Mediaboss Marketing

In my last two columns this week, I've detailed some of the specifics behind the declining retail video game market in the United States, focusing on the lagging hardware segment and the collapse in casual gamer engagement on traditional game systems. Now I want to get to the picture for the market outside of retail, specifically the digital content market.

The NPD Group has been refining its methods for capturing data about the sales for video game content being sold outside the new, packaged retail market. For over two years they have been periodically publishing their estimates for this consumer spending, and I believe are now including it in their U.S. Games Market Dynamics report. The next report, about the first calendar quarter of 2012, is due out next month.

In terms of public data, the NPD Group only reports two types of numbers. The first is the total for new, packaged video game content the physical discs and cartridges and cards on which games are sold. The second type is, quite simply, everything else. That includes used games, full game and add-on content downloads, social network games, mobile games, rentals and subscriptions. For the sake of brevity, I'll refer to this second category as ex-retail.

If you read that description of ex-retail carefully, you'll notice that the data includes money spent on non-physical game content and two specific types of physical content, rentals and used game sales. That makes this a little more tricky, since we don't have just the digital part.

Now, let me outline the numbers we have. According to my records, the information released by the NPD Group shows that the ex-retail sales in the first quarter of 2010 were approximately $1.68 billion. In the first quarter of 2011, that figure rose to approximately $1.85 billion, an increase of 10%.

The final figures for the first quarter of this year aren't out yet, but the preliminary estimates that have been released for individual months are $350-$400 million in January and $550-$600 million in February. (For the sake of completeness, the figure for April was about $350 million again.)

The only figure missing is for March, but the data we have already is troubling. According to these figures, total ex-retail spending was $0.9 - $1.0 billion for the first two months of 2012.

Therefore March would have to come in around $850 million to $950 million in order for this segment of the market to remain flat year-over-year. On a weekly spending basis, consumers would have had to increase their spending by over 35% just in the month of March, just to keep 2012 even with 2011.

If the spending rate in February were to continue through March (i.e. if we scale the 4-week total for February up to a 5-week total for March) then under the most generous assumptions ex-retail sales for the first quarter of 2012 would come in around $1.75 billion, a 5% decline from the 2011 figure. I've visualized that possibility below.

That's the best reasonable case, I believe. If sales in March were more like January or April both of which had averages of about $90 million per week then the industry could end up with a mere $1.45 billion in ex-retail spending in the first quarter of that year. That's not just a 20% decline from last year, but even comes in below 2010's figure.

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Could digital sales also be contracting?