Movie box-office sales increased almost 8.5 percent in 2001 to a record $8.35 billion. But that number couldn’t compare with the bulging 43 percent gain reported by the U.S. video game industry, which saw sales balloon to $9.4 billion, by far an all-time high.
Although some say it may be tough for the traditionally volatile video game industry to hold those gains, many experts argue the industry has finally matured and is ready to climb a steady growth curve.
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In 1999, video game sales were a then-record $6.9 billion before falling to $6.6 billion in 2000 as gamers held on to their wallets and waited for Sony Corp., Microsoft Corp. and Nintendo Co. to release their next round of consoles, PlayStation 2, Xbox and GameCube, respectively.
“New consoles arrive in the marketplace, which propels the market to a new level,” said Arvind Bhatia, equity analyst for Dallas-based Southwest Securities Inc., which tracks several game companies and developers. “In one sentence, that’s what’s going on. Because it’s a cyclical business, it’s got its ups and downs, and right now we’re in an up cycle.”
Games go mainstream
But this time may be different for three reasons, experts say: a growing consumer base, the multifunctionality of the systems and the growing cultural acceptance of video games as mainstream entertainment.
George Harrison, senior vice president of marketing and corporate communications for Nintendo of America Inc., said that 2001 was even better than many predicted.
“In some ways, the $9.4 billion was also a surprise to us,” he said. “Even as recently as October, we thought the market would be maybe $8.5 billion. Part of that was, we were concerned about the economy and we didn’t quite know how it would play out.”
But consumers stayed home–especially after Sept. 11–and plowed their cash into less expensive entertainment alternatives such as games, a phenomenon that only accentuated the natural expansion of the consumer base, Harrison said.
“Each successive generation of machines lasts about five years,” he said. “Each generation has grown to a slightly larger group of households, and we’re up to about 45 million households out of about 100 million total in the U.S.
“We believe this new generation can get up to about 55 [million] or 60 million households,” he said, predicting that 2002 sales will top $10 billion.
The video game industry continues to expand its consumer base because gamers who grew up during the first generation of video game systems in the late ’70s and early ’80s are still playing–and buying–as a new generation boots up for the first time, experts say.
“I think the media and news industry have focused on the kids and viewed it as a toy because it’s called `gaming,'” said Bill Nielsen, group product manager for sports and racing for Xbox. “But the reality is, I know as many people over 25 who have systems and play them fairly seriously as a form of entertainment, as people under 25.”
Systems also can play DVDs
While younger players are delighted with the games themselves, older players are equally attracted by the consoles’ other capabilities, such as DVD movie playback, said Richard Ow, senior account executive for NPDFunworld, a market research firm that tracks the video game industry.
“It’s attractive to most families,” he said. “The boom of the DVD market has affected the console market, and vice versa.”
Makers of Xbox and PlayStation 2 are also gearing up for Internet connectivity, with Microsoft set to launch its game network in the United States this year and Sony going online in Japan in April. Previous consoles haven’t offered this feature.
Although Nintendo’s GameCube doesn’t offer DVD capability and its online plans are less concrete than those of the other two systems, Ow said GameCube’s $100 price discount over the other two systems keeps it popular with budget-conscious buyers.
Video game trends have caught the attention of video rental chain Blockbuster Inc., said Nigel Travis, president and chief operating officer of the Dallas-based company.
Blockbuster plans to add more game hardware and software for rent in its stores, as well as to start selling the hardware and software.
Blockbuster might eventually create an online video game network.
Travis said it makes sense to sell video games and DVD movies side-by-side.
“We think a lot of our customers come to Blockbuster so they can get both and play both on their machines,” he said.
Other retail boats are being lifted by the industry’s rising tide.
Grapevine, Texas-based GameStop Corp., a division of bookseller Barnes & Noble Inc. and the largest specialty retailer of video game software in the country, raised about $325 million in an initial public offering in February.
Part of entertainment set
The industry also may be able to hold onto its sales gains because games are no longer seen as a pastime for just kids, said Nielsen of Microsoft.
“Everybody my age and below has video games as part of their entertainment set,” he said.
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“What am I going to do on Saturday? I’m going to go to a movie, I’m going to watch TV, I’m going to go to a sports event, and I’m going to play a video game.”
Nielsen added that 56 percent of Xbox buyers are over 16, and recent surveys have found the average gamer is in his or her mid-20s.
Ow of NPDFunworld said that in addition to older gamers remaining faithful to their gaming roots, non-gamers in their 20s, 30s and beyond also may be picking up a controller for the first time, wowed by graphics and sound that is finally approaching movielike quality.
Three isn’t a crowd
The industry not only may be able to reduce its volatility but also may be able to support three brands of systems, Ow said. A third, pre-Microsoft player was Sega, a hardware and software titan of the mid-1990s that pulled out of the hardware business a year ago because it couldn’t keep pace with Sony’s juggernaut, the PS2.
Three may no longer be a crowd, but that doesn’t mean success will come any easier, said Nintendo’s Harrison.
“We certainly think that with the market at $9.4 billion and approaching $10 billion this year, there is room for three players,” he said. “That doesn’t necessarily mean that three will survive. It’s still, `Can you provide the content and the entertainment that keeps consumers interested?'”