A recent study showing declining game sales may sound disconcerting on the face of it. But a closer looks shows some flaws.
NPD's just-released report, which is not available online, but which I was able to review, said game sales fell 10% last month.
Should you care as an entrepreneur in this space that demand may be cooling for new games you may be creating? We thought you might. So, we took a look at the study to determine how troubling it may or might not be.
We decided to take a look at two questions: First, is this research a complete and accurate look at gaming sales? Two, is it worth comparing sales reports in the gaming industry on a month-to-month basis? Once we have answered these questions, the level of importance that can be given to this study should become clear.
Let's start with the research itself. Is this research a complete and accurate look at gaming sales?
The study does not include any data about online game subscriptions, rentals, mobile games or social games. This may, at first glance, seem to be a small issue. As it turns out, however, that is a significant amount of revenue missed by the report. Last year, US based players alone spent roughly $3.8 billion on MMORPG's, which fall squarely into the subscription based games category. As for mobile games, if we look at the sales of just one company, Gameloft in just one venue, the app store, we see a $25 million in unreported gaming income. Single titles, like this Februaries Plant vs. Zombies generated over $1 million in revenue in its first 9 days on the app store. Clearly, some significant markets are missing from this study.
It is also worth wondering if this analysis takes into account the recent deals that the PS3 and Wii have made with Netflix, which would represent another stream of ignored revenue. Choosing to exclude rental revenue however may be a fair move, because every rental puts money in the rental agents pocket, not the game makers. When a gamer walks into a Blockbuster, or logs on their Gamefly account the company does not have to buy a new copy of the game to meet that demand. Its either available, or its not. These are not game sales in any way.
There is also one other little caveat to this study. It only covers a 28 day span. According to the results report from Nintendo World the study period spans on the 1st to the 28th of the month of August, which means the 29th through the 31st were not included. Three days does not sound like a long time unless you consider that is about 10% of the month being studied.
It looks as though NPD is planning to include this data in future editions of the study.
Now onto the second issue: Is it worth comparing sales reports in the gaming industry on a month-to-month basis?
In order to answer this question, we need to understand the gaming market, which varies greatly based on the titles that are being offered in any given month. A new title with any kind of fan following, or strong promotions can send sales skyrocketing. You can easily see the trend with games like Star Wars: The Force Unleashed, which sold over 5.7 million units. This year, the release of Bioshock2, a sequel to the high selling Bioshock, sold over 750,000 copies in February, after being launched on the 10th of that month.
Similar mass buying effects can be seen without a hit game in the market. When Microsoft lowered the price of the Xbox360, it saw a 100% sales jump in one weekend. With any market this variable a direct comparison does not seem to be very useful at all.
If you don't want to take this evidence for yourself, let's look at what NPD says about it themselves. In a 2009 interview with The New York Times, Anita Frazier, an analyst with NPD said, “While it might be tempting to jump to the conclusion that the sky is starting to fall on the video game industry, given this month’s results, it’s important to remember that two very big things are different this year than last year...” Those two factors, Easter and the March 2008 launch of Super Smash Bros.: Brawl, which according to Nintendo , "...just one week on store shelves, Super Smash Bros. Brawl for Wii has become the fastest-selling video game in Nintendo of America’s history", the sales topped 1.4 million games in that first week alone.
Research studies of this type, where a correlation is assumed on the face because of an eternal variable, like the month, are often prone to issues with a type of internal validity known as Convergent Validity, which is best described as,"the degree to which the operationalization is similar to (converges on) other operationalizations that it theoretically should be similar to..." You can see the issue with a market this variable.
Given this acknowledgement of the limitations of this span of research it may simply be that NPD is doing the best that they can with a volatile market and customers who need data in a timely manner.
Finally, it is worth pointing out that even if you decide that the study and its comparisons are valid, you should know that the NPD's reported numbers are not iron clad. Their 2009 year end gaming sales study was in serious conflict, about $5 billion, with a study conducted by Newzoo and TNS, called the Today's Gamers Survey.
NPD did not respond to immediate request for comment.
(Image from GameGuru)