Market Is Not Big Enough For 3 Consoles

standoff

The analyst have done a relatively poor job trying of trying to understand the Great Recession and its impact on video games. In fact, a lot of people in the game industry thought that games were recession proof, mainly based on short term data. However, the recession has had a significant impact on games, which was most notable in generation 8.

Here are the sales for Gen 7 (2009).

gen7_sales

Here is Gen 8 (2015)

gen8

And yes, I know this is VGChartz, but it’s good enough for this discussion. As you can see, there has been a significant decline in both hardware and software sales. Hardware sales are down about 40 million (49 percent) and software sales down another 113 million (20 percent). However, this amount also includes another 2.2 million in hardware sales from the PS3 and XBox 360 and another 161.8 million from other Gen 7 hardware.

The point is that the market of Generation 8 is not healthy. The new machines are not selling as well and are not selling as many games. Games journalist and analyst are praising the PS4, but they don’t see that the growth in sales is due to cannibalization, not due to new growth. They see a lot of trees, but no forest. Nintendo and Microsoft lose has been Sony’s gain as both the Wii U and XBox One have had issue. For Sony, Gen 8 is amazing, but the other consoles struggle significant. Contrast this to Generation 7. Even the poor selling consoles (like a certain Sony machine) did well in terms of total units sold (profitability is another story). But now, the poor selling consoles are in dire straights. They can’t compete. Sony’s growth has been from Microsoft and Nintendo’s customers. Although I don’t have any data, I’m sure that this generation, consumers are not buying more than one console. Most of my friends who have gaming consoles have one, and it’s usually the PS4.

So here is the problem no one is looking at. If hardware and software sales are so poor, how is the market going to support 3 major consoles, let alone 5. In the handheld space, this has already happened. The PSP did alright in Generation 7, but its sunk in Generation 8. While numerous critics and pundits ridicule Nintendo with the Wii U, the PSP Vita hasn’t done much better. Now, Nintendo has a monopoly on handheld systems. The XBox One and the Wii U are not doing so hot. The only system doing well is the console space is the PS4. Already, the market is contracting.

The problem is the economy of the world is stagnating. Japan has been stagnant for years, but the US, the largest market for videogames, has entered stagnation. The US only increased 1.2 percent the last quarter. From the Wall Street Journal:

Economic growth is now tracking at a 1% rate in 2016—the weakest start to a year since 2011—when combined with a downwardly revised reading for the first quarter. That makes for an annual average rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since at least 1949.

Here is the world economy. Note the dip in 2009 and the flat line after 2010.

world_gpa

It’s clear the economy isn’t doing well. The global economy is stagnant, and it likely won’t get better anytime soon. The games industry has never experienced a downturn this bad for this long. In many ways, the companies have gotten comfortable with the good times, yet now the tables have turned. Being in the console market will become more risky as it becomes harder and harder to sell a $400 system. Microsoft is already showing that they are ready to get out. Will they be the only one. I’ll just say that we’ll see the market players switch dramatically over the next few years.

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