Analyst: Game industry to shrink in 2006

Wedbush Morgan's Michael Pachter revises projections, expects a transitional slump before pronounced growth in 2007 and 2008.

It's barely a month into 2006 and clouds are already gathering in the gaming industry's financial forecast for the year.

In a note to investors titled "Flirting with Disaster: The Prequel," Wedbush Morgan Securities analyst Michael Pachter revised his projections for the gaming industry's next three years, saying the firm's previous projection of steady growth is out the window. Instead, Pachter expects combined software sales for the US and Europe to decline 3 percent over the course of 2006 as a result of the market's transition to next-generation consoles.

Pachter notes that during the three-month period leading up to the heavily anticipated November 22 Xbox 360 launch, console and PC software sales in the US were down 21.6 percent. Believing that consumers were holding off on making current-generation purchases in favor of waiting for next-gen products, Pachter thinks it's a trend that could repeat itself, specifically when Sony announces a launch date for the PlayStation 3. Currently Pachter expects that system to arrive in October, meaning the industry's transitional slump could last until late 2006. Pachter didn't pin a date on the Revolution's launch, but did say its 2006 software sales were expected to be about the same as the PS3's, so he still expects it this year.

However, the good news is that once the Xbox 360, PS3, and Revolution have established their user bases, Pachter expects pronounced growth in 2007 and 2008, so much so that the industry will end the next three years up almost 32 percent. That was above his previous predictions of a 29 percent increase from 2005 to 2008.

Gamers can also expect another round of price cuts, according to Pachter's note. He projected 2006 price drops for the redesigned PlayStation 2 (with $129 and $99 floated as two possible price points) and the Game Boy Advance SP (from $79 to $59). Pachter said the Sony PSP and Nintendo DS should also fall in price, although he gave no projection as to how substantial those cuts would be.

63 Comments

  • s0ild_snake

    Posted Jan 15, 2007 8:18 am PT

    great

  • esfoad

    Posted Feb 10, 2006 2:23 pm PT

    Maybe most people are finally tired of buying the same sequel garbage that dev houses like EA seem to release every year, without fail, adding next to nothing in new features. We need a gaming Revolution as soon as humanly possible.

  • ff7cloudking

    Posted Feb 8, 2006 12:12 pm PT

    ...as long as hillary clinton doesn't become president in the US, I'll be happy. =)

  • soulitier

    Posted Feb 8, 2006 7:08 am PT

    (vader voice) nooooooooooooooooooo!
    its happening the clues better graphics less innovation jacking up the prices. that would mean pc gaming would be the olny one left. (i should'nt be worried i have a high end computer) its just that some games should olny be played on a console like zelda and final fantasty.

  • DelphiDevil

    Posted Feb 6, 2006 4:25 am PT

    who cares, as long as ppl need/want something (entertainment, software etc) there will always be someone who will fulfille that need, if they make a smaller profit that's their probleme

  • Myugenjin

    Posted Feb 6, 2006 12:00 am PT

    1 out of the top 10 analyst is only 10% correct! Until at least two other Firms make similar predictions I won't believe it. Sure many Americans are paying more at the pump but WebBush Morgan used that as a scare tactic against retailers this Christmas. 2 days after new years and all the Retailers hit their marks and meet quarterly expectations! The American people can only take so much saving when bombarded with comercials of what they want even with a 14th straight interest rates hike. There have been study's on how spending can be theraputic to the buyers when hit with images of Iraq or Oil prices rising. Not to mention taxes just coming in im sure what's being developed now will coast the industry till 07!

  • Nipplehook

    Posted Feb 5, 2006 11:42 pm PT

    Well...I could probably build a nice computer then if the prices drop.

  • garhart

    Posted Feb 5, 2006 7:55 pm PT

    The 2006 holiday season is going to be crazy. With the possibility of the Rev and PS3 in the initial selling months and the 360 able to ship enough units, I sense a buyers market! Good for us, bad for the vendors. Any vendor that does not compete financially (i.e., lower prices) will be left behind. I see a $299 full 360 and Rev. Maybe a $399 to $499 PS3, very good prices for the gamers!

  • GameDestroyer88

    Posted Feb 5, 2006 7:50 pm PT

    We may shrink....but we'll never die out.

  • YEPEE00

    Posted Feb 4, 2006 10:43 pm PT

    sounds more realistic then the other reports. they act like it's going to bloom. i for one grow tired of being suckerd.

  • AzN_K3V1N

    Posted Feb 4, 2006 8:40 pm PT

    there should be price drops here and there. that would increse their sales.

  • rbarahona

    Posted Feb 4, 2006 7:56 pm PT

    Interesting. I think that the market will grow this two or three years. If Nintendo, Sony and Microsoft can show the goodness of their new consoles, then more people will get into the next generation train.
    However, if the price of those new products are very high, then sales could decline.
    I'm also waiting for a price cut in this generation's hardware and software. That way I can keep busy before purchasing a Revolution or a PS3.

  • lageasy311

    Posted Feb 4, 2006 11:06 am PT

    Don't know either, but all's i can say's is ps3 come home with me, we can laugh and hang out by the sycamore tree, and hey if you gotta pee, do it with me, i like to see, my playstation 3, in action cuz im a sick-ee

  • MastrCake

    Posted Feb 3, 2006 4:54 pm PT

    My theory for the next gen, (or rather, hopes) are that the Xbox 360 takes the lead, Nintendo comes back into the running at second place, and the PlayStation 3 takes sony into a financial fiasco (or, simply put, 3rd place). Why? The Playstation 3 will most likely be too expensive for most, and not offer the most bang for your buck. Nintendo's Revolution will become the Silver medal awardee due to it's low price and high appeal. At least, it is appealing to me. The Xbox 360 will win, because of the bang for your buck factor. It might not offer as much is some areas, but it will offer more in others.

  • XlpranksterlX

    Posted Feb 3, 2006 3:54 pm PT

    I respectfully disagree, and either way they were wrong about games last year too so take this with a grain of salt.

  • Tranceplant

    Posted Feb 3, 2006 10:22 am PT

    Well, everybody is keeping their money to buy the next gen consoles. So there will be some shrink in the sales... software sales will be alright as people will continue to buy PS2/GC/Xbox games. But other than that... it will suffer a little. If they say that both Revolution and PS3 might come out late this year, then people will be even more holding off, thus no real big sales until this fall...
    But it won't be a major blow to the industry. I'm sure that IF microsoft releases a new improved and fixed Xbox360 console, then hardware sales might go up faster.

  • castlevaniaX

    Posted Feb 3, 2006 9:01 am PT

    hi,

    Well, I agree with what Mr. Pachter mentioned about the decreasing and then the increasing of sales in the next 3 years including this year, 2006 of course. I still believe that the PS3 will make huge sales at the launch date and I don't think that the Revelotion will reach that number of sales because this is a world of console where great processors will play a huge part in producing huge games.

  • fmcuk

    Posted Feb 3, 2006 8:37 am PT

    Just remember that analysts are just paid to talk, but they are not forced to be right.
    One year ago, all analysts believed the PSP would crush the DS... and you know the rest.
    Seriously, who thinks that a MBA degree gives you authority to talk about games, when you don't even know the difference between a Gameboy and a PSP?

  • Reetesh

    Posted Feb 3, 2006 6:17 am PT

    PS3(console and Games) sales should be so high that it should make up for the whole year

  • Windtear

    Posted Feb 3, 2006 3:58 am PT

    Analyst usually have 50% chance to predict things right. But it's not easy to become an analyst. Instead of taking random guess, an Analyst needs to have an educated guess.

  • teacherguy2k

    Posted Feb 2, 2006 11:15 pm PT

    The shrinking of the game industry has more to do with less games being available on the market--and at a higher price--than the consoles themselves. I'm more than likely to drop $60 on three or four older or used games, but I don't see myself doing that on one next-gen game... at least not very frequently.

  • davahsa

    Posted Feb 2, 2006 6:03 pm PT

    less games released for the new Got-To-Have systems means less revenue. Simple enough

  • Orasion_Seiz

    Posted Feb 2, 2006 4:58 pm PT

    not good for the gaming industry...

  • rockstar_88

    Posted Feb 2, 2006 4:29 pm PT

    Well considering there are a lot less gamers now then there were back in the 16-bit era, I'm not actually all that surprised.

  • frontier49

    Posted Feb 2, 2006 2:51 pm PT

    When will industry giants like EA, THQ, Activision, Take-Two, etc., realize that releasing crap games (or even so-so games) that simply look great on a constant basis doesn't work? If they take the time to actually make good games, more people will buy them.

  • pcgothicgamer

    Posted Feb 2, 2006 2:42 pm PT

    interesting my friend just got a psp for like $240 he'll cry when i tell him!!!lol but another price drop round thats like the 4th god!! how low will they go? soon ps1 games will be like 2 cents!!!1 lol if thats happens ill laugh!!!!!

  • stewiegriffin78

    Posted Feb 2, 2006 1:56 pm PT

    Do they ever give up? No one can tell what's going to happen. Remember when the analysts said that 2005 was going to be a bad year for the gaming industry? They were wrong then.

  • paradyme777

    Posted Feb 2, 2006 1:53 pm PT

    It shall rise again!

  • zhuojloh

    Posted Feb 2, 2006 1:44 pm PT

    minor set back, then it will grow even larger...

  • Adada2011

    Posted Feb 2, 2006 1:39 pm PT

    Wow man that is pretty cool. But how much will an xbox be. they only talked bout sony and nitendoes prices were is the xbox

  • mkdc

    Posted Feb 2, 2006 1:39 pm PT

    If the PS3 is selling at the current X360 price point, then X360 will have a price drop. for sure!

  • Metron4

    Posted Feb 2, 2006 1:35 pm PT

    "Hey! I'm an analyst! Pay me to be wrong 97% of the time!"

  • gtafreak621

    Posted Feb 2, 2006 1:19 pm PT

    Well, this will probably happen with the other generations of gaming systems to come. The year of the transition = the year of the most loss.

    Im sure the game industry will bounce back full force and probably top on what it was before.

  • doomed51

    Posted Feb 2, 2006 1:16 pm PT

    yea not amnny ppl are gonna be buying the next-gen comsoles and the first-party developers are doing next to nothing for current-gen so yea.....

  • peterzhao333

    Posted Feb 2, 2006 12:49 pm PT

    price drop=ME HAPPY

  • StanleyL GameSpot staff member

    Posted Feb 2, 2006 12:34 pm PT

    I blame World of Warcraft.

  • grnidbandit

    Posted Feb 2, 2006 12:31 pm PT

    Wheres everyone getting this idea that Microsoft is going to drop the 360's price? Sony fan boys would say PS3 is going to be around $299 to $499 while 360 fan boys would tell you its going to be $700 and up. If sony is going to charge $700 and up then why would microsoft drop their price? and if sony releases it around $299-$499 why would they still drop their price, since they would be in the same price brackett.common sense. I dont think there ever has been a system out where theres even a small price within less than a year.

  • kaziechameleon

    Posted Feb 2, 2006 12:30 pm PT

    i think if someone claims that short cinematic games have turned him away from the industry he is obviously an idiot, the top games of this year sponsor excellent multiplayer(battlefield 2, guild wars, call of duty 2, civilization 4, perfect dark, project gotham 3, fear, and so many more) plus look at the wonderful length of such recent games as doom3, farcry, and half-life 2, and resident evil four, if those aren't long enough for you just wait and im sure oblivian will steal your life. if this hobby is to expensive for you then you might want to get a job, and if you work at Mcky D'sss, well quit and get a real profession. stop conplaining, look at great games, like killer 7 retail for only 20 dollars, it's short and comparitively priced.

  • selfaware_robot

    Posted Feb 2, 2006 12:22 pm PT

    analysts should give up, they are almost always wrong

  • Khimarhi

    Posted Feb 2, 2006 12:19 pm PT

    i have a hard time believing that with the debut of 3 systems in a year

  • AlexWills

    Posted Feb 2, 2006 12:15 pm PT

    he's probably right. I for one have a glimming interest in games anymore. Mainly due to "movie-like" games that play for about 3 hours. And who wants to buy all these new expensive consoles?

  • bizsumpark182

    Posted Feb 2, 2006 12:11 pm PT

    How bout we just wait and see what happens.

  • Cool-AN

    Posted Feb 2, 2006 12:08 pm PT

    Analyses predict a 50 % increase in analyst BS in 2006.

    Why do people predicting this? It hasn't happen yet.

  • Schtoor

    Posted Feb 2, 2006 12:03 pm PT

    Everybody wants an installment base before releasing their blockbusters, so lets hope the console companies can supply the demand. Not like MS.

    But with the down period for next gen consoles I guess Nitnendo DS - and perhaps even PSP - will get a lot of focus from developers/publishers. Plenty of good games for portables.

  • tbonetrav18

    Posted Feb 2, 2006 12:01 pm PT

    This is all just speculation based on stats and theories. However, I believe that sales are down also because we pay more for gas(extra couple hundred a year).

  • Kfoss

    Posted Feb 2, 2006 11:58 am PT

    wow it dosent take a rocket scientist or an anlyist to know this, of couse the game industry is going to have to downsize for 2006, not enough X360 consoles, not enough people buying new X360 console games, SO what this the year of???? playing older titles whose prices are falling from the sky, which ='s lost revenue for game companines in general...so a few game companies will have to shut there doors, no biggy..... however the drop in gameing might actually be good for the industry, it might actually fall benith the radar of crazy politicians....then again the next ice age could come tomarrow....

    YAY FOR INSANITY!

  • HoTillyHooHa

    Posted Feb 2, 2006 11:58 am PT

    Oh yeah, No price drop on 360 this year.

  • HoTillyHooHa

    Posted Feb 2, 2006 11:57 am PT

    I know things, so listen. PS2 drop $99. Original XBOX $99. GBA SP $49-59. Expect all of those around E3. Nintendo DS original $99 whenever Sony drops the PSP price later in the year to $199. Also expect the Micro to drop before christmas.

  • HoTillyHooHa

    Posted Feb 2, 2006 11:57 am PT

    I know things, so listen. PS2 drop $99. Original XBOX $99. GBA SP $49-59. Expect all of those around E3. Nintendo DS original $99 whenever Sony drops the PSP price later in the year to $199. Also expect the Micro to drop before christmas.

  • Jackrm

    Posted Feb 2, 2006 11:56 am PT

    I was thinking the same thing. Months before the PS2 came out, PS1 & N64 sales plummeted. Once the new system was out for a few years, the game industry had tremendous growth.

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