could see December lose its title as the biggest software month of the year, at least in terms of dollars. The figure below shows just where things have been doing for the past several years.


The twist is that I think the middle of the market has hollowed out enough that November will show a year-over-year decline. Analyst Doug Creutz of Cowen and Company recently commented that last year there were seven "core gamer (non sports) titles shipping after Labor Day that went on to sell more than 4 million units" across the U.S. and Europe. Those titles were Gears of War 3, Batman: Arkham City, Battlefield 3, Call of Duty: Modern Warfare 3, Skyrim, Assassin's Creed: Revelations, and Saints Row 3.

This year, he expects only four such titles, including Borderlands 2, Assassin's Creed 3, Halo 4, and Call of Duty: Black Ops 2.

Some of this is due to the flight of some games out of the last quarter of 2012 and into the first quarter of 2013 (for example Bioshock Infinite), but some of it is the decline in the number of titles publishers have been releasing. This phenomenon isn't new (I've written about it before) but it is ongoing and will continue to exert downward pressure on retail sales.

So even if Call of Duty: Black Ops 2 and the other top-tier releases sell up to expectations, I suspect that there won't be enough of a middle tier to push November sales higher than last year.

And when that happens, when November shows another year-over-year decline, the industry will have finally gotten a full year of uninterrupted contraction. Add a December decline on top of that, and you have the making of the retail industry's annus horribilis.

Perhaps that is what it will finally take to encourage publishers and other outlets to begin publishing digital sales figures at least in the very modest detail we get for retail. Even if digital distribution revenue isn't keeping pace with the decline at retail, it would help soften the image of a physical market in freefall.


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Comments


Kim Pittman
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I am very curious how many people are like me... Just this past year I finally joined the Steam bandwagon. I have had Steam since 2005, BUT I generally like buying games at Retail. Just this past year though, I have gotten sick of the massive number of games, movies, and tv shows piled up around my apartment and have moved to buying digital for everything but my very favorite stuff. Meaning most of the games I buy I have started buying on Steam. At least half my purchases this year have been digital instead of retail.

It's possible that a large number of gamers are jumping on the Steam bandwagon, since it means not having to hunt through stores, deal with pushy clerks, and such. Even Blizzard offered Digital Downloads for all of their big releases this year.

Eric Geer
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I joined this bandwagon this year as well. For movies/tv/cds for the most part---Between netflix/amazon video I have no need for DVD/Bluerays to be sitting around and have no need for cable. I've burned all of my cds and sold them. After my last move, I realized that I just don't want as much physical stuff sitting around that needs to be unloaded or packed. I buy lots of games via steam, but I still buy PS3 games physical, because I do enjoy the benefits of trading in games. I've definitely been making a shift for most of my media to digital.

Jeff Murray
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1. Most of us with an internet connection have moved on to digital, except when it's a brand new game not available online or if there's a sale on at the shop. Digitial is more convenient and more importantly there tend to be more good sales online than in stores (the Steam summer sale, Green Man Gaming etc.).

2. Pretty sure I watched about 7 of the same console game trailers for different games this summer (from the major publishers).. each one swearing profusely and demonstrating amazing ways to kill, stab or shoot something. Given the gutter-level entertainment they're selling (Far Cry 3, Bioshock 3, Saints Row 12, Tomb Raider 8000 etc.) is it really that much of a surprise that the grown ups aren't going out of their way to buy all that crap any more?

3. Are we going to use this as a lame excuse to increase DRM next year? I'm actually impressed we had an article about flagging sales that didn't even mention piracy once!! ;)

William Johnson
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Piracy is kind of an nonissue now. With Steam and GOG taking off, and a few other distribution services growing, its just easier to buy your stuff legit then it is to put up with trying to find a safe torrent and cracking DRM.

With that said, used games was the new scapegoat just a little while ago. But that's also stupid, since a company like Gamestop makes most of their money from used game and their stocks are falling and sales slowing. So used games aren't taking a bite out of new.

Eric Geer
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"...each one swearing profusely and demonstrating amazing ways to kill, stab or shoot something. Given the gutter-level entertainment they're selling (Far Cry 3, Bioshock 3, Saints Row 12, Tomb Raider 8000 etc.)"

I agree with this to an extent. I personally don't mind the gutter-level entertainment so much..but there is such an abundance of it, that none of it is really special anymore. It used to be sparse, and special when a "violent" game came out...it drew attention. Now it is the norm and the special games that don't include the violence but include great gameplay and mechanics are the better sellers.

But even the games that you mention--such as Tomb Raider--as much as there was shooting and action in Tomb Raider previously..it was never really violent. They have taken this new one and made it extremely dark and violent, rather than sticking to what the game was known for was exploration, and puzzles. The violence was a result of areas explored, rather than the draw of the game.

^This is how I see a lot of reboots and new franchises as you have mentioned. The new techniques/mechanics are based on more amazing ways to kill rather than amazing ways to solve puzzles/platform/explore.

Addison Siemko
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Thanks for the report, Matt.

I never thought to ask before, but your software numbers include used sales, correct? Simply ALL software reported at retail?

Ken Kinnison
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We're also getting overdue for a new console cycle.
That said, the 'core' demo doesn't strike me as underbuying, so why the drop? Have the inroads from wii and kinect with more casual gamers fallen down a bit?
I don't buy that hardcore is 'dying but does gaming allow for a cottage industry that caters towards hard core?

Michael Rooney
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@Christian: Madden and Halo have both had record sales recently.

Elizabeth Boylan
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2013 will be worse for everything commerce. It's the market, it's globalization and for game development there's a degree of technology disruption with mobile games and smart tvs. I think we're in a decline toward a valley of zero growth in sales numbers for games, then things will begin to pick up when the overall quality improves for casual games and the weak holders aren't able to sustain themselves financially. But I agree with Jeff, there's too much of the same violent games being produced by major publishers. People need cultural and artistic diversity to remain entertained.

TC Weidner
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Japan, and europe in recession, the US likely to double dip in 13, what do you expect?

Johnathon Swift
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Actually the US might be fine... but big ticket items like triple A games get hammered while "cheap" entertainment like movies goes strong it's true.

Zirani Jean-Sylvestre
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Just a little precision, it's video games retail market that is experiencing a nose dive.

It would be interesting to see that YoY result for social, digital sales including iOS games.

TC Weidner
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I would think once digital revenue is factored in, YOY is nowhere near a 25% decline. It continues to astonish me however that some in this industry think the greater macro economic factors somehow dont effect gaming.

kevin Koos
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I think there has been a lot of fads driving sales this gen. I dont mean that in a bad way. The Wii brought in a bunch of non typical gamers, then the rock band/guitar hero pulled in more casaul gamers, kinect and also the dance games. Basically all these fads have past and nothing new in terms of innovation plus the iphone ipad effect. Nothing really suprising I cant make a case to buy these systems, i think the market is pretty much saturated.

Alan Barton
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I suspect this decline is caused by a number of reasons combining. Possible contributing factors could be:

1) The recession is still hard on a lot of people, so they are cutting back on what they buy this Christmas.

2) The existing console market could be reaching user saturation point and new consoles were helping to drive extra software sales as people wanted new games for their shiny new consoles.

3) All the free to play games are together using up a lot of players time, without earning as much money *in total* as all retail sales of all games. So the free-to-plays are earning money, but not as much to make up for the looses at retail. (Free-to-play are also a race to zero to give more and more away to attract user numbers to their game and its also a race to flood the market with more free-to-play games and so diminishing returns as more games compete with free stuff).

4) Mobile gaming on phones are also using up a lot of gamers time and on Android they are almost all advert funded, so all of these also won't show up in retail figures.

5) We also don't have enough digital sales figures to make a clear estimate of how much digital sales are impacting retail.

6) Plus shops like Game closing in the UK haven't helped retail sales, as fewer retail outlets.

Its very likely some combination of these kind of factors. The question is what we do about it as an industry? Where will the growth come from?

Michael Rooney
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On 3 and 4. Neither of those are reported as retail sales regardless of how they make money. I don't think online sales are either.

That's a serious oversight imo. Consider that a game like League of Legends has 30 million monthly active users and is growing. I'm sure Riot would have a different view of the "declining" video game market.

http://ca.ign.com/articles/2012/10/15/riot-games-releases-awesome
-league-of-legends-infographic

Cordero W
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I'm going to give my reason why I haven't bought a single game in months after Dark Souls.

Because there is no game to challenge my age group/ experience. In addition, there is no game to make up for my lack of games I use to like, such as Donkey Kong 64, banjo Kazooie, you know, the games I grew up with. I also grew up with the good games of Final Fantasy and the mana series. Seeing the direction Square took with those games has pretty much made my experience in continuing to play them gone. The same is for what happened with Kingdom Hearts 2. There was no 3, so nothing else for me to continue off of. I chose to not touch the spin offs.

I, and likely others of my generation, are hungry for the same-ole experiences we had when we were growing up, no matter the genre or gameplay. But because the industry caters so much to the curren generation, we're actually left out and only left to compromise for the experiences of today. Mario, Zelda, Final Fantasy, and a few others did not grow up with us. We grew up, but those game experiences either remained at child level or did something different. What the industry lacks is a scaling factor to keep adults entertained. CoD and games like that are easy to keep an adult's attention: it's simple and offers a burst of entertainment. But after that, you get nothing.

Then came something like Dark Souls and Yakuza 4. These games really captured my interests hard, which shows that I still crave video games, but ones more catered to my more mature mind. I don't want a click and play experience like Heavy Rain, but something...it's hard to say. I hope someone else understands where I am coming from.

A W
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I think the production levels for making a game are out of control on the computer / console front. I would think that tech on the graphic level has gone so far that a developer could place a good cap, develop a game at a reasonable production level, and sell it for a modest to hefty gain in revenue. What seems to have happen though is that the bigger better strategy has enveloped the merits of what a good game is and how good it looks should merit if it sells well. But as we see with big AAA developers this is not the case, and so creativity becomes too risky. With that risk we see studios becoming financially unstable and eventually closing up shop.

Johnathon Swift
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Another 83' like video game crash, and it's about time!

The all controlling publisher model, putting out nothing but the same game every year is terribly broken. To continue making video games with these kind of budgets new models of publishing, and new studio models are going to be needed. We've tried carrying over a similar business model for the past ten years even as game's budgets skyrocketed. The business just hasn't adapted.

But it can adapt! Hollywood makes as much and more money, on bigger budget projects every year. And they don't have people quitting in disgust, or tales of gross abuse, and rarely have producer barging in and screwing something up. Heck producers often save more projects than they ruin in Hollywood. If they can do it, so can video games, but a new model is desperately needed. One where untouchable producers can't bully around the people who are actually supposed to be the ones talented at making the games, and where talent isn't chewed up like a sponge to be spit out to different careers for the sake of short term stock prices.

Christopher Engler
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Have you been on a film set? I hate to generalize, but producers often times run films into the ground and alienate their staff. The difference is film has a distribution model that allows movies several chances to make repeat profit even if the product isn't that good: theatrical, DVD/Bluray sales, Rental, Netflix, paid cable, regular cable (supplemented by ads), bargain bin, re-release with new footage etc... They also know how to reach a wider audience with genres. Not every film is an $80 million endeavor; they also have the low-budget rom-com that can bring in a different audience. The video game industry isn't very creative when it comes to audience diversification, although it's done better this generation with Wii etc... They also need to look at entry price ($60); it is too high for a mass audience when a young family of four can enjoy a Shrek DVD for $10.

Lukas Arvidsson
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Usually in these kind of discussions you hear people saying that "we must have digital sales figures!" This data is mainly about the console business and I think we all know that PSN and XBLA is a very small part of that. Pre-owned is a much more interesting statistic. Since people don't / can't buy console games online the only means of acquiring them is to buy them new or pre-owned. The data clearly shows that people are much less interested in that compared to a couple of years ago. I think a VERY small percentage have moved over to buy things on Steam instead. That said Steam has of course grown but I don't think its turnover is big enough to offset the decline in console game sales by a long shot.

Sure if you factor in casual games and mobile games you might not see as big decline, but that just tells us that for now the experiences offered by core games are just not attractive enough to most consumers.

The argument that we need new hardware is also interesting, if that indeed does increase sales a lot, what does this tell us? It tells us that the games industry is not dependent on the creative output of the game creators but works to some degree as a gadget industry. This is also something that is a bit worrisome since we can't expect to invent new gadgets all the time, we need to be able to create compelling experiences that is independent of technology to be truly sustainable long term. I can't see how the next generation consoles will offer greatly enhanced possibilities of creative output compared to the possibilities of the current generation. Therefore I think it could be foolish to believe that everything will change with the arrival of new consoles.

Mathieu MarquisBolduc
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Again with this doomsday narrative. Still ignoring the last two year's vast diversification in revenue streams, I see.

Honestly, since you CANNOT get an even remotely accurate picture of this industry through retail sales, why do you continue to focus your reporting on it? Why not try to analyse the publisher's revenues, for example, since everyone but Valve is public and you dont have their sales number anyway.

The industry has moved on, but Gamasutra is hanging fast to retail numbers like a newspaper publisher that refuses to acknowledge the internet's existence.

Matt Matthews
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Retail is at least 50% of the market. If there were no reporting on it, then people would complain that we were ignoring half of the market.

And, I believe if you read the last part of my column, you'll see that I'm encouraging more public disclosure of the ex-retail sales figures.

And, finally, I have written several times about what we know about ex-retail sales.

Mathieu MarquisBolduc
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First, I wrote revenues, not profitability. Revenues would tell us a better picture of global sales, including revenues from digital and microtransactions.

And at least Ubisoft and EA in your list are currently profitable, so check your facts a bit please. Not to mention Apple. Dont know if you heard of the IPhone, its this new thing, they sells game for it.

"Digital distribtution matters only on mobile and PC platforms, but the first isn't interesting, when it comes to traditional video games and the second isn't generating revenues interesting to anyone outside the MMORPG space. "

If you think PC isnt generating interesting revenues outside of MMORPG, you are behind the news, sir. God just look at Steam.

Zirani Jean-Sylvestre
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"Digital distribtution matters only on mobile and PC platforms, but the first isn't interesting, when it comes to traditional video games"

"the first isn't interesting"

You're quick to forget the angry birds, cut the rope, sword and sorcery and the likes.

Angry birds alone made $67.6m profit in 2011. http://goo.gl/VTjjY

Apple is making huge profits on its appstore. You can't deny that there's a big part of the industry that "shifted" to mobile development.

Mathieu MarquisBolduc
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@Christian Keichel

Those articles report losses during the dead, summer quarter, where money is spent making games that are sold in the fall/winter quarter. In a seasonal industry like this one you can't just look at one quarter, you have to look at the annual numbers.

Mathieu MarquisBolduc
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First link is dead, so I dont know, but 4 months or 6 months, its still the dead summer time. If you want to cherry-pick like that , second article also says EA's revenues are up YTY for that quarter.

We could go on all day so Im gonna let it go with a big "anyway".

Matt, Gamasutra could use a new angle on its business reporting, thats all I think.

Zirani Jean-Sylvestre
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The fact that they are not profitable does not mean that they don't have sane business.

See, profits can be offset by investment. Starting a new studio, acquisition, R&D all that cost money.

Ubisoft & EA have some solid business/franchises.

Mathieu MarquisBolduc
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It may surprise you Christian, but "profit" and "making money" are not the same. If a business re-invest its revenues to grow its value and future revenues, its "many money" (positive cash flow, notably) but not always profit. If a business sell its assets to stay afloat, it can be profitable, but its not making money. Corporate financials is insanely intricated.

But this is ALL completely, entirely besides the point of the discussion. Mr. Matthews says in his report that retail sales are down, and implicate that the industry is in trouble because people arent spending as much money on gaming as they used to. Since we cannot get a good picture of total sales, including digital, micro and others, I suggested looking directly at the revenues of the businesses that form the industry - still an imperfect picture, I admit-. Now when trying to determine if people still spend as much money on gaming, what those businesses do with their revenues is completely besides the point.

Mathieu MarquisBolduc
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I liked how you completely bypassed my careful, patient explanation to talk about something else. Publishers's profitability isnt the subject here.

Michael Rooney
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@Christian: You are painting with too broad strokes. Revenue is an accurate representation of sales. Profit isn't really a great measure of anything when viewed in isolation. It only becomes interesting when paired with investment, costs, and revenue.

Your argument through this comment and it's reply is essentially making a bunch of straw men in a circle. You started by saying major publishers all made losses during the summer (despite revenues being the clear point of the original commenter), then you changed to arguing about whether a seasonal industries worst quarter is representative of the entire year, then you changed to arguing that investment in RnD/Capital shouldn't be factored into a company's financial health, then you argue that development costs are more important than any other cost. If I were to guess you are about to say that revenue isn't an important indicator of company health and that profit is all that matters again.

Pick an argument for people to properly rebut and stick with it.

Damien Ivan
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I understand that it would be hard to untangle exact numbers, but to not even *mention* Apple is bizarre. Hello! Digital distribution aside (which the comments have tackled), a lot of the money that would have been spent on consoles is going to iPhones, iPads, and iPod Touches, which also offer games (whether they're good or not is a whole other discussion).

Justin Sawchuk
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All the current generation of consoles are 7+ years old, the mobile devices are coming out with a new version every 6 months. Why is the casual gamer going to pay out $60 for a core game when they are just as happy with a 99 cent angry birds.

The console boys better start putting out new hardware every 3 years not every 7.

A W
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Does changing the iPhone / iPad, Android every 6 months or so actually affect the graphics or playability of App games like Angry Birds?

Michael Rooney
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I'm not as happy with angry birds as skyrim, but I'd be about as happy with angry birds as warrioware. I spent many times more money on Skyrim than Gamedev Story, but to date I have many more hours in Gamedev Story than Skyrim.

Jussayin.

Zoran Cunningham
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Do Amazon sales count toward retail, or is it only physical purchases at brick and mortar stores? I've heard some people talk about Amazon cutting into retail, even though they sell physical boxed games. I personally have purchased 95% of my physical boxed gaming products from Amazon over the last five years and every PC purchases I've made has been on Steam. Sad to think that none of my economic input is being calculated in these sales numbers.

Jonathan Murphy
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DUH DUH DUH! I've been saying this for YEARS! That $60 price tag in a failing global economy is poison. Retail isn't adapting, it's dying. The game industry is adapting and it'll leave this relic called outdated thinking behind.

Wait till the Wii U year one game sales come in. They won't be good. Why? $60 is poison. The sooner you learn that the sooner you can see real sales.

Robert Dinsmore
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I agree. A 60 dollar blanket pricing strategy does not work anymore. Different games bring different experiences. Take Skyrim for example, the game is huge and gives users 30-100 hours of gaming experience depending on how much they want out of it. I would argue that this game is definitely worth 60 bucks, as is GTA and COD to the people who like that type of experience. But what about games that take less than 10 hours to run through the core experience? If you buy enough of these games you start to see that they do not compare in value to the big releases. Sure the developers of these titles try to add things to increase value like hidden items, online MP, and DLC, but many people do not care about that and put the game down for good once they have finished it to their level of satisfaction.

The industry needs to recognize that different games offer different value to customers and need to start marketing them as such. Shorter core game should = lower price.


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