January
2002
Games Industry: 2002 and Beyond
As we dreamily read our 2002 horoscopes (for the
record, we’ll collectively find true love, win the
lottery, and wear more lavender and ecru), we wondered
what the year held for the games industry. 2001 was a
tough year for just about every industry, and games were
no exception. Studios closed, industry publications like
Daily Radar and FGNOnline shut down, games
were canceled or delayed after September 11th,
and tales of layoffs were in abundance. But was this,
perhaps, all just a darkest before the dawn scenario?
Even before the holidays, rosier reports of increased
retail sales for game hardware, software, and
accessories were released. In late 2001, the U.S. game
industry was declared ahead
of its game despite the recession. As January rolls
on, holiday sales results will continue to tell the 2001
tale. But what about the future? What does 2002 and
beyond hold for the industry?
On the cusp of a growth cycle
One sign for a brighter new year occurred on on
December 21st when investment banking and
brokerage behemoth Deutsche Banc Alex.Brown launched
coverage of the interactive entertainment industry.
According to company analyst Jeetil Patel, the
next-generation interactive entertainment market for
hardware and software is on the cusp of a tremendous
growth cycle with U.S. interactive
entertainment software sales expected to grow at
from $5.5 billion in 2000 to $9.0 billion in sales in
2004. He believes that the vast majority of the growth
in the industry will be fueled by next-generation
console software, and he sees three fundamental drivers
for the industry that compare favorably to other forms
of media and entertainment, including:
(1) Expanding consumer demographics and audience;
(2) Usage time likely to increase in coming years; and
(3) Growth in interactive entertainment consumption
expected to outpace other forms of media.
"We believe that the interactive entertainment market
is increasingly taking on the properties of the
traditional media/entertainment industries, as well as
capturing a disproportionate share of consumer
consumption of in-home entertainment in terms of time
and dollars," said Patel. "While traditional media and
entertainment may opt to license intellectual property
to new media companies in the next several years, we
believe that ultimately media companies may look to
build or buy their way into one of the fastest-growing
forms of entertainment today."
Record level sales
A similarly positive take is echoed in the 700+ page
report The U.S. Market for Video Games and
Interactive Electronic Entertainment by
DFC
Intelligence, a strategic market research and
consulting firm focused on interactive entertainment and
the emerging video game, streaming media, and
interactive television (ITV) markets. The report
predicts the new generation of 128-bit video game
systems will have combined U.S. sales of over 60 million
by the year 2005. And, according to David Cole,
president of DFC Intelligence, "the video game industry
is poised to reach record sales levels over the next few
years." Overall, DFC forecasts that total U.S. revenue
for interactive entertainment will exceed $12 billion by
2003, a 50% increase from 2000 revenue.
Sustained growth until 2005
From the U.K., Nick Gibson of
Games Investor and Senior Internet, Computer and
Video Games Analyst at Durlacher Research, explains
that cyclical growth has been a characteristic of the
games industry since its inception, and the cycles have
proven remarkably uniform in pattern. Periods of strong
growth have tended to last 4-5 years, followed by flat
or falling sales during a two year transition period as
new platforms are introduced. The last two growth
periods occurred between 1989 and 1993 and between 1995
and 1999. The industry is currently in the latter stages
of its latest two year transition period, as it moves
out of the downward part of one console cycle
(PlayStation, Dreamcast, N64) and into the incline of
the next console cycle (PlayStation2, Xbox, GameCube and
Game Boy Advance). Although the first signs of net
growth are beginning to be seen, Gibson predicts "strong
year-on-year growth will only really be felt at the end
of 2002." From that point on, he expects the industry to
experience a sustained period of strong annual growth
until around 2005.
Cocooning and 24-tainment
On a less financial-analyst level, societal
trendspotters have consistently predicted increased
"cocooning" as Americans, in particular, stay closer to
home following September 11th. This, the
experts say, translates to increased home entertainment.
Trendspotting doyen,
Faith Popcorn’s, predictions for 2002 not only
include cocooning, but also "24-tainment: Entertainment
as a drug" or consumers needing constant entertainment
from every device. Certainly, cocooning and 24-tainment
bode well for PC, console, and wireless.
A grain of salt
As we all learned, or should have a learned, a
valuable lesson from the rah-rah days of dotcom excess,
nothing is perfect. And all overly optimistic forecasts
should be taken with grain of salt. For example,
Jupiter
Media Metrix, new technology analysts, caution that
console players expect immediate gratification out of
the box - a responsive and immersive gaming experience
with no delays or bugs. According to Jupiter analysts,
online console games services due out from Microsoft and
Sony Computer Entertainment in 2002 must deliver on
consumers' expectations or risk market share downturns
in the next console business cycle
And with regard to the wireless gaming market, in the
report "Wireless Games:
Playing to Win" released in October 2001 by Ovum, an
analyst and consulting company, authors Rob Gear and
Roope Mokka say "don’t believe the hype" of a 17 billion
dollars wireless game market. Rather, their report
forecasts wireless gaming will be a billion dollar
market by 2004, rising to $4.3 billion by 2006 an
amount, they say, that is significantly lower than some
industry expectations. They go on to estimate 53 million
social gamers world-wide by 2006, with 60% evenly
distributed between Asia-Pacific and Europe.
A surprise winner
And, finally, who could be the surprise game industry
winner in the new year? Interestingly, Jupiter analysts
believe that the music
industry could gain the most in the near-term from
steady growth in the connected console market. Dynamic
or user selectable music soundtracks will add replay
value and excitement to gameplay. Publishers can extend
a game's lifespan and gain cross-promotional
partnerships by having musicians release special singles
and remixes for use as game soundtracks.
So who’s right and who’s wrong? Only time will tell.
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