Drop in Video Game Demand May Lead to More Marketing

The recession has not been kind to the video game industry.  Consumers have been cutting spending on nonessentials this year and video games have fallen into that category. The video game industry is valued at $11 billion at the retail level but sales drops through the end of October have come in at 19%.893839_video_games_fan

Not everyone is convinced that the industry’s problems are related solely to the economy. NPD analyst Anita Frazier says “what's having an even greater impact is the availability of so many free games" on the iPhone and ad-​supported Web sites. These free games compete with those available for the Wii, PS3 and Xbox 360 – all popular game consoles. Consumers who personally play video games on these consoles have the following demographic profile:

  • Male: 56%
  • Female: 44%
  • Ages 2–12: 24%
  • Ages 25–34: 20%
  • Ages 35–44: 17%

These statistics points to a broad demographic audience which means that video game producers need to consider their marketing strategies carefully. The availability of multiple gaming platforms and steep competition from free offerings also complicates matters. Frazier points out “[w]hen it comes to developing successful games and targeting marketing and promotions, each gaming platform has its own unique challenges and opportunities to consider.”  For example, when Activision recently released Call of Duty, its newest game with a $40 million development price tag, it was expected to spend $25 million on an accompanying ad campaign that included broadcast TV spots. This kind of spending certainly gave the game great exposure but video game marketers should keep in mind that consumers learn about these products from the following sources:

  • Word of mouth 41%
  • Hands-​on play at friends’ houses  31%

Analysts expect that Activision will make a decent profit on Call of Duty but a Businessweek column by Ronald Grover notes that caution is creeping into the industry. More companies are holding back releases, fine tuning the products and making sure they’re releasing games that deliver quality entertainment. That strategy along with careful marketing decisions will determine who survives in the long run.

[Source: Grover, Ronald. Dangerous Days for Video Games, Businessweek, 11.13.09; NPD release, 9.14.09]
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.