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Total Game Sales Approach $10B

19 Jan, 2005 By: John Gaudiosi

Activision's Spider-Man 2

The final tallies for 2004 are in. According to The NPD Group, annual 2004 U.S. retail sales of video games, which includes portable and console hardware, software and accessories, saw sales of more than $9.9 billion. This reflects a decline of less than 1 percent when compared to $10 billion in 2003. However, while dollar sales were down slightly, total industry unit sales were up 4 percent over the same period last year.

Many analysts believe these numbers don't paint a complete picture of the game industry's strength, due to the fact that Sony had PS2 shortages throughout the summer and holiday season, and, as a result, Microsoft was not able to meet the added consumer demand with Xbox. Nintendo DS also was in short supply for Christmas. The console hardware category saw the largest percentage reduction, with a 27 percent decline in dollar volume and a 16 percent decrease in unit volume in 2004.

However, portable hardware dollar volume was up 10 percent in 2004 to more than $828 million, from $751 million in 2003.

It's worth noting that the current console life cycle has managed to sell more hardware at a higher price point than in any previous cycle. And it's also evident that hardware sales, which are typically flat at this point in the cycle, show the potential for more growth.

But hardware shortages and price drops aside, this was the year for software, as the game industry prepares for a transition into the next generation of consoles, which begins this fall with the expected release of Xbox Next and continues with the anticipated debut of Sony's next PlayStation and Nintendo's Revolution in 2006.

Software sales continued to set new records, with sales exceeding $6.2 billion, an increase of 8 percent in overall sales when compared to $5.8 billion in 2003.

For 2004, console software, portable game software and portable game hardware also experienced healthy unit sales increases of 8 percent, 13 percent and 9 percent, respectively.

The top 50 games of 2004 all sold more than 500,000 units, and the top 12 games all exceeded 1 million units in sales.Anita Frazier, entertainment industry analyst, NPD Funworld, said that the strong sales of $50 “AAA” games show that consumers are willing to pay for premium content.

“Video games are the only entertainment sector that has shown sustained growth over the past decade,” said Douglas Lowenstein, president of the Entertainment Software Association, adding that game prices have actually come down over the past five years. “These 2004 numbers don't include growing gaming sectors like mobile games and online games or PC games.”

Last year will likely be remembered as the Year of the Sequel rather than for its Hollywood tie-ins. Activision's Spider-Man 2 was the only Hollywood game to break the top 10. And many of the best-sellers of 2004 had a number after the name, like Halo 2, Doom 3, Half-Life 2, The Sims 2, Metroid Prime 2: Echoes, Metal Gear Solid 3: Snake Eater, Everquest II, and Star Wars Knights of the Republic II.

David Cole, president of video game research firm DFC Intelligence, said that although there was a dearth of original games, 2004's sequels delivered quality gaming.“For consumers, the games of 2004 were better then ever,” Cole said.

Frazier noted that many of the best-selling games of 2004 also earned high review scores, which shows that the gaming consumer is savvy. It also proves the point that while gamers will pay for quality games, they also are more likely to read about games and rent them before making a $50 investment.

Things are looking up for 2005, which will see the launch of Sony's PSP in March and Microsoft's Xbox Next in the fall. Game publishers will continue to support existing platforms like PS2, Xbox, GBA SP, and Nintendo DS, which bodes well for growth throughout the year.

Lowenstein added that a recent ESA survey found that six out of 10 gamers today said they plan on playing games the same amount or more in the future, a good sign for the video game industry. Lowenstein believes that within the next three to five years, game software sales will eclipse $10 billion annually. Once PC games are factored in, 2004 software sales are expected to reach $7.5 billion up from $7 billion in 2003.

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