Will the Recession Kill Video Games?

This is the money Midway could have saved by switching to sound business decisions.

This is the money Midway could have saved by switching to sound business decisions.

Is it time to start getting worried about about our favorite pixelated hobby?

No.

It’s been said that the video game industry is recession proof.  However, with the recession in full swing and the past, pending, or imminent closures of many studios and even publishers, many have re-evaluated this position.  I am not one of them.

I peer into my crystal ball after the break.

You need look no further than last year’s record breaking video game sales, laid smack dab in the middle of the same recession we all suffer, to see that the industry is healthy.  Many, if not most, industry analysts, including yours truly (yeah, I’ll call myself an industry analyst, why not?, last I checked their isn’t a college major for video game analysis), predict yet another rise in sales for the coming year.

How can this be possible with all the layoffs and terminations sweeping various publishers the world over?  Well, while you may not see quite the quantity in titles coming out this year as in years past, I’ll make the argument on a case by case basis that the quality will still be there.  Also, while we won’t have quite the choice in what we have to buy, a choice will be made by all of us nonetheless.  I would also argue that it was this same overabundance of choice that have led to the dire straits companies find themselves in now.  I could have told you that releasing Mirror’s Edge, Dead Space, Mortal Kombat vs. DC Universe, Tomb Raider Evolution and countless others the same time as Gears of War 2 and Call of Duty World at War wasn’t the most sound financial decision.

Why am I so confident that video game sales will continue to rise?  Well for one, they already are.  We are one month into the first fiscal quarter of 2009 and sales are up from this time last year.  Also, families are seeing where value truly lies.  You can take everyone out for a night on the town for, let’s say, conservatively $60.  What do you have to show for it when you get home?  Sure a good time was had by all but tomorrow everyone will be bored again.  I think you see where I’m going with this.  You can spend $60 (if you’re lucky) for a night of fun, or $60 for days, weeks, months, or even years (if you read our reviews) of entertainment.  All this and you don’t have to refill your gas tank.

Make no mistake though.  Many gaming companies are in trouble.  Midway has filed for bankruptcy.  Eidos has been forced to sell to Square Enix.  Solid studios such as Black Box (Skate 2) and Ensemble (Halo Wars) have been shown the door.  Just today comes the announcement that as many as 90 employees, both full and part-time, of THQ’s Volition studio (Saint’s Row, Red Faction) have been given their walking papers.  However, you can’t blame us gamers, we’re spending the money.  Mismanagement and poor decisions can sink anyone, in any industry.  No one is safe, except the industry as a whole.

Now that I have hopefully set your mind at ease let’s take a look at what I foresee for our favorite hardware manufacturers and whether 2009 will be a good year for you.

Microsoft

Alright, we’ve had our differences.  You have somehow, with your black voodoo magic sorcery, gotten me to buy no less than six 360’s.  Sigh.  Will we see any end to the red ring of death madness?  Unfortunately, no.  If it hasn’t happened now, over three years later, it never will.  If only these damn things worked and Microsoft didn’t have to spend billions fixing them maybe Bungie would still be owned by Microsoft and we would all be looking forward to Ensemble’s next great RTS.

However, there is a silver lining for Microsoft, albeit not good news for us gamers.  Tons of 360’s are dropping out of warrantee.  With the impressive attach rate of games and accessories for the system, your average consumer will be spending at LEAST $200 to replace it at retail or paying Microsoft directly to fix it rather than just going to a competitor.  But will they spend $200?  This brings me to my next prediction.

Microsoft will lower prices as early as next month.  I would expect the Arcade unit to drop to $179.99, while the Pro and Elite models drop $50 to $249 and $349 respectively.  With each passing year and knowledge of the system expanding, it costs less and less for Microsoft to manufacture these units, making a price drop both possible, and necessary given the strain on our wallets.

On the software side, while it doesn’t look like their will be any full fledged Halo or Gears of War title, both of these franchises will still make money.  Gears will continue to release downloadable content that will make them a few bucks, while Halo 3 ODST will build on the Halo 3 story.  If a Halo RTS can sell, so will a short Halo 3 expansion.  Also, Alan Wake is on the horizon, looks gorgeous and may be 360’s next big IP.  Additionally 360 still has the edge on 3rd party exclusives, such as the newly released Grand Theft Auto: The Lost and the Damned.  What do we have to look forward to?  Hopefully Bioshock 2.  However, the fact that no gameplay footage has yet been shown on this one makes me think we’re more likely to see this one in early 2010 instead of the extremely competitive Christmas season.

Sony

This is a very big year, a make or break year if you will, for the struggling hardware folks.  Despite the fact that Sony added hard drive space and cut cost by $200 from Christmas 2007 to 2008, sales did not increase.  PSP fared no better and continues to be dominated by the Nintendo DS.

So what is Sony to do?  Exactly what they’re doing now, with a few minor tweaks.  Sony has a great lineup on the table.  Killzone 2 is off to a great start, releasing to the rare critical and commercial acclaim.  First party hits sure to continue the momentum are Uncharted 2 and Infamous, made by the talented folks who gave us the Sly Cooper series.  Bonus prediction: this years sleeper hit will come courtest of the PS3 in Heavy Rain possibly the best looking game I HAVE EVER SEEN.  Also, I wouldn’t be the least bit surprised if God of War III snuck it’s way up into the holiday season.  How big would this be?   Expect the PS3 to outsell the 360 if Kratos crashes the party.

Now, the lineup is there but none of this will mean anything if mom and dad can’t afford to put a PS3 under the tree.  Fear not, like the 360, expect to see a PS3 price drop, a substantial price drop of $100 across the board in the coming months, making the 80 GB model $299 and the 160GB $399.  Intriguing.  Would you now spend only $50 more for a system with free online, free wi-fi, and most importantly, blu-ray movie playback?  I would.  Add in my bonus prediction: the cost of your average blu-ray movie will dip to around the same price as dvd’s by year’s end and Sony will be on a roll.

However, the PSP is a lost cause.  The PSP-4000 will not be able to even put a dent in the sales of Nintendo, leading to the last of my predictions for the big 3 hardware manufacturers (don’t worry this one will be ALOT shorter.

Nintendo

Oh how I hate to even mention their name.  But, here goes.  Nintendo is releasing an overflowing cornucopia of feces that is in no way intended for us.  So what is Nintendo to do?  Just like Sony, exactly what they’re doing, but no tweaks necessary.  They have absolutely nothing to offer from their first-party studios except GameCube rehashes and it doesn’t matter.  Wii’s will continue to fly off the shelf as quickly as they can make them while DSi will be the next big thing.  For their next trick they may actually decide to start producing more Wii Fit for an extra couple billion to fortify their mansions against nuclear attack.  I miss you Mario and Link.

Part two of my crystal ball into the video game world will look into video game publishers and what they will do to ensure they’ll live to fight another year.

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12 responses to “Will the Recession Kill Video Games?

  1. Great post, pal. And I totally agree! Analysts like to spout doom and gloom about the games industry to keep those hits coming to their crappy analyst sites; but considering the industry as a whole has grown immensely in the past few years alone, I don’t think we have anything to worry about!

  2. While I wouldn’t say the video game is being hit hard and in danger of what happened back in the 80’s, they are not recession proof and all of the layoffs at pretty much every major company is proof. Video game publishers, developers, and media are all getting hit pretty hard because of the recession, and because of that we’re not going to see quite as much original IP this year. That’s not to say that we won’t get quality games, but we simply won’t see the amount of quality games as last year. If a comapany like GM is on the brink of filing chapter 11, then anything is possible.

    The hate for Nintendo in this post is scathing! While I get you don’t enjoy the games coming out on the Wii, it’s no reason to show much hate from an analytical or editorial standpoint. Nintendo has drifted away from the hardcore gamer and that is a shame. However, Nintendo is the only one out of the major three that didn’t take a loss or have to make any major staff layoffs like MS and Sony. It’s probably because of all the games more geared towards a casual audience that some publishers and developers were even able to take a little more risk with hardcore titles on other systems. Think on that, they saved the industry back in the 80’s just to be a major contributor to keeping it afloat now.

  3. I wouldn’t necessarily say that video games have nothing to worry about, but as we are already into March without seeing a considerable, if any, slip in sales there’s not too terribly much to sweat over…right now anyway. You never know. But as long as people keep buying them, things’ll pick up.

    • Even during the great depression people still spent what little money they had to be entertained. In this day and age video games are becoming the entertainment medium of choice and definitely the most cost effective. The economic landscape might get worse before it gets better but video games will survive.

      • Here here, I could dig for some studies… but there’s evidence that entertainment dollars are one of the last things to be cut out of a budget completely. Too bad it’s 2am and I can’t think straight.

  4. Speaking of Midway. I want Mortal Kombat back. Not trash DC vs Mk with limited selection. That was just dumb. Who do you think will buy the name? Id assume EA cause EA buys everything that moves. Or Activision.

    • There’s rumors that even Capcom was thinking about it for awhile. Odds are though it’ll be one of those two major publishers, but if I had to pick one I’d say Activision. They don’t have a fighting franchise and they’re sitting on a few billion dollars with no debt. They’ve even said they’re shopping around for new studios and such.

      • Meh, Capcom. They have Street fighter. And IV just sucked really. But thats just me. Activison would most likely be the best bet but we will see.

  5. Part 2 of Will the Recession Kill Video Games will address this very question.

  6. Pingback: Will the Recession Kill Video Games Part 2 « Pixels and Grids

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