The video game business is one of the fastest growing entertainment industries. In fact, it generates as much revenue as the movie industry. The video games industry managed to grew even when the recession was at full force in 2008. However, 2009 is a completely different story. So why isn’t the video games industry as recession-proof as recent thought? Let’s take a look at several contributing factors.
Developing video games are expensive. This is especially true when it comes to high-definition video game systems. Both Sony and Microsoft used billions to develop the Playstation 3 and Xbox 360 respectively. Furthermore, they have eaten big losses per unit sold in order to put these expensive systems into households. For that reason, we have seen many console manufactures (like Atari and Sega) quit that segment of the industry due to huge losses.
The software side of the equation is equally as tenuous. Video games, especially high-profile titles, cost millions of dollars. A software company could easily go under when their highly invested project bombed on the marketplace. With the recession causing fewer sales, many video game companies are starting to lay off staff and/or closing its doors completely.
Second Hand Market
The recession also hurts the industry in a more indirect way. With not as much cash to go around, people can’t buy as much new video games as before. So, in order to get their video games fix, they turn to the rental and used games markets. The problem is that gaming companies don’t earn any money on these transactions. For every game that gets gobbled up in the second hand market, a sale is lost.
Gaming companies are trying to curve this growing trend by going digital and releasing downloadable video games. However, digital distribution hasn’t reach critical mass yet due to a number of barriers. Not to mention that many retailer partners are upset with the situation as they don’t get any revenue from digital sales. The recession only made a bad situation worse for the video games industry.
Piracy has always been a big problem for many video games businesses. While it also exists in other entertainment industries, the problem is worse for video games due to the price. Depending on the system, an individual video game can cost as high as $59.99 on average. For every pirated game, a huge chunk of revenue is lost. The situation is only getting worse as more and more consumers turn to piracy due to recession.
Even though sales have declined significantly, the video games industry is still doing quite well compared to many other industries. It just isn’t as recession-proof as many thought.