The Games People Play: A Look at the U.S. Online and Retail Games Market and The People That Play Them.

Anita Frazier, Video Game Industry Analyst, NPD Group

Note: There is an associated PDF of the slides available here.

Anita Frazier of the NPD Group began the presentation with a look back to a presentation she did at the Games Marketing Conference in 2006 where the forecast of the video game industry had headlines that said, "Product Delays and Prices Hurt the Business of Video Play". The retail sales for the game industry were flat during the period of 2002 to 2005. So in 2006, NDP started to recognize that the video game market was changing but the outlook was not as dismal as what was being reported. Ms. Frazier, in 2006, pointed out that the video game market was indeed expanding because they were seeing that games were infiltrating the household because market access to games was changing (read: Internet)

Two years later, NPD found the game industry has indeed experienced tremendous growth

2006 - 18% growth
2007 - 40% growth
2008 - on track for 36% growth

There are many different entertainment options vying for your discretional spending capital. Interestingly, the retail game industry in 2007 had a total of almost $19 billion in sales. That is almost twice as large as the box office industry ($10 billion) and is closing in on being equal to the toy industry ($22 billion).

NPD separates out the game industry into four different categories: Video Game Software, Video Game Hardware, Video Game Accessories, and Personal Computer Software. Video game software is really what is driving the industry as it represents over 50 percent of sales in the game industry.

Video game hardware sales represents about 37 percent of the total sales in the game industry. Currently, the Nintendo DS dominates the market with a total of 20.8 million units sold, but interestingly the PlayStation 2 has sold more hardware than Wii or the Xbox 360.

Looking only at retail sales, however, the PC game industry looks like it is dying. PC software sales from retail is very soft and only represents about $0.91 billion dollars (2007) in sales but the retail market doesn't look at subscriptions, digital downloads, micro-transactions or ad-supported revenue models. Subscription sales ($0.88 billion in 2007) are just as much sales as retail sales when internet sales are taken into account.

Paid PC subscriptions attracts a broad audience. When looking at MMOG's, subscriptions are 80% male and range in age from 13 to 44 years old. Looking at subscription game sites, the players are generally 70% women and range in age from 25 to 64 years old.

Currently, retail is super concentrated to just a handful of retailers. 78% of game sales are accounted for by the top 5 retailers in the US: Wal-mart, Gamestop/EB Games, Best Buy, Target, and Toys R Us.

A majority of the retail sales of video games is family friendly with 58% of  the industry represented by E +10 rated content, 30% are rated Teen, and only 14% are rated M. In 2007, the top 5 genres that sold well are general action games, platform/scrolling character games, 1st person shooter games, RPG's, and Music/Dance games.

The good news for the game industry is that when the economy is in the tank, the game industry does not feel the impact. People tend to stay home more and end up playing games more often.

What are the trends?

• Gaming still has room to grow. When NPD studied entertainment trends in America, they looked at the types of activities people engage in. Only 56% of the respondents say that they play video games. More people say that they garden (58%). The frequency the people who play video games each week averages to almost three times a week.
• A third of the market is kids 12 and under.
• Spending for tweens (9 to 12 years) is disproportionally high. Essentially, tweens represent one of the smallest demographic area yet they spend ten times as much as the 35 to 49 year old demographic (400 index unit share versus 40).
• 60% of the US population from the age of 2 and up are playing games. 56% play online
• PC games are not dying. It dominates online play by 90%. Of the remaining percentage that use a video game system and play on-line, the Xbox 360 represents 50% of the on-line game market.
• Gender of on-line gamers: 53% male, 47% female. 76% of retail video games are geared towards men.
• 13% of the people who play on-line will play more than 20 hours per week.
• On-line gamers do not exclusively purchase products on-line.
• The top 5 genres played on-line are Card/puzzle/arcade/word games, Educational games, Gambling/casino/poker games, Shooter games, and MMOG's that aren't geared towards kids. Card/puzzle/arcade/word games dominate the on-line genre.

NPD segmented the game industry into 7 different segments. Extreme Gamers, Avid PC Gamers, Console Gamers, Online PC Gamers, Offline PC Gamers, Young Heavy Gamers, and Secondary Gamers. The number one genre for six out of seven segments is the card/puzzle games.

All these numbers came from various studies that were performed by NPD Group. NPD's strength is in determining retail sales. They are currently in the process of refining their sales data to include on-line sales. NPD has a consumer and retail tracking service. They also have authored a number of reports including the Video Game & PC Game Subscriptions Report, Entertainment Trends in America, and the most recent Online Gaming Report (2008). More information regarding the NPD Group studies can be found by contacting Chirs Bodmer at chris_bodmer@npd.com.

Page 9