December 2, 2008
Video Games Holding up Well in Recession
By Tom Ryan
At a time when many categories
are sputtering in the downturn, video game sales are surging and appear
set for a robust 2009. While undeniably popular with young males
for years, video games are also believed to be getting a benefit from the “nesting” effect,
in which families look for cheap ways to entertain at home.
“Clearly, interactive
entertainment is a great value in a down economy,” Dan DeMatteo, chief executive at GameStop, the largest standalone
chain, told The Dallas Morning News.
A number of statistics
underscore the strength of the videogame category:
- In October, videogame sales
jumped 18 percent, according to NPD Group; - Blizzard Entertainment’s Wrath
of the Lich King sold more than 2.8 million copies in the first 24 hours
after it was released on Nov. 13, making it the fastest-selling PC game
of all time; - Microsoft Corp.’s Gears of
War 2 for Microsoft’s Xbox 360 console sold more than 2 million copies
on its Nov. 7 opening weekend; - Nintendo Co.’s new Wii Fit exercise game for the Wii console
is seeing instant sellouts as it is refilled on retail shelves.
But some analysts believe
the difficult times are having some impact.
GameStop’s sales during
the third quarter fell short of analysts’ expectations and the retailer
slightly lowered its projected earnings for the fourth quarter. Although GameStop’s
same-store sales in the first two weeks of November had increased 20 percent
due to the new launches, Mr. DeMatteo noted that recent sales were driven
by serious game players who may not be as price conscious as the average
consumers expected to drive sales for the rest of the holiday period.
Mr. DeMatteo also
said the company will be “more cautious” with its plans for new
store openings in 2009 because of the downturn, after
opening more than 600 in 2008. At the end of the third quarter, it operated
6,066 retail stores in 17 countries worldwide.
But Mr. DeMatteo still believes industry sales will grow 10 percent
to 15 percent next year, and he remains bullish about GameStop’s prospects.
“I think we’re being
prudently cautious given the environment we’re in,” he told The Dallas
Morning News. “But strategically, long range, do we believe videogames
are a robust, growing industry? Absolutely. How could you come to any different
conclusion?”
Discussion Questions:
Do you think video game sales are somewhat recession resistant? What
factors will define continued success for GameStop?
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The market is driven by new offerings as indicated in the statistics. The fact is video games last forever. In a recession, anything other than the newest games will flounder. If a family has been in a habit of getting a new game every three months, just by delaying that to every four months is a sales decline of 33%.
The other market driver that will slow the game sales is new generations of hardware. While the amortized entertainment value of $300 to $500 game upgrade may be reasonable, if not very, very reasonable, the out-of-pocket price tag is still significant.
Net, net, we can not define this market as totally recession proof. Growth will be driven by new offerings but these revenues will not be on top of a solid ongoing market. New offerings will have to make up the softness in the balance of the market.
Unfortunately, video games are recession proof. The new generation is using the video games as babysitters. Consumers will spend money on entertainment when they don’t have it to spend.
Video games benefit during “hard times” from the same phenomenon that drives the movie business: They provide escapism at relatively affordable prices. They also tie into the “cocooning” trend mentioned in the commentary. Consumers have invested a lot over the past couple of years in innovative new game systems like the Wii and Playstation 3, so there is a natural trend toward rolling out new software for these machines. (Wii in particular has cornered a more interactive, family-friendly niche in the marketplace.)
But is the industry recession-proof? Probably not 100%, particularly when it comes to development of new gaming systems. And the software itself can be pricey unless it’s an especially compelling new game idea. There may be bigger opportunities for “games on demand” technology than what we’ve seen so far, as an added revenue stream from consumers who don’t want to invest in a new game release “forever.”
Sure, interactive games will continue to sell. But let’s look a little deeper and go beyond commodity considerations. They sell because they provide an escape, a diversion from reality. Schools have virtually nothing to do with helping kids develop purposeful lives. They seldom talk about the meaning of anything. “News” is a constant record of competing egos, failures, deceit, corruption, violence and war. In short there does not seem to be much to get excited about.
So there’s not much choice but to escape – and what better way to do that than with interactive electronic games that are primarily about competing egos, failures, deceit, corruption, violence and war. Our kids (adults too) are ANGRY, plain and simple. To deal with their anger they play angry games. Talk about throwing fuel on the fire! They “escape” by running into the flames.
The restlessness and irritations of our world should be pushing us toward insight; finding new answers, creating innovation, seeing how to make things work better, making this world a better place. Would such games sell? It’s doubtful. They wouldn’t feed society’s addiction to anger. And have no doubt; anger is addictive. And it’s hurting us more than tobacco, alcohol and drugs combined.
Video games are a relatively cheap form of entertainment when the cost is factored against the number of hours of play. For that reason alone, they will be somewhat recession proof. How many hundreds of hours will the average user of “World of Warcraft” spend playing the game?
As to Game Stop, with so many outlets offering the same games at roughly the same price, why should they not be feeling the pinch of the recession? No one outlet dominates game sales and online sales are just as robust, if not more so, than brick and mortar.
Yes, I believe video games are somewhat recession-proof, especially as the types of games available now appeal to a much wider set of players (including younger and younger kids thanks to the ease of the Wii interface). For $50 you can have entertainment for hours and hours – vs. maybe pay for a family of four to go see a movie.
But there’s another dynamic to gaming these days that has been overlooked – and that is the online aspect of it. All of these consoles now also connect to the internet. Which means that my kids in Denver can play games with Grandma in Texas, even chat in some instances. That’s a shared experience that is infinitely more valuable than almost any other form of entertainment out there, no matter what the price.
I have been on the frontlines in the toy biz and I cannot describe the carnage that goes on when a new game or system is released. The desire for these games far outweighs practical reasoning! As a Guitar Hero junkie myself I can attest to the demand factor. Some of these titles have such strong followings that secondary merchandise markets have evolved. Action figures and comic books are big with the more violent action games which adds to the hype. With the Wii positioned as the ‘family console’, more parents are using the Wii for family game night. All these factors add to the high demand for video games.
Video games are great recession entertainment! Hours of entertainment for not a lot of bucks. Families buy them for Christmas, or rent them from Blockbuster for the weekend.
Added bonus – parents and siblings can play too. This means that dinner is eaten at home (not out) and the family can get some bonding in. It’s really just a new version of the old fashioned family board game. But it’s more challenging and able to be played by a single player too.
Nothing is recession proof. Not packaged goods entertainment, not food, not clothing. Nothing. Video games are doing well right now because the business model is airtight. No displacing technologies and a huge installed base, opportunities for upgrades…and a healthy future.
A couple of comments about this: video games will continue to do well based on a number of factors, including the “franchise” nature of many titles. Gamers find it hard to resist the next-generation of their favorite titles. Additionally, despite a decrease in personal entertainment budget, gamers often associate the spend with the longevity or lifespan of the title. Many games today feature an online component that can see the “ROI” in terms of the game’s playability stretch into the hundreds of hours. Not a bad per-hour spend considering most titles are in and around the $55 range.
With respect to GameStop and other retailers’ prospects for the year, maintaining a competitive edge comes down to being able to determine the attributes that drive loyalty and the ability to measure and improve the customer experience across both online and brick and mortar channels. Are the latest and most popular titles readily available? Can customers easily find what they’re looking for? Are store associates knowledgeable and helpful? More importantly, are store managers able to understand why customers are loyal and do they know what to do to improve overall customer satisfaction, drive loyalty, and increase sales?
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The market is driven by new offerings as indicated in the statistics. The fact is video games last forever. In a recession, anything other than the newest games will flounder. If a family has been in a habit of getting a new game every three months, just by delaying that to every four months is a sales decline of 33%.
The other market driver that will slow the game sales is new generations of hardware. While the amortized entertainment value of $300 to $500 game upgrade may be reasonable, if not very, very reasonable, the out-of-pocket price tag is still significant.
Net, net, we can not define this market as totally recession proof. Growth will be driven by new offerings but these revenues will not be on top of a solid ongoing market. New offerings will have to make up the softness in the balance of the market.
Unfortunately, video games are recession proof. The new generation is using the video games as babysitters. Consumers will spend money on entertainment when they don’t have it to spend.
Video games benefit during “hard times” from the same phenomenon that drives the movie business: They provide escapism at relatively affordable prices. They also tie into the “cocooning” trend mentioned in the commentary. Consumers have invested a lot over the past couple of years in innovative new game systems like the Wii and Playstation 3, so there is a natural trend toward rolling out new software for these machines. (Wii in particular has cornered a more interactive, family-friendly niche in the marketplace.)
But is the industry recession-proof? Probably not 100%, particularly when it comes to development of new gaming systems. And the software itself can be pricey unless it’s an especially compelling new game idea. There may be bigger opportunities for “games on demand” technology than what we’ve seen so far, as an added revenue stream from consumers who don’t want to invest in a new game release “forever.”
Sure, interactive games will continue to sell. But let’s look a little deeper and go beyond commodity considerations. They sell because they provide an escape, a diversion from reality. Schools have virtually nothing to do with helping kids develop purposeful lives. They seldom talk about the meaning of anything. “News” is a constant record of competing egos, failures, deceit, corruption, violence and war. In short there does not seem to be much to get excited about.
So there’s not much choice but to escape – and what better way to do that than with interactive electronic games that are primarily about competing egos, failures, deceit, corruption, violence and war. Our kids (adults too) are ANGRY, plain and simple. To deal with their anger they play angry games. Talk about throwing fuel on the fire! They “escape” by running into the flames.
The restlessness and irritations of our world should be pushing us toward insight; finding new answers, creating innovation, seeing how to make things work better, making this world a better place. Would such games sell? It’s doubtful. They wouldn’t feed society’s addiction to anger. And have no doubt; anger is addictive. And it’s hurting us more than tobacco, alcohol and drugs combined.
Video games are a relatively cheap form of entertainment when the cost is factored against the number of hours of play. For that reason alone, they will be somewhat recession proof. How many hundreds of hours will the average user of “World of Warcraft” spend playing the game?
As to Game Stop, with so many outlets offering the same games at roughly the same price, why should they not be feeling the pinch of the recession? No one outlet dominates game sales and online sales are just as robust, if not more so, than brick and mortar.
Yes, I believe video games are somewhat recession-proof, especially as the types of games available now appeal to a much wider set of players (including younger and younger kids thanks to the ease of the Wii interface). For $50 you can have entertainment for hours and hours – vs. maybe pay for a family of four to go see a movie.
But there’s another dynamic to gaming these days that has been overlooked – and that is the online aspect of it. All of these consoles now also connect to the internet. Which means that my kids in Denver can play games with Grandma in Texas, even chat in some instances. That’s a shared experience that is infinitely more valuable than almost any other form of entertainment out there, no matter what the price.
I have been on the frontlines in the toy biz and I cannot describe the carnage that goes on when a new game or system is released. The desire for these games far outweighs practical reasoning! As a Guitar Hero junkie myself I can attest to the demand factor. Some of these titles have such strong followings that secondary merchandise markets have evolved. Action figures and comic books are big with the more violent action games which adds to the hype. With the Wii positioned as the ‘family console’, more parents are using the Wii for family game night. All these factors add to the high demand for video games.
Video games are great recession entertainment! Hours of entertainment for not a lot of bucks. Families buy them for Christmas, or rent them from Blockbuster for the weekend.
Added bonus – parents and siblings can play too. This means that dinner is eaten at home (not out) and the family can get some bonding in. It’s really just a new version of the old fashioned family board game. But it’s more challenging and able to be played by a single player too.
Nothing is recession proof. Not packaged goods entertainment, not food, not clothing. Nothing. Video games are doing well right now because the business model is airtight. No displacing technologies and a huge installed base, opportunities for upgrades…and a healthy future.
A couple of comments about this: video games will continue to do well based on a number of factors, including the “franchise” nature of many titles. Gamers find it hard to resist the next-generation of their favorite titles. Additionally, despite a decrease in personal entertainment budget, gamers often associate the spend with the longevity or lifespan of the title. Many games today feature an online component that can see the “ROI” in terms of the game’s playability stretch into the hundreds of hours. Not a bad per-hour spend considering most titles are in and around the $55 range.
With respect to GameStop and other retailers’ prospects for the year, maintaining a competitive edge comes down to being able to determine the attributes that drive loyalty and the ability to measure and improve the customer experience across both online and brick and mortar channels. Are the latest and most popular titles readily available? Can customers easily find what they’re looking for? Are store associates knowledgeable and helpful? More importantly, are store managers able to understand why customers are loyal and do they know what to do to improve overall customer satisfaction, drive loyalty, and increase sales?