NEW YORK (CNN/Money) - Holiday 2002 was not a jolly period for the gaming industry. What's typically the most wonderful time of the year for video game publishers turned out to be a letdown -- especially to investors.
Holiday 2003 has the advantage of coming in with lower expectations, but likely lower revenue as well. The NPD Group, which tracks video game sales, will report Wednesday that the gaming industry has seen dollar volume decline 3.4 percent year-to-date, as compared to the 2002 figures. If that trend continues, it will be the first time the industry has seen revenues decrease since 2000, which saw a 4 percent sales drop.
There's an upside to the Scrooge-like numbers, though. The NPD Group notes that unit volume is on the rise. In other words, people are buying more games -- just at lower prices.
"Dollar decline is to be expected during the current video games cycle," said Richard Ow, video game analyst for The NPD Group. "The next couple of months will be critical for the industry...Over the next few years, software will be the primary driver for industry growth."
Of course, hardware price cuts wouldn't hurt, either. Sony and Microsoft offered minimal price reductions in May, taking the PlayStation 2 and Xbox, respectively, from $199 to $179. Token cuts got token attention from the public, though. Year-to-date, hardware sales are down 5.1 percent as compared to last year.
Somewhat surprisingly, it was Nintendo who stepped forward and assumed the unfamiliar role of price-cut leader last week, dropping the GameCube from $149 to $99. As yet, it's too early to say whether the move has caused any sort of spike in sales.
Sony ignored Nintendo's move, though -- letting PlayStation 2 prices stand at $179 (or $199 for a bundle that included the company's online adaptor). Microsoft took Sony's cues and stuck by its previously announced, though rather weak, Xbox/software bundle for $179.
Sony feels it can make more money this holiday season from its existing customer base. Rather than selling a PS2 unit and one game to a new consumer, for instance, it hopes instead that current PS2 owners will buy two games. Since it makes more from license fees than hardware sales, that translates into higher profits. In other words, the reason we haven't seen significant PS2 price cuts this year is because Sony doesn't think it has to at this point.
Of course, there's another possible rationale.
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It's more and more likely that the reason we haven't seen price cuts from Sony and Microsoft is their next generation machines won't hit stores until 2006. To date, neither has offered anything more than a few hints about what to expect.
If so, that means the life cycle of this generation will be the longest of any in the industry's short history. And that makes some of the statistics from The NPD Group's latest report all the more interesting.
For instance, it's curious to note the market is beginning to fragment somewhat. Action and family entertainment games, two genres that usually don't parallel each other, have both seen 33 percent increases this year. But the biggest game of the year so far, is Electronic Arts' "Madden NFL 2004." (EA, in fact, has published four of the year's top 10 sellers.)
The current generation of machines has also established a dedicated crop of gaming aficionados. The average Xbox owner spends 8.1 hours a week playing on his or her machine. PlayStation 2 owners log 7.9 hours a week. And GameCube players spend 7.1 hours per week playing. (The numbers for kids, teens and young adults are even higher, according to NPD.)
Last year, a single game -- Take Two's "Grand Theft Auto: Vice City" -- ruled the charts. This year, there's no such dominant title, meaning the market will return to the free-for-all it usually becomes whenever November rolls around.
It might not be the greenest holiday season the industry has ever seen, but it's sure going to be one of the busiest.
Morris is Director of Content Development for CNN/Money. Click here to send him an e-mail.
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