Recession or Transition?

Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to GI.biz newsletter subscribers.

On paper, 2009 was a tough year for the games industry. Looking at the raw figures now emerging from North America, Japan and Europe, the usual story of winners and losers is supplanted by a tale of general decline. It's by no means a dramatic setback - in many territories, 2009 is comfortably the second-biggest year on record for industry turnover, surpassed only by 2008. However, it's a psychological blow to an industry which has enjoyed decades of largely uninterrupted growth, and which had crossed its fingers and hoped to weather the present economic storm without taking any serious damage.

Yet the apparent decline in the industry's fortunes raises other questions. We have all spent years either preaching about, or listening to sermons about, the rising importance of new markets and new business models. The games industry is more diverse than ever before, encompassing mobile phone developers and publishers, firms making a handsome living out of games on social networking sites, subscription revenue from MMOs and other such games, and even a wide variety of new distribution methods and revenue streams for old-style boxed games.

So where, in our assessment of 2009, are those companies? Naysayers roll their eyes and mock the idea that the games industry could grow through a recession this severe, but they base their figures entirely on sales of monolithic, boxed, physical products. Few of the world's number-crunching bodies factor any revenue from digital distribution sales into their figures - let alone more complex revenue like DLC, subscriptions, advertising sales or microtransactions.

Herein lies the rub. We simply don't know how much money the industry made last year. We know that boxed game sales declined slightly - partially due to lowering price points, which have knocked some of the value out of the market (a trend which needs to continue, somewhat painful though it may be in the short term), partially due to macroeconomic conditions and even, to some degree, due to a ludicrously weak Christmas line-up which saw many publishers pushing top products into 2010 to avoid releasing too close to Modern Warfare 2.

What we don't know, however, is what happened to all of the industry's other revenue. It's probably safe to say that many of those burgeoning sectors actually grew. On consoles, valuable and desirable DLC is becoming much more commonplace, while both PS3 and Xbox 360 had a fantastic year from the perspective of Arcade / PSN releases. Music games, too, drive ever-larger volumes of track sales through their respective online services as their installed bases continue to grow (it's quite telling that Rock Band has been sold out at many major retailers across the UK over the Christmas and New Year period).

Meanwhile, the market for Facebook games has exploded, resulting in extraordinary valuations for some of the top companies involved, and surprisingly handsome revenue streams. The iPhone recently topped three billion apps downloaded, a huge proportion of them games; new companies and old alike are making fortunes on this platform, and other smartphone platforms are now opening up to games. In the subscription space, World of Warcraft powered ahead, as usual, but new products launched and found their niches, or continued to enjoy steady growth in the shadow of Blizzard's colossus.