The Industry Slumps and Droops in 2011 - But Will it Crash?

Much of what I write about video and computer game history runs into a certain gap in the mid-1980s, when the hobby simply disappeared from commercial viability for a few years.  Consoles, games, magazines and entire companies vanished seemingly overnight, and it wasn't until Nintendo disguised its new console as a toy, thanks to R.O.B. the Robotic Operating Buddy, and sold millions of copies of Super Mario Bros. that most retailers realized there was still a hungry market out there.

Since that time, the industry has matured and stabilized, but it still has its ups and downs.  Recent sales numbers in the game industry have been disappointing -- July's sales (as reported by NPD) are the lowest year-to-year since July of 2006, and publicly-traded videogame-related stocks are being hit even harder than most by recent market volatility.  (July is always a slow month in the industry; it wouldn't be fair to compare July 2011 to, say, December 2010, but a comparison to July five years ago is a fair and worrisome measure.)

Since that fabled 80s crash, we've become accustomed a certain cycle -- this recent drop in sales looks like what normally happens during a console transition to the next generation.  Back in 2006, the XBox 360 was still finding its footing and the PS3 and Wii were due to come out for the holidays -- the industry always tends to slow down as gamers hold off buying new games and save up for a new console and all the games, controllers, memory cards, and other gewgaws that go with it.

But that cycle is not what's happening at the moment, which raises some interesting questions.  Is there simply a five-year "newness" cycle, where excitement about a new platform drives a certain amount of excess purchasing, and then dies down slowly as time goes on, jumping back up when the novelty is restored?  I know I personally tend to buy more games for a new console than for one I've had for a while; I'll update games in favorite categories, and look forward to (ostensibly) improved sequels.  Over time, once I have a library established, I will become more discriminating and patient, and begrudgingly recognize the launch lineup's glaring weaknesses, but when a system is new and exciting I want to have something to play on it.

The recent drop in sales is being officially attributed in some quarters to a lack of new major titles, which can certainly have an impact -- conditions are expected to improve in the fall as big Christmas titles start to roll out.  But even factoring that in, the numbers look significant at the moment, with a 17% drop in games and a 29% drop in hardware sales between July 2010 and July 2011.  So there may also be a saturation factor involved here -- most of the people interested in a new console circa 2005/2006 have probably bought one.

So this sales slump appears to be genuine, and may have a real impact on the industry.  I expect that some struggling companies may go under during the lean times ahead -- for example, THQ Interactive reported a quarterly loss of $0.94 per share in July, after a brief return to profitability in the previous two quarters, and may not be able to withstand a general market downturn.  Some companies have faltered creatively in recent years, and the investment required to capitalize on the next console cycle is likely to be significant, as even Nintendo moves to the HD standard and the additional horsepower will require yet more development investment in audiovisuals. 

But I don't think we're headed for another crash -- while a shakeout may be due, and some belt-tightening is likely in order, and we may not see as many games released, or many creative risks being taken, I suspect that Nintendo, Sony, Microsoft, EA, Ubisoft, and the other majors will survive just fine, and that small niche publishers who know their audiences well will muddle through successfully as well.  The video game audience of 2011 is much broader, and older, with deeper pockets than was the case in 1983.  And small independent developers, as well as talent-rich but financially struggling companies like Double Fine, continue to surprise and delight us with small, inexpensive downloadable games that were not part of the picture in decades past.

As long as there is something of quality to play, I suspect we gamers will be ready to buy.  And if the market slows down, I'll take the time to catch up on some old classics, always looking forward to whatever comes next.