Sales for video games and consoles are falling steadily every year, and many are pointing to the competition from cheaper alternatives like digital game downloads for smartphones and tablets as the leading cause. They are not wrong. Industry veterans Nintendo (NTDOY) and Electronic Arts (EA) are facing new competition from mobile game developers like Zynga and Glu Mobile.
Just as in any other industry, when a competitor enters the market with cheaper products the incumbents must adjust their pricing strategy or improve their existing products if they are to hold on to their market share.
Let's take a look at the stock prices for two industry giants — Nintendo and Electronic Arts — and compare those with Glu Mobile's (GLUU).
Retail sales of video games went down around 25% year-to-date while console sales are down 30% year over year. In this downturn economy, the standard video game is 30 bucks compared to $1, 2, 3 dollar mobile games. These figures may sound scary at first for the traditional video gaming industry, but they really need to be put in context.
First of all, the sales of mobile game apps represent only a small fraction of the entire market, as the chart below will show. The first four represent console gaming and the last three are the new players in the industry who represent an alternative to traditional video games. Hint: Press play on the bottom left corner of the chart.
As you can see from the chart above, mobile gaming still constitutes a small portion of the market and therefore claims about the video gaming industry "dying" are kind of exaggerated, at least for now.
Secondly, playing angry birds on your smartphone while you’re commuting for 2 hours is not exactly a substitute for playing Call of Duty with your friends in your living room. So there’s no reason to think it’s replacing conventional video gaming. It only means that in the past people would read the daily newspaper to work but now they have this new device that also helps them pass this unbearably boring and unproductive episode of everyday life ; but those of us who would have gone home later and played on their console may still do that.
The Waiting Game
More optimistic critics think the falling sales figure for new consoles does not mean that people are losing interest in video gaming, but are simply waiting for the next console release. Undeniably, it has been some time since the last big console release, and most gamers either already have the consoles, or are more likely holding off (and saving up) for the next big release.
In that regard, it would be unfair to compare figures quarter over quarter, or year over year, simply because we are comparing peak sales (new releases) with the lag time in-between releases. This is a promising theory considering we're on the brink of a market boom: The Wii U has been released while the next Playstation and Xbox are coming out soon. Surely there will be some impressive figures to compare.
Earlier this year Electronic Arts was titled the Worst Company in America on a Consumerist’s readers poll because gamers are angry that these companies (Activison was also a contender) are making them pay an arm and a leg to enjoy gaming compared to gaming apps you can play on your smartphone that cost next to nothing. And then they have the nerve to trick us into buying games that are already expensive to begin with and make us pay more to unlock content that is already in there!
There are also rumors that the next Playstation and Xbox consoles will restrict used games. This is a bit unsettling because doing so could potentially discourage many gamers and disrupt the value of a well functioning used game market (which includes GameStop (GME), Best Buy (BBY)).
It's Not Over Yet
At the end of the day, gamers won’t mind paying $60 for an awesome and highly sophisticated game with spectacular graphics and compelling narratives like Assassin’s Creed because Angry Birds will never be a proper substitute.
But that is not the whole market. These mobile games will suffice for others, bleeding a key demographic from the gamer pool. We leave it to game developers, publishers and distributors to recognize the market and to adjust their pricing strategies accordingly.
Written by Fay Faatin