ANALYSIS: UK Market Slump

We expected so much from the first half of 2010 after coming down to earth with a bump last year following the record-breaking sales of 2008.

A string of potential hits postponed from the peak season last year were expected to drive hardware sales and improve year-on-year software sales comparisons.

We’ve all been proved wrong (in Europe at least) and yet, if we take a good look at the market measurement yardsticks we have become familiar with over the years, we should not have been that surprised.

The Q1 Conundrum

It’s true to say that it makes economic sense to launch a title outside of the peak season. Marketing expenditure should reduce as media is cheaper to buy and titles should not require so much spend to raise their exposure given they are away from the Christmas traffic. And, arguably, exorbitant last minute development spend could be avoided if studios don’t have to rush to hit the last quarter.

Furthermore, there is proof from a string of famous licences that have launched in the spring months that demand is healthy and wallets adequate at that time of the year to support million unit sellers.

So it all made sense to leapfrog Christmas 2009 and go for broke in early 2010; or did it?

Here are some factors that we overlooked but which were staring us in the face. First of all, Q1 this year was not just below last year’s – it was way less.

The market for boxed games software has been in decline for fifteen months now in Europe so we have to examine the whole market trend, not just what is happening in 2010 so far.

All hardware formats were in decline last year on a unit basis except the single figures growth from the PS3. Q1 this year is no different in the UK except every console and handheld device has sold less this year in volume terms than the same period last year and the trend has worsened since the end of last year.

THE MARKET DROP IN FIGURES
Hardware unit sales trends

2009 vs 2008
PS2: -65.8%
PS3: +5.8%
WII: -36.5%
XBOX 360: -10.5%
DS (all models): -25.7%
PSP (all models): -25.6

Year to date ending March 31st 2010
PS2: -94.9%
PS3: -5.1%
WII: -45.1
XBOX 360: -22.2%
DS (all models): -35.9%
PSP (all models): -44.7%

We know what gaming hardware is growing though. Anything portable that provides multimedia, not pure gaming experiences, such as mobile phones, laptops and netbooks, oh yes – and the potential business model-breaking tablets and pads. These devices let you play games, but not the traditional core game, a more flirty casual gaming experience that multiplies endlessly when you take that experience online.

Worse still, these devices offer services which are eating into core gaming time such as MSN, Facebook, Twitter and SMS, so unlike consoles, they are not so much destination gaming event services but offer games to kill time when not absorbed in their other functionality. The bottom line is that more and more tweens and teenagers are on MSN and Facebook (playing social games as well) than they are playing core traditional games which they would have been playing five years ago, or even up to the golden year of gaming in 2008.

We may have to accept that a significant market (over 20 per cent) for traditional boxed core games came from these casual gamers who may have invested in a 40 box five years ago but only played it for a few hours.

That was their expectation from gaming – an experience they can now find on portable multimedia devices for less.

2010’S Decline

Continuing with the decline year-on-year in early 2010. There is only so much money in gamers’ wallets. Their own money, that is. GameVision, the European games consumer intelligence service, tells us that 24 per cent of games purchases come from somebody else’s money or gifts. Without that level of cash injection out of the peak season, it’s not surprising that less games per consumer are bought in the first half of the year.

Gamers may buy only one of the new releases at this time of the year, but they can’t afford all.

Looking at the slate of titles released this year, they all, except a few, have one thing in common; they have adult themes and are of the shoot ‘em up genre. They therefore inevitably appeal to the PC, Xbox 360 or PS3 gamer.

This market has been surpassed by the Nintendo platforms, more so in Europe than in the USA where the Xbox has stolen the mantle from PlayStation as the core gamer console brand over there. Nintendo took the highest share of the software market value in 2008 and 2009 in the UK but that group of gamers has less to feed them this year.

The Top 20 games in 2009 had ten exclusive Nintendo titles, of which half were new IP. The Top 20 in most weeks this year has had six or less Nintendo exclusives and no new exclusive IP. This has predictably reduced a significant market cornerstone.

Another impact on market value this year has been the paucity of peripheral-based music games, such as Guitar Hero and Rock Band, which declined steeply from 2008 sales with revenue down by over 40 per cent for the genre in 2009.

Finally, and I am a bit loathe to mention it as it’s too easy to deploy as a default excuse, but the recession has not helped. There will be certain elements of society, not all, who face tough decisions regarding spend week in, week out.

GameVision shows that more people are gaming than ever before but some people are making the most of what they already own and moving to free online experiences rather than seeking new games to acquire.

So there you are, some facts which we could have guessed at three months ago but which we ignored in the hope that a string of high quality titles would turn the market around.

They haven’t so far but we are still hoping that Q2 this year could just beat the same period last year in Europe. I wouldn’t hold your breath as evidence is showing that boxed retail sales are in long term decline.

Only a major price move from the console manufacturers could slow down that decline.

* Nick Parker is the founding partner of Parker Consulting Ltd, the industry’s foremost advisors in strategic planning, business intelligence and research. Contact him at nick@parkerconsulting.biz