For the fourth straight month mainstream media is reporting declining sales and the demise of our business. I am amazed when I read an article about rumors of seconds old Playdom in discussions with Disney for an acquisition at a valuation of USD 600 million or Zynga securing financing at purported USD 2 billion valuation while analysts and commentators say the game business is dying. Are they making games, or just money? We are not in the midst of a declining market, we are suffering from a lack of measurement. Genius analysts are out there with quotes like,
For the month of June, Pachter predicts game software sales measured by NPD will decline by 8% from the same month last year. Doug Creutz of Cowen & Co. predicts a 17% decline for June, and said he expects the slowness to continue through the summer.
and they treat it like it is relevant to anything at all. It is kind of like saying "buggy whip sales" are falling through the floor so consumers obviously do not want to travel around in vehicles with wheels. Please stop confusing demand fora distribution channel with demand for content.
NPD is a bad resource and it is becoming less and less accurate as a measure of sales. They never tracked Wal-Mart which ranges from 30% to 90% of the sales on certain titles. They also omit Sam's Club and Toys R Us. Sure there is a multiplier, but who knows whether it is accurate on a title by title basis. Kind of like the television business knowing Nielson was not accurate, but living with it, we lived with NPD. If I sell a game in a box at Gamestop, I am measured. If I gain a subscriber to Farmville, sell a game through xBox Live, PSN, Wii or DS, sell a USD 40 virtual good in a freemium game or log my 10 millionth hour in a browser based game, I am not. Strangely, social game subscriptions, console downloads, freemiums and browser based are the fastest growing segments of our market. Consumers are choosing to spend their time differently, but they are still spending their dollars with us.
I am not just making this up. This week, NPD started tracking PC download sales and found they are equal to boxed sales. Or in the eyes of an analyst, PC sales doubled this month.
This should not be a great surprise. Apple passed Wal-Mart as the number one music retailer in 2008. 61% of Netflix subscribers download movies and tv shows and Amazon announced it is selling 143 digital books for every 100 hardcover books sold. If consumers of every form of media are saying they do not want to leave their homes to buy a shiny disk or pile of paper or store the thing when they get home, why would we think bits that compile into games would be any different? Immediate gratification and freedom from having to stand up to get something off the shelf are very compelling arguments.
Adding up the connected Wii's, DS's, 360's and PS3's, there are well over one hundred million connected devices in the field. Consider iPad,iPhone and other platforms we are still getting up to speed on, and there are a lot more. Consumers are buying games for these devices through digital channels. Publishers generally do not release their numbers but several dlc only games reported sales in the millions. Anecdotally, conversations with the publishers of recent dlc only games tell me sales either meet or exceed expectations in every case. Consumers are buying these games, giving publishers enough confidence to invest in increased quality. Today's dlc is better than last year and it is only getting better. It is easy to ignore the release of a USD 60 game when it is sitting on a shelf in a store. It is just as easy to push the button on some Microsoft point to buy the immediate gratification of the shiny object flashing before your eyes.
If I manufactured the resin used for shiny disks, I'd be concerned, fortunately, I am in the business that puts the stuff on the disks.