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With so many layoffs, bailout requests and just general bad news coming from the majority of companies in North America, you'd think every industry was in the dog house. But one entertainment-related sector is not only cruising, it's making more money than ever before.
In December, as retailers were biting their nails, worried about low Christmas sales, the gaming industry was flying high. According to NDP Market Research, U.S. video game sales hit $5.29 billion — up 9% over last year — while year end numbers topped $21.33 billion, a 19% increase over 2007.
"The industry is seeing great sales right now," says Vancouver-based gaming industry analyst Steve Bocska. "Any company that's attributing layoffs to the economic downturn is looking for excuses, because the numbers don't back it up."
Mike Hickey, a research analyst for Colorado-based Janco Partners, agrees that the industry is bucking the recession trend. He points to November video game sales, which were up 10% year-over-year. "We're seeing double-digit economic growth, it's remarkable." he says, adding that the 10% increase is above and beyond the 52% jump in sales the industry saw in 2007.
In Canada, sales are climbing too. Through November, software and hardware sales combined totaled more than $1.6 billion — that's an increase of about $500 million over 2007's year-end totals.
Why is this industry succeeding while others are not? Two things: the Nintendo Wii and the relatively high entertainment value for the dollar. In 2008 — not including the Christmas season — the Wii sold 695,000 units in Canada, while its competitors, the Xbox 360 and Sony PlayStation 3, saw 343,000 and 326,000 consoles sell, respectively.
In the U.S. Nintendo saw almost 10.2 million Wii consoles fly off store shelves, while another 10 million units of its handheld DS product were sold. December alone saw 2.15 million Wiis end up in consumer hands. Nintendo accounted for 55% of all hardware sales in the U.S. last year, and saw its own sales figures jump 59% year-over-year.
The Wii's popularity has grown for a number of reasons — unique gameplay, it appeals to a non-tech savvy crowd — but during a rough economic period you can't discount its cheaper price. In Canada a Wii will set you back $269, while the Xbox 360 costs between $200 and $400 depending on the version, and the PS3 retails at $400.
"In this climate, if consumers have to choose between the Wii and the PlayStation, pricing might come into consideration more," says Paul Verna, a senior analyst at eMarketer.
Bocska agrees. He says when people are trying to save, no one will impulsively buy a pricey piece of hardware, but people may drop some of their cash on the still affordable Wii. "People will pick up a Wii for $269 but they won't do that for a $400 item. It's a psychological barrier that Nintendo has always been familiar with," he says.
Pricing is really the main reason why the industry is doing so well, especially when it comes to its video games. It's not because companies are reducing game prices, but rather, spending $60 on something that can provide hours of entertainment is a good deal.
"The value proposition for gamers is tremendous," says Bocska. "They will spend $60 on a game, which can take 50 hours to complete. That doesn't factor in multi-player modes or online content. So the potential longevity per game and cost per hour of playing time is among the cheapest forms of entertainment."
"In past economic downturns, movies allowed people to escape their problems and they paid for it," adds Hickey. "Is if can spend 40 hours playing a game this weekend and next weekend and make it interactive — then that's the best deal I can get."
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