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Analyst: Game industry to shrink in 2006

Analyst: Game industry to shrink in 2006


Friday - February 03, 2006
Yesterday Gamespot published an article concerning the revised 2006 gaming industry projections of Wedbush Morgan Securities analyst Michael Pachter. According to the article, a note Pachter sent to investors (titled "Flirting with Disaster: The Prequel") stated previous analysis on the steady growth of the video game industry had been revised to show a 2006 decline, followed by healthy growth in 2007 and 2008. Pachter bases this revision on the fact that, in the US, console and PC software sales were down 21.6 percent in the three months prior to the release of the Xbox 360, and he assumes this trend will continue through the release of the PS3. I have to disagree.

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While I'm not going to pretend I have any real clue as to what is going to happen in 2006, reading the analysis of Mr. Pachter makes me believe he doesn't, either. Yes, slumps do tend to occur before the release of next-gen consoles. That's a given. However, the huge point that is being missed by the analysis, I believe, is that hardware doesn't drive sales, software does. With that being said, very few good games were released in that three month window prior to the launch of the Xbox 360. In other words, the reason people weren't buying games prior to the launch of the Xbox 360 had little to do with them saving their money for the new console (after all, last time we checked, only 600,000 Xbox 360s have been sold in the US). Instead, it had to do with the fact there were very few titles on which people were willing to spend their hard earned money. This formula completely disrupts the analysis of Mr. Pachter, particularly since we're about to get bombarded with some huge games in the next few months.

Almost all of the expected-to-be-released Holiday 2005 games were pushed back to Q1/Q2 2006. Off the top of my head, within the next few months, we can expect to see the following big titles hit the market: Zelda: The Twilight Princess, Kingdom Hearts II, The Godfather, Tomb Raider: Legend, 24: The Game (with the TV following the show has, the game will be a big seller), Hitman: Bloodmoney, and Splinter Cell: Double Agent. Again, these are the games that immediately come to mind. There are a handful of others, for all systems, which suggests that, in 2006, gamers might actually suffer from great game overload.

I believe previous slumps prior to the launch of new systems were due to game makers holding off on releasing new big titles until the new systems launched. Now, perhaps because the consoles will all seamlessly play games from the previous generation, that pause isn't there. If anything, it's a glut.

So, again, I'm not pretending I know what's really going to happen to the gaming industry in 2006, but I think the analysis by Michael Pachter of Wedbush Morgan Securities is worth some analysis of its own.

Posted by Allison at 10:26 AM |


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