In a report published Tuesday, market research company In-Stat/MDR predicted that worldwide shipments of game consoles will reach 19.3 million this year, compared with 35 million in 2003.
Even with a slew of blockbuster game releases late this year, and the manufacturer price cuts to the PlayStation and the Xbox consoles made earlier in 2004, holiday sales are unlikely to push the industry anywhere near the explosive growth of the past few years, said In-Stat/MDR analyst Brian O'Rourke.
"At this point, the market is much closer to the saturation point, even with the price cuts," he said.
O'Rourke said he expects sales will continue to decline at least through next year, as hardcore gamers anxiously await powerful new machines and as game companies find a limited audience of casual players willing to invest in hardware, even as console prices approach the $100 mark.
"It's likely the (Sony) PlayStation 2 will have the biggest drop, because it has the furthest to fall," he said.
O'Rourke said he expects market position to remain similar with the next generation of consoles, which Microsoft is likely to kick off late next year with a new version of the Xbox. Sony will continue to dominate the market, while Nintendo and Microsoft scrap for second place globally.
"They're fairly close for number two, and I think they'll remain that way," he said. "Xbox has done really well in North America, but it hasn't gotten very far in Japan and the rest of Asia. The (Nintendo) GameCube has a solid presence in all three (regional) markets, but they're not really knocking them dead in any of them."
O'Rourke said the biggest challenge for game companies, as they introduce new consoles, will be to get consumers to give up their old ones.
"I think the shipments for the new consoles will be less than current generation, at least initially," he said. "This generation has been so incredibly successful...and a lot of the people who have bought consoles in this cycle are casual gamers who are quite satisfied with what they have now. It's going to be a real challenge to try to convince those people to trade up to the new technology."