DFC research spells doom for videogame sales over the years

In keeping with the trend of disappointed publishers over Madden sales and fewer sales on a favorite genre, videogame industry research firm DFC Intelligence analyst David Cole spells more gloom and doom for our beloved industry, and gives some interesting reasoning that sounds depressingly unavoidable. Interestingly, the economy’s current situation is not once factored into it.

The cornerstone of the article is that we’re just seeing the beginning of declining sales in the industry, and that a lot of that revolves around its reliance on the five year console life cycle. We’ve heard more than a couple times about how the big three console developers are having their systems in it for the long haul. Well, there’s a reason for that.

“From fiscal 2007 to fiscal 2009, Sony’s game division showed an operating loss of well over $3 billion. Meanwhile, during the period from 2004 to 2009, Microsoft’s Entertainment & Devices Division has lost over $4 billion. Much of this loss can be attributed to the cost associated with launching a new console system that is sold at a loss. The reality is Sony and Microsoft really need their hardware systems to have a true 10-year lifecycle so that initial costs can be amortized.”

So the consoles are expensive, and it’d just be too damned expensive to make a whole new console when they’re still running at losses from what’s already on shelves. The problem with that is peak game sales very often hover around the enthusiasm for new and impending hardware. On a 10-year lifecycle, those enthusiastic sales peaks are fewer and farther between. So what do Sony and MS do? “What makes business sense for Sony and Microsoft is to focus on getting costs down, offering new (and profitable) services to their existing systems and looking to build renewed consumer excitement via new form factors and incremental additions like Project Natal for the Xbox 360.”

This, however, doesn’t replace the psychological enthusiasm of a new console. And while this model will still allow for the occasional blockbuster AAA titles to get business booming for a bit, it doesn’t do much good for the little guys trying to make their presence known.

The PC platform steadily grows too, but not enough to make up for the change in the console lifecycle model. It also lacks the leadership that a defined company will give its platform. Thus, you get a smorgasboard of stuff to sift through on your PC. That applies to all the mobile devices too.

So not a lot of good news on the whole, but one can only hope for the best. Alternative models, like Nintendo’s, have shown that profits can still be made, but that doesn’t leave room for the third parties we need and love. It’s what Microsoft and Sony do in the future, and who can please them and themselves the best that will make the most money in these upcoming brutal times.

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