Despite Recession, Video-Game Industry Shows Massive Growth

Entertainment Value, Wide Audience Appeal, Escapism May Be Why

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YORK, Pa. ( -- Even with products priced at $50 and up, video-game marketers are finding the recession more friend than foe.

The $18 billion industry is on a tear, with sales up 31% over 2007 through April, according to NPD Group. And that's barely counting the April 29 release of "Grand Theft Auto IV," which shattered records with a $500 million opening week. That's five times what "Iron Man" made in its opening weekend.
Big sellers: These two games shattered sales records.
Big sellers: These two games shattered sales records.

Game publisher Activision recently reported sales increases of 93% year over year, boosted by stellar sales of "Guitar Hero III" and "Call of Duty 4." And just last week, Electronic Arts reported revenue gains of 84% on strong sales of titles such as "Rock Band."

Some chalk it up to escapism; others cite video gaming as a bargain, given that it offers hours and hours of entertainment that justify its steep price.

"It's entertaining, it's cheap and with things like the Nintendo Wii, you can play with the whole family," said IDC analyst Billy Pidgeon. "It cost me $60 to take my family to see 'Speed Racer' this past weekend. For $50 we could buy a video game and have not just two hours of fun but fun for weeks to come."

Gaming on the rise
"There is a theory that in difficult times, people nest more, so that at-home entertainment is more recession-proof than away-from-home activities," said NPD analyst Anita Frazier. "Some of that may be going on, but I think there is a broader interest in gaming as a form of entertainment and that more people are moving gaming up in their list of preferred leisure activities."

There is certainly evidence that more people are gaming. With the success of casual gaming on the PC and family-friendly gaming in the form of Nintendo's Wii and DS platforms, the audience of gamers has grown tremendously since the turn of the century. In 2007, 72% of the population ages 6 to 44 played video games, up from 64% in 2006, according to NPD. That broadening market shows up in the types of games they buy as well: "Family games" accounted for 17% of all games sold in 2007, up from 9% in 2006, according to the Entertainment Software Association.

Another reason for the healthy gaming market is the addition of revenue streams. Advertising in games both on and offline adds incremental revenue, as do burgeoning sales of things such as downloadable games and micro-transactions for supplies and equipment inside online games.

And while a brand-new PlayStation 3 might cost $400, there are also less-expensive options such as PlayStation 2 or Nintendo DS. "You can still play 'Guitar Hero' on PlayStation 2," Mr. Pidgeon said. "And they've got karaoke games and others like that. It's a party in a box for $120."

Lessons to take away

What marketers can learn from video games

In the video-game world, the move toward more family-oriented and casual systems and games has opened the door to new revenue streams.
While $50 to $60 for a single console game isn't cheap, it also hasn't increased much since the launch of PlayStation 2 in 2000, when games cost $49.
Economic news is a downer, so anything you can do to offset that helps.
Microtransactions, downloadable games and in-game advertising all add up to extra incremental revenue for video-game publishers.
"When a game like 'Guitar Hero' comes out, it makes [game developers] think about all thing about other ways to do things," said Robin Kaminsky, exec VP-publishing at the game's marketer, Activision. "As more and more consumers come in, it feeds more innovation and ideas on the developers' part."
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