Video Game Buttons Blog

January 30, 2007

In the new issue of Video Game Journal, authors Jason Kraft and Chris Kwak explore the deterioration in the video game sales throughout the console life cycle.  

 

According to the article, a majority of video games that are released generate nearly 85% of their lifetime sales in the first year of availability; after that many of these games are replaced by newer versions. Some annual treats like as Electronic Arts’ NCAA Football, actually generated more than half of their lifetime sales within the first three months at retail, according to the most recent NPD data. Such a trend, however, does not apply to all titles or franchises, such as those which may be influenced by one-time events, such as EA’s FIFA Soccer.

 

In addition, the writers further add that a game’s life cycle may also be impacted by the sale of used games, particularly by major U.S. video game retailer GameStop, though the report notes that very little information concerning used game sales figures has been released by the retail chain.

 

Kraft and Kwak believe that “used-game sales probably explain a significant portion of the phenomenon of the shrinking half-life of games through the cycle. It is not that used games take up more shelf-space (the premier AAA titles, we contend, remain untouched).

 
“It is that used games are substitute-SKUs not captured by NPD. So while the data may suggest that demand for a title falls more rapidly through the cycle, we posit that it is not the demand at issue but rather the supply meeting some of the demand that NPD data does not capture,” they report.

 

When a game console’s user base is rapidly growing within its first two years of availability, “the revenue concentration distribution is distorted by the sheer force of the new consoles entering the market.”

 

Their article hypothesizes that the quicker a console’s installed base expands, the broader its software sales distribution will become. However, as a console’s installed base slows following its first two years of availability, the writers note that “sales distribution [should] ease into a stable curve where non-console factors have a greater impact.”

 

An example: “Imagine if Europe received one unit of the PS3 in November 2006 and Resistance: Fall of Man were attached to that game. If no new PS3s came to Europe until March 2007 (when Sony dropped 1 mln PS3 units), Resistance: Fall of Man would generate 0% of its first twelve months revenue in the first three months.”

 

Kraft and Kwak note that very little may be done to extend the life of titles on retail shelves: “The various causes of the phenomenon we observe (especially console installed base and brand expansion) will likely repeat every cycle. The used-game phenomenon, however, may be something the industry could address. Addressing this issue would probably temper the slope of the trend.” The “ideal solution,” the authors maintain, would have GameStop releasing used-game data with NPD for analysis of its impact.