The past few years have served as a reality check for the gaming industry. A period of amazing growth in the middle of the last decade left many wondering if video games were entertainment’s next cash cow. Analysts and publishers were even throwing out the term “recession proof” in 2007 and 2008, backing up the argument with the theory that entertainment spending goes up during a recession because people are in greater need of escapism. History has proved that argument wrong.
The last few years have seen a constant slide in retail sales. Digital distribution has made up much of that ground, but the overall picture is one of stagnation. U.S. game sales were down 9% overall in the third quarter of 2012 compared to the same point last year – and that does include digital purchases. The boundless optimism of 2007 has turned towards caution in 2012.
But why? The recession was a factor, but it’s technically over in some countries – including the United States. Some blame must fall on developers and publishers. So what can they do to improve and rejuvenate the industry? Here are a few ideas.
Gaming needs to broaden its base
The game industry has traditionally catered to a particular demographic that tends to buy high-budget, high-profit tiles more than anyone else. This is the “core gamer.” The stereotypical core gamer is a white male with disposable income who is somewhere between 16 and 35 years old. The majority of big-budget titles, and even many indie games, are designed with this demographic in mind.
Catering to reliable customers makes sense, of course, but it can also result in a narrow viewpoint. Nintendo famously took advantage of the industry’s blindspot with the original Wii, an incredibly successful and profitable console that has sold nearly 30 million more units than Microsoft’s Xbox 360. No one saw its success coming because customers outside the core gamer had been written off as uninterested.
Similar stories can be found in software. Call Of Duty: Modern Warfare 3 was the best selling game in the world for 2011, but did you know that the latest Pokemon was in third, Just Dance 3 was in 5th, and Mario Kart Wii was in 6th? It’s clear that there’s demand for games outside the core demographic.
Analysts have argued that, while this is true, gamers outside the core don’t buy games frequently enough to make an impact. But what games might they buy? The Wii, which became popular thanks to non-core gamers, is notorious for becoming a cess-pool of terrible third-party games and sub-par ports. There’s not much worth buying beyond a handful of immensely popular titles.
That seems strange. These games can obviously generate a lot of money – yet the attention remains on games that are designed with core gamers in mind. It’s not hard to understand why this is the case after paying attention to the gaming press for even a short period of time. The industry is dominated by white male developers and businessmen who are, for the most part, interested in games that will impress other white males. Working on the next Halo earns far more respect than working on the The Sims.

This also shows a continued, and even stubborn lack of recognition of what a “core gamer” really is. A recent ESA study shows that the male demographic is barely even the majority, with 47-percent of gamers being female. Woman over the age of 18 are also one of the fastest growing demographics, and yet the stereotype remains. Just look at games like Dead or Alive 5, the newest iteration of a sixteen year old franchise that revels in what many have classified as misogynistic representations of women. That series may be an extreme example, but there is a sad lack of empowered women, both in games and in the industry. That needs to change.
This narrow focus isn’t healthy. White males are a large demographic and one with money to spend, yet but there are limits to the demographic’s influence. Just ask Mitt Romney about the problems with relying too heavily on white males for support.
Game publishers need to treat customers with respect
Another problem that is related to gaming’s limited base is the industry’s poor relations with many customers. Games prices haven’t really risen since this cycle of consoles began, but compared to some other forms of entertainment, they remain costly. Paying $250 for a console and $60 for new games is more expensive than $80 for a Blu-Ray player and $20 to $25 for a new movie (nevermind DVDs, which are even less).
Selling a product that’s more expensive is always more difficult than selling one that is cheap. This can be combated by ensuring a high-quality products, or through excellent customer service. Games offer neither. Many games – and particularly those sold by major publishers at high prices – require online connectivity and/or use restrictive DRM. Customer service is nearly non-existent. Players of a game with bugs can’t return the product. They have to hope for a patch.
Both PC and console games fall victim to this. Most EA titles on any platform, for example, require users to create an Origin account. My girlfriend, who is an active gamer but obviously not part of the so-called core demographic, usually responds to these contrivances with the phrase “What the **** is this?”
That’s a good question. Games should be finding ways to make themselves easier to play. Instead the major publishers confuse customers with a plethora of proprietary login systems, digital stores, and online-only DRM.
This is most likely to alienate the inexperienced or new gamers that the industry needs to catch. These players haven’t been buying new titles every month for the last few years and aren’t used to obtuse logins or DRM. To core gamers these are an annoyance. To other players they can be a barrier, and at the very least, they create a bad and unwelcoming impression of the industry for new gamers.
Hardware excitement must reignite
The current console generation has been exceptional because of its duration. The Xbox 360 was launched about 7 years ago while the Wii and PlayStation 3 are just over the six year mark. Nintendo’s new Wii U, just recently introduced, is the first new console from any company in six years. It appears Microsoft will be stretching its console cycle out to 8 years and Sony may do the same.
It’s not hard to understand why the console manufacturers like a longer cycle. Developing and producing a new console is expensive. Getting the most out of the money spent on a new console makes sense.
But stretching out the cycle also reduces excitement. Consumers like new graphics, new controllers and new features. This is both common sense and supported by sales. A successful game console tends to sell strongly at launch, peek in its third or fourth year, then stagnate or lose ground.
In the past, this decline has been met with a new console while this cycle has been met with new peripherals from Microsoft and Sony (in the form of Kinect and Move). Both have also introduced numerous apps to present their systems as more than just a gaming system, but rather an all-in-one entertainment device. It’s a strategy that has had some success, but its impact has already waned.
Current console sales for the Xbox 360 are the lowest they’ve been since 2009 while the PS3 has declined 25% when compared to its 2011 numbers. Retail game sales – which are most representative of the console market – have declined from 152 million units in 2009 to an estimated total of 98 million units in 2011. That’s a nasty drop. Black Friday sales for Microsoft and Sony were respectable, but while the Xbox 360 sold 750,000, this is a decline from last year. The PS3 actually did better this year, but its 525,000 units moves were lower than it Microsoft rival.
Nintendo’s new Wii U drives the point home. It has sold 400,000 units during its first week. That’s behind the pace of the Wii but, even so, it’s one of the largest console launches in history (the Xbox 360 and PS3 sold 326,000 and 197,000 units in their first two weeks, respectively) despite reported shortages. And don’t forget – these sales figures are in spite of an MSRP that’s $50 to $100 more than the Wii when it launched.
Stretching out the console cycle is an experiment that has, at best, had mixed results. While it has kept costs down it has also contributed in the industry’s stagnation. This isn’t the result Microsoft and Sony hoped to achieve. Future console development will demand new ideas to keep costs down while also delivering the exciting hardware consumers desire.
Conclusion
Resolving the problems above is important. Relying on core gamers will only become more difficult as the development costs for new titles rise. A couple decades ago it was possible for a cutting-edge game to make huge profit off just a few hundred thousand sales. Today’s reality is different. Games cost more to make so they must sell more to remain profitable.
This means that the industry has to walk out of its echo chamber, start treating customers with more respect, and commit to frequent releases of exciting hardware. Improvement in these areas will help to attract more people who don’t currently consider themselves gamers. Those gamers-to-be are needed to keep the industry healthy.
I have a few issues with the points you made as well.
1. Gaming needs to broaden its base. I see this as what is more of the current problem than the solution. You have a game franchise (let’s say Final Fantasy) that has gone so far from what it was originally in hopes to catch the attention of the younger generation, that you alienate the original fan base that got them where they are. So you are left with a game that the old fans don’t really like, and don’t want to play, and the new fans don’t really care about and won’t play it anyway. You can’t pander to everyone. You broaden your base too much, and you need to develop for everyone. All this does is leave people with high expectations, but dissatisfied when they finally get the game.
2. Hardware excitement must reignite. I don’t disagree with this at all. What I do disagree with is your example of the Wii/WiiU. The Wii is just a gimmick. Sure it sold fairly well, for the first 4 years or so. After which it just died. Sales were abysmal. I bought a Wii! I played it for maybe 6 months, and got tired of it. I returned to my PS3, and continue to play my PS3. Tricking people into buying something because it’s different doesn’t work, at least not long term. People figure it out, and the novelty wears off.
So let me tell you what the real problems are.
1. Too much reliance on multiplayer gaming, and not enough on a deep single player story. Many of us don’t want to play COD skirmishes, 5 minutes at a pop. We want to sit down and play a game that wraps us up, or entertains us. Multiplayer should not be the selling point of a game, rather the afterthought. If you look at when the gaming industry started its decline, it’s right around the time when COD MW came out which relies heavily on multiplayer.
2. Keep it simple. We don’t want gimmicks. Give us a controller, and some peripherals and we’ll be ok. Motion control is a gimmick, and it doesn’t engross us. Nothing… Absolutely nothing, makes up for the lack of a deep story, or genuine entertainment.
Least, that’s my thoughts.
All 3 of your points are VERY misleading. Gaming isn’t stagnating, console gaming is stagnating.
Dr. Greg Zeschuk: “The future isn’t necessarily on console. That’s the past.” If you guys don’t know who that is, you have no business writing about games. He’s the Bioware co-founder, and a well respected figure in the gaming industry.
You talk about “Expanding the base” PC Gaming has been doing that for years, Steam sales are amazing, THQ stock went from 1.20 up to a 1.40 with a *single* Humble-Bundle sale on Steam.
Using EA to prove a point? EA is sitting alongside Ubisoft in terms of good will in the gaming community, Gaming isn’t stagnating because companies aren’t treating people well, EA and Ubisoft are stagnating. PC Gaming is at an all time high, because people are leaving the over priced console market, and going to services like Steam, where they can get a new game for around $10 less than the console equivalent.
You are describing the reasons why Console gaming is failing, and lumping all the gaming together as a result. Call of Duty is considered “One of the biggest gaming franchises” at 26 million units for Modern Warfare 3. Last year LoL hit 32 million.
I don’t necessarily disagree with everything you’re saying, but you’re missing the forest for the trees. You can’t just focus on a few success stories and say everything is fine.
Unfortunately, your article seems to miss the forest for the trees. You can’t just focus on hardships in console gaming and say there’s a problem in the game industry when the mobile and PC gaming sectors are growing significantly.
You do not understand the phrase. Let me explain.
The forest is the games industry. The game industry is not doing well. So if you argue the entire industry is fine because X portion of the industry is fine you are, as I said, missing the forest for the trees.
If you want to argue the entire industry is fine then you’ll need to provide some evidence to that. By evidence I mean sales reports.
I suggest you read the following market research that proves otherwise:
Game Changers: Monetization in the Game Industry
Description: This industry report examines emerging business models that are revolutionizing the videogame industry.
Source: Parks Assoc.
Date: Feb 17, 2012
Document Type: Research Reports
Pages: 56
Authors: Pietro Macchiarella, Tricia Parks, Brett Sappington
That is a paid report. And it’s 56 pages, apparently. If it says something important then maybe you should explain that. I’m not going to spend my time or my money making your argument for you.
I’m not trying to antagonize you, but I think your article is severely limited in scope when it focuses only on console hardware and nothing else. As someone who works in the industry, I can easily confirm other readers’ assertions that consoles sales is a very small fraction of what makes up the bulk of the value pie in the games industry. Looking at sales data from paid research clearly shows that PC and mobile gaming together have a bigger part of the game industry pie than consoles, and even public research and projections are indicative of this trend: http://www.extremetech.com/gaming/97047-thank-you-farmville-pc-gaming-will-soon-overtake-consoles
In addition, that research data I linked earlier contained evidence to show that the games industry is indeed addressing the suggestions/concerns you wrote of in your article (Indie game developers, Valve, and Oculus Rift to name a few examples). I will concede that many of the “established” companies/business-models you mentioned are suffering in their attempts to adapt to the changes in the market, but for every failure and woe, I can easily point out a success story. The “players” are changing, but the games industry as a whole has never been more vibrant or rife with opportunity than it is today.
I don’t think you’re trying to antagonize me, I think you are just seeing exactly what you’d already like to.
For example, the article you linked has two issues.
1) It’s apparently based on information from Nvidia, which kinda has a conflict of interest when it comes to reporting sales figures.
2) It appears to be reporting worldwide PC game sales, which are not comparable to the articles I cited in my opinion piece because they focus on US sales.
According to the figures I could find total game revenue worldwide was 65 billion for 2011. So you statement that “console sales is a very small fraction of the pie” is incorrect.
As for mobile games, well, the reports I’ve been able to find peg that chunk of the market at about $2 billion the US. That’s not much.
I’ll also point out that the NPD report I cited which showed a 9% decrease in US spending included mobile and digital purchases.
So you can’t point at just one area and say, because it had growth, everything just fine. If by some magic every other portion of the game industry disappeared there would be a lot of unpublished games, a lot of broke developers and a lot of people out of a job. The fix needs to come from multiple and established companies, not just new faces.
Forest, trees, etc.
http://venturebeat.com/2011/07/06/global-games-business-to-hit-112b-by-2015/
http://sacc-usa.org/saccexportguide/guide-by-industry/gaming-industry-guide/
http://www.gamasutra.com/view/news/38474/ReportUSMobileGameRevenuePassedPortableGamesIn2011.php#.UL2LuIPAdYY
http://www.gamasutra.com/view/news/181699/Digitaltheonlybrightspotinanoverall9USgamesindustry_decline.php#.UL2LRIPAdYa
What percentage of that 65 billion for 2011 resulted from console hardware sales. Isn’t that figure a combination of content sold and accessories?
THQ is bankrupt, and citing a 20c stock increase due to a game bundle, which was only a fundraiser for legal fees, is kind of a silly point. PC Gaming is NOT at an all-time high just because Steam is doing well–that’s simply a good business model that gets around retail markup, with it’s own online login annoyances adding to the problem. Personally, I refuse to buy any game that requires a Steam login just to play, and you should too. Where’s your game if Steam suddenly goes belly up and you can’t login? And why would you WANT to log in just to play a PC game like Civilization V, for instance? I sure don’t.
And as for your pro-PC gaming stance: Consoles surpassed PC gaming around 8 years ago, and that’s where it remains. Thus, what happens to the consoles affects the game industry far more than any gimmicky thing happening on a PC (i.e. Steam).
My opinion is that more people are resorting to mobile games for a fraction of the cost. I don’t have a problem with paying $60 for a good game or even $150 for a collectors edition. The fact is mobile device processing power and content has come a very long way in a few short years. It makes me happy paying $2.99 for a game that keeps me occupied just as long as a $60 “blockbuster”.
I also disagree considerably with the third point. It argues that console sales dropping is a sign that the industry is stagnating.
These companies dont make money from individual consoles, they make money from game sales. Of course console sales for the PS3 and XBox360 has dropped..its been out for years..everyone thats wanted one already has one. The new adopoters are gonna get fewer.
Consoles arent upgraded constantly, because many years ago we rallied against the idea of having to buy a new system every year and having to replace everything, so they slowed the hardware upgrade cycle, delayed it untill they could offer us something actually new with a console rather than a few minor hardware tweaks.
The delayed console cycle has not stagnated the industry. Its given it life. It allows developers to get comfortable with the console and develop the best games possible for it..as opposed to having to pull together and work on a new Dev Kit and learn the new tools every damn year.
I don’t see how you can look at sales data and support the conclusion that the latest console cycle has given developers any great advantage over those previous. It might be easier for indies but that is all.
is think is came from the panet