A Cooling Market?

The videogame industry is still riding high for 2008, and it would be insincere to suggest that the market is headed for a fall. However, there are some data points that suggest that the 32 percent growth in year-to-date revenue might not hold through the end of the year.

First, last year's final four months were stacked with huge titles like Halo 3, Guitar Hero III, Call of Duty 4, Super Mario Galaxy, and Assassin's Creed. It remains to be seen whether the software slated for the same period this year can deliver the same kind of sales seen in 2007. Certainly Guitar Hero: World Tour, Rock Band 2, Gears of War 2, Resistance 2, and many other titles have great potential based on prior performance. We have yet to see whether games like Dead Space and Mirror's Edge, both new properties from EA, will be break-out hits like Assassin's Creed or lesser sellers like Kane & Lynch.

Second, there is the general trend for the past few months. The average weekly revenue in August 2008 was $270 million, the lowest weekly figure since August of the previous year and well below the $310 million average year-to-date. Starting in May 2007 the weekly revenue for the industry increased every month, from $209 million per week in May to $248 million per week in August and ending with $964 million per week in December. That kind of acceleration simply doesn't exist this year. In fact, the industry weekly revenue has dropped from $338 million in June to $296 million in July and ending with $270 million in August.



This decline in weekly revenue happens to coincide with several negative indicators about the United States economy. In the past few months there have been dramatic increases in both home foreclosure rates and unemployment rates. Excepting Wal-Mart, retail sales in August were flat year-on-year and down from the growth rate set earlier in the year. Moreover both energy and food prices have been consistently moving higher. While there is no direct evidence that the decline in weekly revenue over the past couple of months is related to these changing economic conditions, it seems prudent to understand that growth rates of 30 percent cannot continue forever, especially as consumers come under more and more pressure to temper spending.



Even if the industry ekes out 10 percent growth over last year during the final four months of the year, the final tally for the year will reach a record $21.5 billion, a nearly 20 percent increase from 2007. That should probably be considered a worst-case, and expectations are that industry revenue could go much higher, up to $24 billion for all of 2008. For the moment, the industry can be pleased that it has generated more revenue in the first eight months of 2008 than it did in the full 12 months of 2005.