Sunday, December 4, 2005

Idly gathered game industry statistics of doom

While I’ve been settling into the comfy moist goodness that is Seattle, I thought I’d jot down a few of my research notes. A blog is a remarkably nice method of recording information for later. It is searchable, automatically indexed by posting time, and has the surprising habit of collecting comments from people who are much better informed than the original poster.

Without further ado let’s look at today’s game industry numbers

American console adoption flatlined since the 80’s
“So this chart is pure number of units sold. It doesn't take into account duplicate ownership, and doesn't take into account population growth. You overlay those two facts to get a percent population with a console in the household, and that's what it looks like. 8 Bit years, 31% of households had a gaming system. This year, where is going to end up? Somewhere between 31-32%. The growth we have seen has been driven by population growth, and by duplicate ownership.”

Reggie Fils-Aime, Chief Marketing Officer of Nintendo

This was a stunning tidbit to me since it has been a matter of public knowledge that game revenues have been growing steadily for many years. The always forthcoming ESA claims that US revenues increased from $3.7 billion in 1996 to $7.3 billion in 2004.

The most basic conclusion is that we, as an industry, have become increasingly sophisticated at squeezing more money out of our current customers. However, we have done quite poorly at expanding beyond of a relatively fixed core audience.

Half as many (arcade?) gamers as in 80’s
“In 1982, he tells us, there were 44 million gamers. Today, there are 18 million.”

Kotaku on Nolan Bushnell, Founder of Atari

I can only assume that Mr. Bushnell is referring to arcade gamers in the US since the number of console gamers alone is dramatically larger than 18 million. Add in casual gamers and the numbers grow even larger.

Weak 2005
“Much of the problems have occurred in the last few months. After a strong first half of the year (up 9% over last year), sales growth has stalled over the last four months, declining by 17% year-over-year. Year-to-date sales are down 2.1% through October.”

"Our most recent forecast predicted U.S. console and PC software sales growth of 6% for 2005, and we now acknowledge that our forecast is too high in light of the weaker than expected October and likely weak November sell-through data. On balance, we now expect sales for 2005 to be flat to slightly positive."-

We are at the end of a console generation and slow sales are to be expected. The Xbox 360 is kick starting the next console transition early, but supplies are still quite limited. These numbers really aren’t that surprising. Except to see the inevitable mergers, closings and buyouts that accompany the mini-shake down when old consoles die and new ones are born.

Longer term declines over the last console generation
“In 2003, the global market combining hardware and software sales fell 10 percent year-on-year to 1.1 trillion yen (10 billion dollars), according to Tokyo-based Computer Entertainment Suppliers' Association.

That represents a 27-percent drop from 2001 when the market stood at 1.5 trillion yen and Tokai's Kawamata said Sony and Nintendo aim to reboot the sluggish game market with brand-new hardware.”

When an entire market drops by a third during what was predicted to be a growth cycle, there are interesting dynamics at work. A 27% drop in global sales despite mild growth in the US is quite likely driven by the shocking contraction of the Japanese gaming market.

I’m trying to track down links to document the actual numbers behind the Japanese market collapse. I know I’ve run across them, but foolish I forgot to bookmark them. If you run across such information, drop me a note.

In a mature multi-billion dollar market you expect a bit of slow down in revenue growth as you reach maturity. However, that isn’t what is happening here. Instead we are seeing dramatic fluctuations that belie an industry built upon an unstable and poorly diversified value proposition.

Success rates of new games
“A new report on the risks involved in game publishing and development has been released suggesting that, in the next generation, as few as 80 games a year will turn a profit.”

There are around 1000 titles released each year in Japan

Just for reference, there are roughly 500 to 600 retail titles released each year by the top 20 game publishers. There are hundreds of smaller titles that don’t quite make it on the radar and are much harder to track.

This is roughly 16% of all titles that hit profitability. Now, I’ve heard some people claim this is a decent percentage. However, for a new product launch this is pretty darned miserable. Robert Cooper’s research found that typical success rates of various product categories are as follows:
  • Highly innovative: 78%
  • Moderately innovative: 51%
  • Low innovative: 68%
Even low innovation brand extensions are kicking the butt of your typical game. Now, the number of highly profitable games is even less. If Halo accounts for 20% of the industry profit during last year’s Christmas season, there really isn’t that much to go around for everyone else.

Profit equals return on investment. If profits are low for a product category, then investments in new products will also often be low. Low profitability threatens the entire industry and makes it far less likely for there to be support for artistic innovation.

The culprits for low profitability are slightly more nuanced than the “increasing technology costs” that everyone is so quick to blame. Rational companies only invest in technology when there is competition forcing their hand.

We have hundreds of teams pursuing a mere half dozen highly saturated product categories (aka game genres) in which there are only one or two market leaders possible. It doesn’t help that most current genres are mature and their population is fixed or contracting. Also that ‘rationality’ of game industry management is questionable. Poor management practices, a lack of mature product design processes and a fixation on technology for the sake of technology also contribute.

End of data dump
All in all, the latest numbers provide a delightful snapshot of our dysfunctional yet lovable industry. The next two years are certainly going to be quite the rollercoaster ride for a lot of folks. Longer term, great difficulties are certainly lurking on the horizon. Many have been sitting under our noses for years.

(I recommend business model modifications and adoption of improved product design methodologies. :-)

Take care


  1. The further quotes by Nolan Bushnell in that Kotaku article are tasty:

    “Complexity lost the casual gamer,” he says. “Violence lost the woman gamer.” and “I guarantee you if I can help guys meet girls, I will make a lot of money.”

    Kind of reminds me of your previous "off topic" blog entry complaining about modern shopping malls lacking human interaction.

    I can't seem to check out those three pages, they ask for login but nowhere I see a way to login or register.

  2. I can easily explain to you why we only reach 30% of households, at least in the US. Look at the income distribution. Here's a slightly biased link, and some numbers supporting the claim by the US embassy in Germany (Sorry, all the links I have handy right now)

    Look at those numbers, and you'll see that it's a miracle that we even get 30% adoption. Unless you're in the richest 20% of your population, your average per-household, after-tax, income is less than $35K. Tough to afford a console from that, isn't it? With games now $60 and consoles in the $400 range, expect a further reduction.

  3. Hey Danc, like you I can see the problem here which was pointed out by Nintendo. I have though found it nearly impossible to explain this to anyone who didnt already agree with Nintendos original statement at TGS by Iwata (which gave me chills btw). I had without noticing much started to slide away from video games. I am an avid gamer and it is my career goal to design but when I have a SNES and a N64 EVERY game I ever bought I finished. Then I got a Cube and I have bought easily twice as many games for it and only beaten 15 percent of them. This I attributed to more work and less play but when I heard that speech I realised that the real problem was a lack of desire. I still watch alot of movies after work, just less video games. It hit me how old most video games are, almost no new formulas are being invented, just the same rehash with a shiney wrapper and if you are lucky, a new gimmick or two that keeps you occupied for awhile. For example, Halo 2 is easily the best multiplayer console FPS (Metroid Prime being the best single player FPS). Halo 2 is just a natural extension of Halo, a few more weapons or weapon functions, new maps, enhanced graphics = same exact game with a few new gimmicks. Meaning that Halo 2 just replaces Halo but doesnt of itself add anything to the genre. The first Halo game could easily have come out second, with its differences in style and the upgraded graphics and new maps and it would be dominant. The only reason that Halo 2 works so well is in the fundamentals. Tight, responsive control, balanced weapon system. These fundamentals were what made Goldeneye the best FPS on the planet years ago. So many genres are just getting old. The FPS genre will probably always be around, like platformers before it, and RTS games before that. WHat we need is a new outlet for developers in the form of new genres. But the developers have to invent these new genres themselves. They need innovation on the hardware side in order to accomplish this, just like we are seeing with the DS. I think the Revolution could be the answer to this problem. At least I am excited about new games again, and I hope many more people will see things the way I do after next years E3.


  4. Have you looked at the music industry lately? Their CDs, are almost all the same (how many Backstreet Boys-type bands do we have?.) Innovation is almost non-existent, and CDs still cost $20, even though people believe that's too expensive for 3 good songs. And their response to piracy? Try to shut down the pirates. Instead they should try to understand why people are willing to steal their music in the first place.

    When you sell a product, you need to make it applicable and cheap enough that consumers find it easier to buy your product than steal/buy the competitors' version.

    Nintendo is the first big gaming company to realize that - we still make games for hardcore gamers, and it's getting very costly. We need to make games that appeal to everyone. Or people aren't gonna buy games anymore.

    If Nintendo can launch the Rev with a handful of Nintendog-marketted games (at a lower price,) they'll dominate the market, hands down.

    I wonder how many middlemen they'd have to bump off, though...

  5. To add to the data dump -
    Top 20 console games ranked by units sold, 2004 in Australia. (

    1 GTA: San Andreas PlayStation 2
    2 Halo 2 Limited Collectors’ Edition Tin Xbox
    3 Need for Speed: Underground 2 PlayStation 2
    4 Halo 2 Xbox
    5 Simpson’s Hit & Run Platinum PlayStation 2
    6 Need for Speed: Underground Platinum PlayStation 2
    7 Ratchet and Clank Platinum PlayStation 2
    8 V8 Supercars 2 PlayStation 2
    9 SingStar PlayStation 2
    10 GTA Twin Pack Xbox
    11 Gran Turismo 3 Platinum PlayStation 2
    12 Pokemon Fire Red Game Boy Advance
    13 Simpson’s Road Rage PlayStation 2
    14 Need for Speed: Underground PlayStation 2
    15 Athens 2004 PlayStation 2
    16 Crash Band 5: Wrath Cortex Platinum PlayStation 2
    17 V8 Supercars Platinum PlayStation 2
    18 Pokemon Leaf Green Game Boy Advance
    19 Need for Speed: Underground 2 Xbox
    20 GTA: Vice City Platinum PlayStation 2

    Notice that one of the only non-sequels is Singstar. ((V8 supercars is a follow-up to TOCA touring cars, Athens 2004 is a successor to every other olympic game since decathlon, ratchet and clank is another original)) That to me shows how narrow minded the games industry is at the moment: selling only to the already established market. Or maybe it's the other way around, and the market is eating itself, with not enough people buying the games like Ico, Rez, Buzz, Devil Dice and the like.

    In any case, to finally expand the games industry to outside the hardcore, something has to change. The idea of marketing experiences, rather than games, seems to be a good one (previously raised on Lost Garden). Selling a quiz show experience (Buzz) that happens to take place on a PS2 makes more sense that getting gamers to play quiz games. This is the success of Eye Toy and Singstar too. A common theme for these games is their non-standard control methods, and I think the complexity of most control schemes these days is a barrier to mass market penetration. As are design flaws that rely on 'gamer' knowledge, such as that boxes must be smashed, invisible rails on many supposedly open plan levels and the general inability to do stuff that a non-gamer would expect to be able to do, but that game convention (and sometimes technical limitations) don't allow them to do.

    This is becoming a ramble, however, I think the data presented points very much to a stagnant industry, squeezing more money from the faithful, but making few inroads into the mainstream.

    I have a sneaking feeling that most money in games is not made on consoles or pc games: it is made on mobile phone games, java and flash games and other games that the so called gaming industry calls niche, or disregards entirely. These games are simple, are already appealing to the mainstream and by tapping into the market of non-gamers, are acheiving financial success and growth. i have no figures on them yet, but would love to see if I'm right. Games like must be generating large amounts of revenue, and appealing to a much larger audience than Halo3.

  6. I think the problem with all of these industry factoids spoken at these conferences and trade shows is that they speak of the "industry" in thier own terms, not actually what the whole of games development is.

    In fact, there has been a pretty phenomenal growth in electronically purchased and delivered games, which would probably be the complete reversal of your 30% drop for console sales.

    The fact is, entertainment goes through phases, much like the movies and other entertainment businesses have. OK, so Nintendo and Sony are down, but then Popcap and POGO are up. Swings and roundabouts.

    I dont particularly care about the huge companies not making billions in profit. I care about wether people do simply not want to buy games anymore. Which thankfully isnt the case, at least here in the US and Europe.

    I for one, am interested in the fundamentals of developing and getting peope to buy MY game, not Sony or Microsoft or Nintendo. So their view of the current market is down, so what! They *ARE NOT* the whole of the game market or game development.

    As it is, I'm admittedly a big proponent of indie developers and what are being called "boutique" games. I see that market right now as having vast potential, ultimately though its likely that my potential market is intertwined in some way with the Sony and Microsofts of the world.. just in a small incidental way.

  7. Aren't MMOGs a pretty large slice of the gaming pie? Are those numbers factored in to overall industry statistics?

    Or is it just that console gaming is taking a hit, and not the entire industry? (That would certainly explain all three major console manufacturers scrambling to push their ability to play online...)

    Also, I'm not entirely convinced that the rise in console sales is solely due to population growth. What happens when you segment by age? For households with a 6-18yo kid, what percent have a console? What percentage of kids play games regularly (either at home, at school or at their friends' houses)? I'd expect to see a very high percentage of young gamers. I'd expect a fairly low percentage of baby boomers who game regularly -- and given their large slice of the population, that would explain why the industry doesn't seem to gain ground... but what are the implications of that in ten or twenty years?

  8. There's is a whole flip side to this story that these number don't report. Ian and Zoombapup have hit the nail on the head...some segments are declining or holding steady and others are growing at a rapid pace. However, the growing segments are often small or poorly reported on so it become difficult to seperate them from the mix.

    As far as I can tell the score card is as follows:

    Holding Steady
    - US console market
    - European console market

    - Arcades
    - Japanese console market
    - US PC retail market

    - Cell phone games: Growth is mostly in Asia)
    - Casual and downloadable games: Growth in Europe and America. I've seen no data on Asia.
    - Online games: All around the world with the strongest growth in Asia.
    - Portable games: All around the world, spurred by the PSP and DS.

    If any one has any hard numbers, feel free to post them. I've lost some of my mobile numbers, but I know the casual and downloadable numbers are readily available.

    This is a classic market pattern. The little rapidly growing children eventually eat the parent markets. In 20 years, the biggest blockbusters might be played on a cell phone with a few hardcore techno-geeks left marveling over their sexy but impractical HD gaming displays.

    take care

  9. - Casual and downloadable games: Growth in Europe and America. I've seen no data on Asia.
    There is no data on Asia probably because there is no real difference between casual\downloadable and online in Asia. Many of the top online (and mobile) games fit neatly into the casual market, the only different being they are MMO games. In Asia, all online games are downloadable, unlike in the US or Europe where many MMORPGs require that you go to the store and buy a boxed copy.

  10. Just wanted to thank you for your continual flow of insightful posts. I also wanted to point out the scrapbook extension for Firefox. If you are like me and you bookmark tons of things, hoping to make use of the information later, I am sure you have run into a few broken links for articles you just had to have. Srapbook makes a local copy. Good stuff.

    Keep writing, and keep posting. I look forward to those essays you mentioned a few posts back&emdash;particularly the "state gate" one. Oh, and I will buy your book, should you publish one.

    Once again, thanks for all your hard work. I am sure that your essays will contribute directly to any future success I have in the industry&emdash;they have already averted some horrific failures.

  11. I would have e-mailed this to you, but I can't find an e-mail address.

    The rumoured price point for Nintendo's new system gives me some idea into their strategy with the Revolution, and honestly I don't think it's the controller that's the important thing.

    You know how there's premium DVD players and entry-level DVD players? Two different markets, and the big players for one aren't the big players for the other. Nintendo is trying to make an entry-level console - they're trying to split the console market in two. The Revolution is basically a second Game Boy - underpowered, but delivers features that separate it from its competition enough that they aren't considered 'competition'.

  12. DANC, give your buddies at Imulus a call and let us know how life has been in Seattle.

  13. A game that helps guys meet girls eh? We are seeing a lot of this with GoPets, an innovative pet game built on top of a social network. 75% of our 200,000+ users are girls... guys are slowly figuring this out and helping us to snowball (GoPets had 10,000 users just a few months ago).

  14. Another data point in the 'small guys eating the big guys' mode of thought:
    Smaller publisher winning mobile games race from

    take care

  15. Yeah great, Danc, just now that you mention them EA is already buying up Jamdat.

  16. Do you suppose the reason smaller game projects do better with smaller development teams is due to the fact that graphics and sound really don't matter on such games?


  17. I think its probably due to the productivity of having a few concentrated people rather than a raft of semi-vegetative people.

    Having got a mate who's heading to work for EA, thier current practices just seem like insanity.

    The fact is, the economics of the AAA "industry" are I think on the tipping point of collapse. As the team sizes grow, the risk of failure becomes so vast (when development budgets are in the 20-50 million mark) you really dont need many flops to kill off your brand.

    EA have been bleeding the milk out of the rotting corpse of the dead cow for a long time with license. But thats not necassarily an area for growth for the rest of us.

    Better to grow a new segment of a new market than try and fight for a slice of the old one methinks.

    Dan: it was interesting to hear the guy from xbox live arcade on the 360 doing his keynote. He says that microsoft are tracking casual games as a major driving force for games sales growth in the next 5-10 years.

  18. Danc this is somewhat related to this post and your previous post on suburbia...

    I was reading an article on, I believe, 1up of all places and they were stating how Sony is giving away and touting several game engines for developers to use. I believe one of them was the Unreal Engine, and to be honest I forget the rest, but anyway it got me to thinking about Suburbia.

    Well remember years ago how all McDonalds were different? Not in what they sold, but in structure and form. I mean yeah they may have all been some form of red, yellow, and white, but for the most part they looked different. This got me to thinking with the recent renovations that have come to my home town. All the McDonalds, all the Starbucks, all the Burger Kings, all of the Steak n Shakes look the same. The comapanies have as a whole adopted one singular structure plan for all of their stores.

    This is the world we are coming to in our day and age. One where it is so complicated to make a game that "new" games will continue to look similar because structurally they are.

    This all came to mind when I read the previous article (sorry for not having a link) and sat down to play some Call of Duty 2 (PC). I was wondering why the supposed "great" single player campaing felt old and stifled. New stages, smarter enemeies, new guns, better looking, but they game felt so similar that I just cannot seem to enjoy the single player campaign. It's because I played it already in 2003 when it was game of the year!

    This new era is unavoidable. I am no developer, but it doesn't take a Miyamoto or Kojima to see that games are going to be crazy difficult to develop for.

    Sony see's this too, and its why they are pushing certain game engines so hard.

    In this next gen the games will feel very similar because they are. You can't take the the "Golden Arches" paint them blue and pass it off as a new or original idea. It's crazy there are Call of Duty Mods more complicated thatn Call of Duty 2, and I got those mods for free!

    I hate to say it Danc, but welcome to the Suburbia of gaming.

  19. Lets not forget the role of the retailer. At least here in america, smaller games get lost in the big game shuffle. When you walk into an EB, workers immediately bombbard you with "DID YOU PREORDER THE NEXT BIG EA/GTA/HALO GAME COMING OUT IN THREE MONTHS..."... so already the sales for those titles will raise. Then when you ask for a low-profile title, there is a lack of information on it... "What console is that for? Hmm.. oh it says we ahve some in the back..."... this has happened to me every single time i go to buy a game...

    i think this effect snowballs into the haves getting more, and the have nots stuck in the back room...

    I believe the retailers honestly think they can survive on those three games alone...