Sales of video games are starting to crash as consumers cut discretionary spending. According to research group NPD, who track global sales of games and gaming consoles, videogame sales fell 29% last month while sales of consoles sank 38%. The downturn could force Sony to slash the price of their PS3.
Sales of consoles such as Sony’s Playstation 3 and 2 and Microsoft’s Xbox 360 and Nintendo’s Wii are looking grim with Sony set to be the biggest loser because of constant price gouging and limited new games for the platform.
According to the Wall Street Journal, as recently as six months ago, the videogame industry was racking up strong growth even as other businesses reported sharp declines in sales and profits. In the U.S. videogame sales jumped 10% in January as consumers snapped up US$60 to US$70 games.
The reversal of fortune is likely to show up when Sony and Nintendo report their quarterly results next month. Sony is already racking up billions in Playstation losses while Nintendo has been highly profitable.
Some analysts expect to see weaker revenue on a decline in Wii sales and slower-than-expected software sales from game publishers Electronic Arts and Activision Blizzard who threatened to cut their relationship with Sony because of price gouging is expected to post lacklustre results when they report in early August.
“While the videogame industry had hopes of posting double-digit revenue growth this year, analysts now predict flat to 5% growth from $11 billion in 2008. Jesse Divnich an analyst for research firm, Electronic Entertainment Design and Research.
The weakness stems from more consumers sitting on the sidelines and tightening their purse strings, especially as they wait to see if Sony, the maker of the PlayStation 3, will be forced to cut the prices of their consoles.
The Wall Street Journal said that many console and PC game sales are also being cannibalised by digitally downloaded games and alternative entertainment sources like Apple’s iPhone, which offers thousands of games that can cost only 99 cents or even nothing at all.
Analysts expect Sony to cut the price on its PS3 by about $100 this year, leading to price cuts by Microsoft on some of its Xbox 360 models. The PS3 starts at about $699 in Australia, compared with the equivalent Xbox 360, which costs about $300. Though Nintendo has said it won’t cut prices on its $395 Wii this year, it is expected to do so indirectly by bundling games with the console.
Representatives for Sony and Nintendo say there are no plans for a price cut at this time. Microsoft declined comment. But Tony Bartel, GameStop’s merchandising and marketing chief, said the company has factored in “a price cut in at least one of the platforms” and is “anticipating a very strong third and fourth quarter.”