Over the past year, game journalists and everyday video game fans have argued whether or not the video game industry is recession-proof. Until just a few weeks ago, many people believed it was proving all the doubters wrong by staying afloat and not showing any major losses. Turns out it was really just a matter of time.
The evidence began to pile up approximately one month ago, when quarterly reports began to come out for Microsoft, Sony, and Nintendo. And the news wasn’t good for any of the three console makers.
The Xbox 360 sold just 1.2 million units, down eight percent from the prior year, and it’s lowest quarter since 2007. It’s revenue had dropped 17 percent and profits 29 percent. Microsoft’s game revenue from the Xbox 360 and PC were down 12 percent.
Sony didn’t make it out any better. They posted a 31 percent drop in PlayStation 3 sales and PSP sales plummeted 64 percent. Its revenue dropped 10 perecent, while game sales across the PlayStation 3, PlayStation 2, and PSP fell a whopping 58 percent. Broken down that is a fall of 36 percent for PS3, 30 percent for PSP, and 56 percent for PS2.
Nintendo appeared to suffer most of all three. Its revenue dropped 40 percent, while profits freefell 60 percent. Wii sales fell 57 percent and sales for the DS dropped 14 percent.
It was then that people heard the first official claims of the industry being affected from a company, as Sony contributed its losses to the global economic recession. But the console makers’ reports were just the tip of the iceberg for proof.
Electronic Arts posted a revenue decrease of 20 percent in their first-quarter report as losses increased by 41 percent. Sega Sammy had a sales drop of 19 percent and Ubisoft recorded a massive decrease of 51 percent.
Just this past week, Activision and Electronics Arts announced they would be making layoffs to subsidiaries Raven Software and Maxis, respectively. The releases at Raven have been rumored to be around 56, while there have been no estimates for the amount of employees gone from Maxis.
A Raven Software represtentative sited a decrease in workload for the stuido as the reason behind their layoffs, something not normally done in a healthy economy or industry. EA hinted at the slow economy being the reason for their releases, stating that the size of studios tend to fluctuate based on "business conditions."
Last is the recent news that both Sony and Microsoft have cut the prices on their consoles, with the PlayStation 3 and Xbox 360 Elite now at $299. Nintendo is now rumored to also be dropping the price of the Wii by $50 to $149 in the coming months.
Just over a year ago the PlayStation 3 was being sold on average for $499, a $200 difference. That difference combined with all the other evidence imply that the economic recession has hit the game industry hard and the three console companies are now making adjustsments to facilitate for it.
With all the evidence compiled, the question at the end of the day is what does this mean for the industry? The answer lies in the evidence as well.
Despite the large losses by all of these companies, one must remember that it took nearly an entire calander year for the effects to hit the industry. If it took that long for the recession to finally start affecting the industry, then it can be safely assumed that the industry will make it out of this recession with much less damage than other industries such as automobiles and real estate.
There is also the fact that economic analysts watching Wall Street have noticed that the decline in the economy in the US is slowing and showing signs of stopping. This means that the recession is beginning to reach its end and hopefully will within the next year or two. Combine that with how it took so long for the game industry to first feel the strain of the economy, and the outcome of the industry emerging mostly unscathed is looking more likely.
So what does this evidence prove then if not that the industry will be undone by the recession? It simply means that the industry is not invincible. That it will fluctuate based on consumer demand and economic downturn just like every other industry
It also means that it can withstand a decline much better than several other industries. And if it can survive a recession this bad the way it has, then the gaming industry should be around for a long, long time.
