'Modern Warfare' Aside, Gaming Industry's Not Bulletproof

For all its graphics firepower and blockbuster action, "Call of Duty: Modern Warfare 2" couldn't blow up the perception that the video game industry is still reeling from the recession's aftershocks. Industry market-watchers NPD Group released November sales figures Thursday, showing continued year-over-year declines in software (down 3.1 percent), hardware (down 13.4 percent) and accessories (down 5.5 percent).

While acknowledging that "MW2" had sold more than 6 million units (counting both PS3 and Xbox 360 versions) to break first-month sales records previously set by "Halo 3," "it couldn't make up for softness elsewhere," said NPD analyst Anita Frazier. "The top 50 games this year sold 5 percent less units than did the top 50 last year."

The staggering sales figures reached in 2008, coupled with the recession's impact earlier this year, may still be casting a major shadow over estimates for end-of-year totals.

The industry could well see US$20 billion in sales for 2009 if December's holiday-fueled sales can top last year's Christmas totals by 11 percent. "Impossible? I don't think so," Frazier said.

"More positive economic news combined with 'frugal fatigue' could positively impact industry sales during these last weeks of the holiday season," she suggested.

However, "breaking even seems more out of reach. In order to break even to last year, December sales would have to be up 36 percent over December 2008," Frazier noted.

Console Cuts, Recession Worries

"Let's face it -- the economy is still in deep recession," Interpret analyst Michael Cai told the E-Commerce Times. "Consumers are evaluating their purchase decisions more carefully and prioritizing staples over discretionary items. When they buy games, they'll also scrutinize their decisions more than before and only buy high-quality games."

All three console makers have made deep price cuts, contributing to lower hardware sales figures, Cai noted. Those reductions -- combined with an emphasis on deep discounts on recent titles and a focus on used games that lure budget-conscious shoppers -- have slashed software and overall sales numbers.

"Retailers like Toys R Us and Walmart are using games as loss leaders to draw traffic to their stores," Cai said. "They are doing the same thing with new release DVDs. These price points aren't sustainable and shouldn't last after the holidays."

Lagging Indicators, New Gaming Trends?

The wider economy felt the recession's impact first, and then it reached the video game industry. So maybe a recovery in games would also be delayed, theorized gaming industry consultant Mark DeLoura.

"When the economy started to fall, many publishers pulled back on the number of games they were creating. Would this have an impact on the number of units sold? Perhaps," DeLoura told the E-Commerce Times.

The impact of "greatest hits" games -- lower-priced rereleases of strong-selling titles -- is also at play here, he added. "There should be more of those this year than last, so perhaps that has impacted revenue."

However, it's likely that cheaper games on new platforms such as smartphones and within social media networks are forcing the biggest changes on sales and user habits, according to DeLoura.

"With so many free Facebook games and 99-cent iPhone games, is it possible that people who were previously buying $59.99 games at Walmart are now getting by with some simple 99-cent experiences? I definitely believe that the increasing number of less expensive games is going to cut into the traditional market," DeLoura said.

Some industry arguments against that theory -- for example, that cheaper games will obviously draw more interest, or that Mafia War players aren't core gamers -- have parallels with what's going on in the film industry, admitted DeLoura.

"One might be able to compare it to Hollywood special effects blockbusters versus independent films," he said.

"There is room for both in the marketplace, but definitely the number of indie films I rent from Netflix (Nasdaq: NFLX) is cutting into the amount of money I'm spending at the theater to watch a Hollywood blockbuster," observed DeLoura. "There's an ongoing war for eyeballs and leisure time, and every little thing -- including FarmVille and Mafia Wars -- cuts into how much I spend on the others."