Grand theft sales: Video game industry reports worst drop in nine years

In June, the video game industry posted its largest year-over-year decline since September 2000. Sales of hardware, software, and peripherals dropped to $1.17 billion, a 31 percent drop. This was led by a 38 percent drop in hardware sales; software sales fell 29 percent to $625.8 million. June was the fourth straight month in which sales declined.

The video game industry's current malaise comes from a combination of factors, any one of which would, individually, be fairly easy to overcome. Taken as a whole, however, they have pulled the bottom out from under the industry.

To begin with, the recession has decimated discretionary income. In many cases, this would actually help the video game industry as, hour-for-hour, games are among the cheaper forms of entertainment. However, the price of video game consoles -- which manufacturers have been refusing to discount -- has slowed the flow of new-adopters, many of whom could be counted on to purchase multiple games.

Added to this, current gamers have faced a dearth of new titles, as many companies have delayed the release of their big blockbusters until the economy picks up. Cammie Dunaway, Nintendo of America' s executive vice president of sales and marketing, noted in MarketWatch, "software sells hardware." Without the draw of fresh and exciting must-have games, many consumers are less inspired to purchase new systems. In June, hardware sales dropped to $383 million, a 13 percent tumble from last year's levels.

Even before the recession, the resale market was solid, and gamers looking to pick up some quick cash have numerous outlets for selling their libraries. This has translated into a bonanza for late-adopters: for example, used copies of Grand Theft Auto IV, which currently retails for $39.99, are available on Amazon for as little as $14. With a sluggish new software market and many consumers willing to delay gratification, resellers have picked up a massive 36 percent of the entire gaming market.

The combination of reduced discretionary income and fewer items to spend it on spells a long, hard summer for video game retailers. Ultimately, this tough season seems to be a deliberate strategy being adopted by manufacturers who are, presumably, delaying releases until the combination of an anticipated economic turnaround and Christmas pressures will make the market more attractive. In the meantime, however, sellers will have to muddle through and try to stay in business.
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