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Video Game Industry Booms in 2007 – and 2008 Doesn’t Look Bad, Either

Xbox 360's Halo 3 led video game sales in 2007. (Xbox 360 image)

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Editor’s note: John Gaudiosi is a national journalist who has been covering the video game business for more than a decade. In addition to blogging for WRAL.com at Gaming Guru and covering the video games industry for WRAL Local Tech Wire, he also writes about gaming for Wired Magazine, The Washington Post, Xbox.com and Yahoo! Games.

CARY - The videogame industry, bolstered by a surge in December sales, reached a new record in the sale of videogame hardware, software and accessories.

The total for 2007 game sales (not including PC game sales) came in at $17.94 billion, which is almost twice the total game sales for 2006, according to videogame tracking firm The NPD Group.

December game sales continued a trend that lasted throughout 2007 of strong monthly sales that consistently topped the same month sales of last year. December sales raked in $4.82 billion, which was up 28 percent from 2006's December tally.

Nintendo was responsible, in large part, for the record sales throughout 2007. The game manufacturer has yet to be able to meet demand of its mass market smash, Wii, which continues to sell for nearly twice its value on Ebay and Craigslist. Nintendo actually had a one-two punch in hardware, as its Nintendo DS, which was more readily available, continued to fly off store shelves. For the final tally of 2007, Nintendo sold 6.29 million Wiis and 8.5 million Nintendo DS systems. That brings the total installed base of these systems in the U.S. to 7.38 million Wiis and 17.65 million Nintendo DS portables.

For 2007, overall hardware sales totaled $7.04 billion, which represented a 54 percent increase over 2006. In particular, console hardware sales drove these sales as they were up 73 percent to $5.12 billion for the year.

Microsoft sold 4.62 million Xbox 360s

Sony sold 2.56 million PlayStation 3s, 3.97 million PlayStation 2s and 3.82 million PSPs.

The total U.S. installed base for these systems is 41.12 million PS2s, 9.15 million Xbox 360s, 3.25 million PS3s and 10.47 million PSPs.

"A strong December caps an overall very strong year for the videogame industry in terms of both software and hardware," said Ben Schachter, videogame analyst, UBS Securities. "The rewards, however, were not evenly split amongst the industry’s key players."

Schachter said December NPD results mirrored two trends seen throughout 2007:

• Nintendo dominating hardware sales and first-party

• Select third-party publishers taking more than their fair share of the software market.

"If one considers Rock Band an Electronic Arts title, first-party publishers accounted for over 77 percent of December software sales and over 78 percent for the full-year," explained Schachter. "The remaining videogame publishers saw their collective market share decline approximately 650 basis points (6.5 percent) in 2007, despite a weaker contribution from Sony’s publishing arm than many expected. As we have been saying for a while, the big have continued to get bigger at the expense of the smaller players. We expect that trend to continue into 2008."

According to Anita Frazier, videogame analyst for the NPD Group, the surge of sales across all categories in 2007 is not likely to be repeated this year. The record 2007 game totals saw overall hardware sales rise 54 percent to $7.04 billion, overall software sales rise 34 percent to $8.64 billion, and game accessories climb 52 percent to $2.26 billion.

"While I wouldn't count on similar growth in 2008, I would expect to see 2008 increase over 2007, with more growth (proportionately) coming from software sales," said Frazier. "While we will continue to see strong hardware sales, particularly if prices come down again, the spotlight now turns from hardware to software."

Michael Pachter, videogame analyst, Wedbush Morgan Securities, believes that overall software sales should remain strong into early 2008. He expects recent price cuts for hardware to alleviate concerns about slowing industry sales or a weakening economy.

In addition to potential hardware price cuts, the big question mark for this year remains e industry will benefit from a larger audience. Three of the Top 10 selling games of 2007 were Wii titles - Wii Play, Super Mario Galaxy and Mario Party 8.

"Nintendo has certainly been the belle of the hardware ball this year, capturing the top two spots for hardware units sales for the year with the DS followed by the Wii," said Frazier. "The DS has driven portable gaming to a new level, and for the second year in a row, the DS has been the top-selling hardware platform. In a year of records, we'd be remiss not to talk about Mario. Mario was the second-best selling video games property for the year and remains the historically best-selling property in the video games industry."

The broadening of the gaming audience could also be found in Guitar Hero II and III for PlayStation 2 finding slots in the Top 10 Games of 2007. That franchise shows no slowdown and the only thing holding back EA's Rock Band, also developed by Guitar Hero creator Harmonix, was the limited amount of units shipped to retail for Christmas.

Top Selling Games, December 2007:

• 1.5m - Call of Duty 4 [Xbox 360]

• 1.4m - Super Mario Galaxy [Wii]

• 1.3m - Guitar Hero III [PS2]

• 1.1m - Wii Play [Wii]

• 894k - Assassin's Creed [Xbox 360]

• 743k - Halo 3 [Xbox 360]

• 660k - Brain Age 2 [DS]

• 655k - Madden NFL '08 [PS2]

• 625k - Guitar Hero III [Xbox 360]

• 613k - Mario and Sonic [Wii]

Top Selling Games, 2007:

• 4.8m - Halo 3 [Xbox 360]

• 4.1m - Wii Play [Wii]

• 3.0m - Call of Duty 4 [Xbox 360]

• 2.7m - Guitar Hero III [PS2]

• 2.5m - Super Mario Galaxy [Wii]

• 2.5m - Pokemon Diamond [DS]

• 1.9m - Madden NFL '08 [PS2]

• 1.9m - Guitar Hero 2 [PS2]

• 1.8m - Assassin's Creed [Xbox 360]

• 1.8m - Mario Party 8 [Wii]

Platform sales, 2007:

• PS 2, 3.97m

• PS3, 2.56m

• PSP, 3.82m

• Xbox 360, 4.62m

• Wii, 6.29m

• DS, 8.50m