Analysts: Recession can't keep game industry down

Pachter, Divnich, and Schacter say strong software sales indicate games will continue double-digit growth in 2008, February continues to ride holiday 2007 storm.

Yesterday, the NPD Group issued its monthly report on the gaming industry's cumulative performance in the US. Shocking to those who followed analysts' predictions of 20 to 34 percent software growth from the day before, publishers raked in software sales of nearly $669 million in February, amounting to a 47 percent spike compared to the same period last year. On the whole, the industry grew by 34 percent to $1.33 billion in hardware, software, and accessory sales, with the top five products for the month being Call of Duty 4 (Xbox 360, 296,000 units), Devil May Cry 4 (360, 295,000), Wii Play with Remote (Wii, 289,000), Devil May Cry 4 (PlayStation 3, 234,000), and Guitar Hero III (Wii, 223,000).

Today, several industry analysts issued their mea culpa for dramatically understating software growth, and offered some insight on how the rest of the year will play out with respect to the gaming industry's extremely positive performance in February. According to UBS Investment Research analyst Benjamin Schachter, the industry is still basking in the holiday 2007 lineup.

"While new releases during the month, such as Devil May Cry 4 (Capcom, 529,000 units across two platforms) and Xbox 360 exclusive Lost Odyssey (Microsoft, 204,000 units) sold well," noted Schacter, continuing, "overall software dollar growth continues to driven primarily by the big hits from the 2007 holiday, including Call of Duty 4, Guitar Hero 3, and a nice showing from Rock Band (in terms of dollars, Rock Band on the Xbox 360 was the number one title, a milestone for this franchise). In fact, 7 of the top 10 selling games in terms of dollars were released in calendar year 2007."

With Microsoft touting the fact that it captured 39 percent of "this generation's ecosystem," despite selling the lowest number of consoles for the month, analyst Jesse Divnich of prediction market the simExchange pointed out that the publisher's lead in tie-ratio is correlated to a game's online component.

"We originally projected that the software ratio between the Xbox 360 and the PS3 version of Devil May Cry 4 (DMC4) would be 1.61-to-1 in favor of the Xbox 360," observed Divnich. "We considered that ratio to be proof of a closing gap between the sales ratio of Xbox 360 to PS3 games sold for multi-platform titles. Actual results were much better than expected with a sales ratio of only 1.26-to-1 in favor of the Xbox 360. These results reiterate our original interpretation of the prediction market that DMC4 was likely a hardware driver for the PS3 in February."

The prediction market also believes Mario will score a headshot on Call of Duty 4 in March, with Super Smash Bros. Brawl expected to bump Infinity Ward's shooter out of the top slot after four straight months of dominance.

Both Divnich and Wedbush Morgan Securities analyst Michael Pachter noted that February's tally further reiterated the point that the gaming industry is poised to continue to thrive, despite a flagging US economy. "Many economists warned that the United States economy is currently in a recession or on the verge of one," noted Divnich. Irrespective to that, the video game industry continues to post record growth and although no leisure/entertainment sector can be considered 'recession proof,' the video game industry continues to prove to be one of the very few industries to have the least elasticity to the current economic environment."

Agreeing, Pachter noted, "The sales figures reflected dramatic growth in unit volumes year-over-year, suggesting that sales are widespread and that the video game industry is resisting the onslaught of a recession." Pachter attributed the industry's 47 percent spike to average sale price, which stood at $39.46 for the month, a 20 percent year over year rise. The prolific analyst also noted that 19 games sold more than 100,000 units in February, up from 10 last year.

Looking ahead, Pachter believes February serves as a good indication for what is in store for the industry in the coming months. "We expect industry sales to be strong for the next several months, with a strong release schedule early in the year allowing sustainable double-digit sales growth," he said. "We currently forecast full year growth of 19 percent, but think our estimate may be conservative."

130 Comments

  • DiabloRaul

    Posted Mar 25, 2008 1:48 pm PT

    I'd rather spend $60 on a video game which I can keep and play until my eyes rot out of my face then spend it on food which I would just digest and poop out later. I would spend less money on gas because I would be filling up my Ford Focus for at least $40 a week plus where I go for entertainment might be another $10. So I could see why people would rather spend money on games then on other forms of entertainment. Plus, the awesome games that have been coming out lately are reason enough to cut back on those daily indulgences such as coffee, movies, fast food, and other expenses which could either be saved up in the bank or put to use for other luxuries.

  • Kelemhuma

    Posted Mar 17, 2008 5:02 pm PT

    Homerj First off I want to start off by saying I am not a console fanboy. I own high end PC, PS3, Xbox 360. I am a gamer. The reason im commenting on what you said is simple Xbox 360 is not more powerfull than PS3. the reason developers are starting to develop on PS3 first is simple It is a harder platform to develop for because unlike 360 PS3 memory is not unified. Technically speaking PS3 is more powerful than Xbox 360. Xbox 360 is a custom Xeon processor with three reg cores and 3 hyper threading cores clocked at 3.2 gigahertz 512 megsof unified memory architecture. PS3 Cell processor 8 processing cores clocked at 3.2 gigahertz, 6 cores are available to the system 2 are used by Sony it has 512 megs non unified memory. Its just harder to develop for. Something developed for 360 ported to PS3 is not not going to run good on PS3 hardware.If they start with PS3 in mind first It is much simpler getting the game running on unfied memory running smoothly. My case and point most games dont take full avantage of Ps3 hardware that's because they are still creating tools to make it easyer to program a game on mutiple Cpu cores. Naughty Dog has made a game that does take advantage of PS3 hardware Uncharted Drakes Fortune. Check out my review here on gamespot great game! You can expect more games of this quality in the future Like Metal Gear and a few other titles this year.

  • NND1

    Posted Mar 17, 2008 1:32 pm PT

    Yeah!! 360 Rokz, Quit Hayten My Friends

  • allright715

    Posted Mar 17, 2008 1:31 pm PT

    Hmm.. This has been going well very good. The opposite of any video game crash i heard of.

  • grigjd3

    Posted Mar 17, 2008 12:28 pm PT

    You can buy a new (just released) video game for the cost of a tank of gas now. Is it at all surprising this industry is doing so well?

  • SaitouZero

    Posted Mar 17, 2008 11:49 am PT

    March is gonna be huge with Smash Brothers, R6 Vegas 2 and Crisis Core and April will be even bigger than that with GTAIV and Mario Kart.

  • Icky27

    Posted Mar 17, 2008 11:32 am PT

    It makes sense when you think that people will always need a form of entertainment to break away from their daily lives. As such games become a good route, it's cheaper than a lot of other activities and with a growing population of people that played games growing up, it's a more likely alternative.

    Consider this, the game Monopoly came out during the Depression.

  • Yuck_Too

    Posted Mar 17, 2008 11:10 am PT

    --blue_tape --
    "DMC4 a console seller? Do these guys know what they're talking about? (No.) When people have to make choices between food, gas and video games, most people will choose the first two."
    ~~~~~~~
    lol...I remember when Diablo II shipped I didn't eat or sleep for 3-days, but your point has merit.

  • Gifted_One

    Posted Mar 17, 2008 10:21 am PT

    In case you guys forgot. The US is on the verge of recession; not that one is happening right now. And if/when there is a recession everyone loses. You think it's not going to affect you? How about you read up on exactly what went down 1929(if i remember right). Today is a different society all together, expcept for the part where money still means the the same thing. The best thing people can do is start voting and maybe so many people in gov't would be better selected. So many cry about the current politicians; yet, there is such a minority of people voting. You as an individual may not matter; but when you and 70%(give or take) of other people saying the same thing, it simply adds up. Appeasement is not taking action. Example: Churchill appeasing Hitler and the Nazi Regime. Recession can and will affect everyone in one way or another. I agree with "HighlyToxic" in that more people will pick up gaming as means to keep themselves busy for cheaper. Those who normally wouldn't game as much may begin making more investments towards gaming. BTW.. If the US economy does begin a true recession the the game industry as a whole will take more losses overall because i believe it will be a minority of gamers who will increase the investments in video games rather than stop buying games altogether. When the Game industry takes a hit. Gamers take a hit. Less money to work with means worse vidoe games. So for the guy who says it wont affect him or isn't. It will. Whether you are financially set or not.

  • carljohnson3456

    Posted Mar 17, 2008 10:21 am PT

    "blue_tape DMC4 a console seller? Do these guys know what they're talking about? (No.) When people have to make choices between food, gas and video games, most people will choose the first two."

    lol, Best post on this article. Thumbs up.

  • shootemup05

    Posted Mar 17, 2008 10:14 am PT

    HighlyToxic
    Depending on the scope of the outlook, current trends may be unreliable. If this article suggests that the industry will continue to do well for the current year, I'd tend to agree. However, the effects of the recession take a while to be felt by consumers. The mass belief up until recently was that we were in no recession at all, and that this was a rather mild blip on the radar. These expectations would warrant continued trends. All indicators, on the other hand, show not only projected a recession (that we are now currently in), but other factors show a deeper recession than others in the recent past, and much more severe at that. To be sure, the video game industry is not going to feel any effects of the recession until very possilbly a year into, and it will be that long at a minimum.

    Bottom line, this recession is not going to have any hinderance on the industry in the months that are mentioned in this article, but rest assured, it will be affected in the coming years with across the board decreases in spending (beyond the gaming industry). The narrow time frame of the article make it inherently misleading with regards to the overall performance of the industry.

  • MaverickHunterX

    Posted Mar 17, 2008 10:08 am PT

    This anayst suggests that the industry is unaffected by a domestic recession. I am curious if that tells us something new about the economic dynamics of the industry, or if it just reaffirms conclusions about the game industry inherently (things we already know, like price elasticity, elasticity of demand, ect.)

  • smbius

    Posted Mar 17, 2008 9:08 am PT

    well put by someone called HighlyToxic

  • UnholySaviour

    Posted Mar 17, 2008 9:07 am PT

    im no analyst but my prediction is if mommy and daddy cannot afford to buy starbucks coffee and start brown-bagging lunch to work then the kids allowance is getting cut as well because lets face it the majority of the gaming world is no longer just late teens to early twenties anymore

  • blue_tape

    Posted Mar 17, 2008 9:02 am PT

    DMC4 a console seller? Do these guys know what they're talking about? (No.) When people have to make choices between food, gas and video games, most people will choose the first two.

  • dabomb691

    Posted Mar 17, 2008 8:57 am PT

    The recession isn't affecting me at all

  • HighlyToxic

    Posted Mar 17, 2008 8:34 am PT

    @shootemup05: Yes, recessions do limit the budget of families, and people do cut back on big ticket items. But people also need a release, and studies have shown that in times of economic recession, people will treat themselves to cheaper luxuries to compensate for their lack of expensive goods. I'm not suggesting more people will become gamers. But people who do enjoy video games will probably buy more games and stay at home for entertainment rather than spend their money on more expensive diversions, like travelling. The uptrend in video game sales prove this, and video games will continue to do well throughout the recession.

  • shootemup05

    Posted Mar 17, 2008 7:34 am PT

    HighlyToxic
    It is in fact obvious that people will downgrade their forms of entertainment. However, that downgrade will not necessarily result in more people switching to gaming. Chances are, if people aren't gamers already, a recession is not going to be an event that compels them to become gamers. Not to mention, a large target market of gaming (parents buying for kids) will severely be hindered as a result of scrutinized spending. Households will have to begin deleveraging their accounts before they start making more luxury purchases, considering the fact that U.S. households spend more than they actually make, further plunging the recession.

  • HighlyToxic

    Posted Mar 17, 2008 7:14 am PT

    It's not surprising that the video game industry is doing so well. In times of recession, people tend to cut back on expensive leisure activities, like travel vacations, and spend on cheaper forms of entertainment, like video games. You don't need to be an analyst to figure this out.

  • Homerj

    Posted Mar 17, 2008 6:53 am PT

    "lol Ok. Well if Mass Effect (which is very possible) or Bioshock go multiplatform, I'll be looking forward to the petitions by "them 360 fanboys". "

    By this point in the gen, exclusives have really lost their relevancy...there is such an extensive and diverse library of top shelf games on the 360 already, that exclusives have minimal impact. The only concen of the "360 fanboys" at this point, is the current state of third party development. Because so many devs have found that games built to 360 spec are simply too much for the PS3 hardware, its now fashionable for them to start with the PS3 spec, to minimize costs of downgrading a game to get it run adequately on the PS3, then downgrading the 360 version to get the versions to match. This is great for the devs, and great for Sony....but the 360 community gets games that are well below their actual potential. This is the true concern of "360 fanboys".....and if it proves to be an ongoing trend, then there will actually be increased financial pressure to force 360 exclusivity.

  • Homerj

    Posted Mar 17, 2008 6:46 am PT

    "I just hope Capcom do what's in the best interesst for them instead of listening to the ps3 idiot fanboys.It's still crazy that the 360 version of DMC4 outsold the ps3 version.If Capcom kept it exclusive they would have lost a lot of money."

    Capcom is a solid supporter of the 360...no worries there. Capcom is has put out some really quality stuff for the 360 community and they have been repaid by very solid sales and a lot of praise. Capcom has never been ones to play the system fanboy game....just look at all the top shelf releases they put out for Nintendo in the last gen, even though Nintendo was the "loser" of that generation, and also note all the quality work they are putting out for the Wii in this gen, even though its "tech inferior".

  • dmastor

    Posted Mar 17, 2008 6:45 am PT

    klugenbeel Shut up get a life and move out you parents house.

  • klugenbeel

    Posted Mar 17, 2008 6:36 am PT

    It amazes me, how in the US, we are going through a recession, yet we find money to spend on video games. Now myself, am fortunet that the recession is having very little effect on my income (gas prices are all that are hurting my wallet atm) and I can still go to the store and pick up the games I want, when they come out and not be effected finacially. The point I am making, is not everyone is in my spot, I know many of people who are not, yet the gaming industry is up? I have friends and family struggling to make ends meet now with gas, food and other products going up in price and many of them are not buying new video games asmuch as say someone like myself would, and this is the case across the US, but some how, people are putting a few bucks aside for their favorite games. Evne during a recession, people still will buy something that is a hobby, or makes them happy. With growth in the gaming indutry, could we see these companies maybe start making and bringing in new jobs, help the US economy? Chances are low, but hey the hope for new jobs in a struggling economy do help. Here is hoping there could be some more good out of the growing gaming industry!

  • Antaeus1991

    Posted Mar 17, 2008 5:19 am PT

    @ chineolee - Yes but it won't have such a big affect on the UK economy and the credit crisis seems to be staying a its current level rather than just getting worse.

  • chineolee

    Posted Mar 17, 2008 4:28 am PT

    A sustained or severe recession would hit the video game market just as it would hit other consumer markets, and its pretty naive to assume it wouldn't.

    @ Antaeus1991 - America doesn't exist in isolation. A recession in America would probably result in one in the UK. The credit crisis is already affecting the UK.

  • Antaeus1991

    Posted Mar 17, 2008 3:03 am PT

    I am glad I live in the UK. None of the flagging economy or anything. I just hope the developers and publishers that are based in the US don't get too affected by the US economic difficulties. Although, there aren't so many big developers in the US anymore so I guess I don't have to be too worried.

  • SpaceMoose

    Posted Mar 17, 2008 1:35 am PT

    I want to be an analyst. You either get to state the completely obvious or make guesses about stuff and it doesn't really matter how often you are wrong. Sure, I'll take money for that.

  • shootemup05

    Posted Mar 16, 2008 11:49 pm PT

    RahKayne
    We are very much in a recession. Multiple predictors of market performance have pointed toward a recession. Economists are finally starting to admit that we are in fact in a recession. The only ones who will not admit the state of the economy are those who either have a stake in the market themselves, or the Federal Reserve through their Open Mouth Policy.

    I personally don't see how the gaming industry is exempt from this. When consumer spending is cut, a la falling housing prices and thereby negative amortization, you won't be seeing an increase in spending on luxuries, of all things.

  • desolation00

    Posted Mar 16, 2008 11:03 pm PT

    I'll personally agree that I think part of the slim ratio between DMC4 on 360 and PS3 is less that DMC4 has pushed PS3 sales, more that the fans who chose PS3 first have more appreciation for the franchise than their 360 owning counterparts. Another small bit may be that if PS3 has a smaller catalog of hit games than 360, then those games that do hit won't be saturated out of sales. There are only so many games I'm willing to own/purchase at one time (in one holiday season), and folks may have hit that number for themselves already if they own a 360.

  • tyler2357

    Posted Mar 16, 2008 10:50 pm PT

    That Zeitgeist video was amazing. I've been researching what they talked about in the video and all of them have been very accurate so far. Everyone should go and watch this movie. www.zeitgeistmovie.com

  • RahKayne

    Posted Mar 16, 2008 9:45 pm PT

    I thought we weren't officially in a recession yet?
    I hate it when people say the water is boiling when you just put it on.

  • KiNgAlBo23

    Posted Mar 16, 2008 9:03 pm PT

    i just got my ps3 (20GB) last week and i am not the least bit impressed. i got it brand new for $200 (dont ask) so i really shouldnt have any complaints. but having owned the X360 from day one and read countless posts from the ps3 faithful about how amazing the ps3 is, i felt a little let down. yea, spider-man3 blu-ray looks sweet & the web browser is really cool. however, i havent even touched the dam thing to play a single game since the day i got it! to me, it feels boring compaired to the X360. the biggest reason for this is the online. if you dont own an X360 you wont understand. it's so many little things that turned me off. but the biggest reason is that with the X360, i truely feel connected, to other gamers & to friends. with the ps3, i feel like watching a movie. so as an offical owner of both systems, the X360 is by far a better gaming console for hard core gamers by offering players the best overall gaming experience in the industry, where as the ps3 makes a great purchase for someone who looking for a hi-def movie player who also happens to be a casual gamer.

  • Dryker

    Posted Mar 16, 2008 8:22 pm PT

    DMC 4 as a PS3 seller!? The 1.24 to 1 ratio of DMC 4 on 360 to DMC 4 on PS3 a clear sign that the sales ratios are diminishing more significantly than anticipated!? Do these people now videogames and their history at all? I, by no measure, would consider DMC 4 as a system seller. A good game? Surely, not phenomenal, but good. The reason the ratio of sales was so close between PS3 and 360 was because, what I would consider, "early adopters" of the PS3 are Playstation fanatics and love their proven franchises, i.e., Devil May Cry and are more likely to buy a sequel of the game than 360 owners. It really chaps my hide how these so-called specialists are only special at being con-artists.

  • Y2Pablo posted Mar 16, 2008 3:35 pm PT (does not meet display criteria. sign in to show)

    Y2Pablo

    Posted Mar 16, 2008 3:35 pm PT (hide)

    thank god i live in Canada and video games are made in Japan.
    As long as u guys done nuke Japan again anytime soon or invade Canada for our tasty, tasty bacon think im set!

  • KamalR

    Posted Mar 16, 2008 2:40 pm PT

    @carljohnson3456-Who cares about Mass Effect and Bioshock? we'll just keep getting new IPs that's exclusive.I'm glad Capcom was smart and didn't listen to the stupid ps3 fanboys.They sold over 500,00 copies because it was multi.I just hope Capcom do what's in the best interesst for them instead of listening to the ps3 idiot fanboys.It's still crazy that the 360 version of DMC4 outsold the ps3 version.If Capcom kept it exclusive they would have lost a lot of money.

  • carljohnson3456 posted Mar 16, 2008 2:16 pm PT (does not meet display criteria. sign in to show)

    carljohnson3456

    Posted Mar 16, 2008 2:16 pm PT (hide)

    "jtthegame316 295,000 that is a lot of units capcom would of lost out on if they would of listened to them idiot playstation fan boys who cried about dcm4 going on 360. the way they behaved was rediculoius you would of thought capcom pulled the plug on the ps3 version the way they were acting."

    lol Ok. Well if Mass Effect (which is very possible) or Bioshock go multiplatform, I'll be looking forward to the petitions by "them 360 fanboys".

  • Jstation3

    Posted Mar 16, 2008 2:14 pm PT

    But if the recession worsens, we won't be playing games, we'll be sittin' in front of our tv looking at a turned off console because we won't have any electricity to play it. Yay!!! God bless America..lol...Recession won't affect the gaming industry, not ever...haha!

  • jtthegame316

    Posted Mar 16, 2008 1:37 pm PT

    295,000 that is a lot of units capcom would of lost out on if they would of listened to them idiot playstation fan boys who cried about dcm4 going on 360. the way they behaved was rediculoius you would of thought capcom pulled the plug on the ps3 version the way they were acting.

  • Thesimsfrk111 posted Mar 16, 2008 1:14 pm PT (does not meet display criteria. sign in to show)

    Thesimsfrk111

    Posted Mar 16, 2008 1:14 pm PT (hide)

    It's a good damn thing I live in Flower Mound, Texas where none of this **** is happening. Upper-Middle Classmen FTW.

  • Lord__Darkstorn

    Posted Mar 16, 2008 11:36 am PT

    I dunno; it'll still be hard to buy many games (in the U.S. at least) with the falling dollar. I really wish we were on the Euro about now...

  • kozmikkroozr

    Posted Mar 16, 2008 11:28 am PT

    ROCK ON GAME INDUSTRIES!

  • yoyoman10 posted Mar 16, 2008 8:30 am PT (does not meet display criteria. sign in to show)

    yoyoman10

    Posted Mar 16, 2008 8:30 am PT (hide)

    if you have to take away freedoms in order to protect them, then what are we really fighting for? goverment power thats what.

  • Beesters

    Posted Mar 16, 2008 8:27 am PT

    economy is based off supply/demand factor, when the two meet its the equilibrium......I have invested in stock in video game companies, and the one that seems to be doing well is Atari, check it out if anyone is into the stock market

  • halfbreed11111

    Posted Mar 16, 2008 8:24 am PT

    WHOUT GO GAMES keeping the ecomony alive for twenty years

  • Chezzanator

    Posted Mar 16, 2008 7:26 am PT

    Just saw Zeitgeist, really makes you see how the world has become corrupt. Everyone should see this movie. Thanks to the person who posted the link.

  • DerekLStinson

    Posted Mar 16, 2008 6:38 am PT

    I would say we are in a bit of a recession. I haven't had a raise in 3 years. Price of gas has doubled since 2005, and gradually the price of my food in my shoppng cart has gone up. My cost of living has gone way up. The value of the dollar has been going down. No one can seem to keep a home. I work in the paint industry. New home construction has all but gone to hault. New construction has gone down, too. Markets go up and down, and the market has definitly gone down since 2005.

  • Chrisseh1988

    Posted Mar 16, 2008 5:02 am PT

    ACEGamer89. Demand isn't the only determining factor of price in a market. Everyone wants water much more than gold, but why does it cost so little? Economists back in the day of smith and ricardo would have argued your point but theres much more to it. The supply of a good or service is just as important. Also, i have no idea why gold is in your explaination. We've long past the days of barter.

    The same said about gold can be said about currency. The US dollar doesn't have value bacause the US government say it does.... Its all about the demand & supply for dollars worldwide. Of course that covers a lot of factors.

  • mysterylobster

    Posted Mar 16, 2008 4:28 am PT

    This is the second time I've seen Gamespot describe the economy as being in a "recession," something a lot of economists would say is not true. I just have to assume these video game "journalists" don't have a clue what they're talking about half the time.

  • Raivon

    Posted Mar 16, 2008 2:45 am PT

    This site needs to stick to video games unless the stock market or the US dollar crashes .

  • Ra-Devil

    Posted Mar 16, 2008 12:36 am PT

    Also, to add to ACEGamer89's great explanation, currency is also faith based. Not religious faith, moreover trust.

    For example, Russia's current dollar is almost useless to it's own people in the rural areas, simply because they don't think it's worth a thing. They actually barter in these areas as a substitute (trade one item for another). It's not as severe as it used to be, but it still exsists.

    So since we trust that when we go to spend our dollar, the individual or company will accept it, our currency system works. I mean, think of what would happen if you went to buy a game, and the store said, "Sorry, we don't accept U.S. Dollars, their value isn't solid." Yeah, it's kinda like that.

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