Gaming and Recessions

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Gaming During the 2008 Recession

The 2008 recession affected console and more expensive video game sales the most, but yet they still did well compared to other more expensive luxuries. Online gaming and social gaming experienced quite a bit of success. The success was due to the games' ability to provide a cheap distraction from the economic woes the country was facing.

Gaming Market-Stock Market

  • In 2009, the Dow's value dropped 28.16% from September to the middle of November. The NASDAQ dropped 36.91%. In this same time frame Electronic Arts, Activision Blizzard, Take Two, THQ, Gamestop, and Nintendo saw their share prices fall 52.53%. Gamestop dropped 49.87%.
  • Even though stock prices took a large hit, executives remained optimistic. "We do believe that the continued popularity of our products, even during these tough economic times," said Denise Kaigler, the vice president of corporate affairs for Nintendo America, "are evidence that consumers are judging us as a good value and a great way to engage in social interaction."
  • During this time in 2019, Gamestop was a recommended stock due to their sales growth of 20.5% during the first half of November compared to the year before.
  • Lazard Capital Markets, a firm that makes investment recommendations, put out a research not to their clients, they stated the video game industry is entering the “largest, most robust cycle in history, and we expect U.S. software sales to exceed $10 billion in 2008.” That’s a 10-to-15% bump over 2007, which was the best year on record for video game sales in the U.S.
  • Stock market prices are indicative of a market that while sales remained strong, they were not immune to a deep recession.

Yearly Sales/Playing Statistics

2008

  • Sales for video games rose 19% over 2007, coming in at $21.3 billion.
  • Wii ownership quadruples, P3 ownership triples, and XBox 360 doubles.

2009

  • The video gaming industry, as a whole, had sales there were up 18% for October 2009, compared to October 2008 ($1.31 billion, $1.12 billion). Software was up 35%, and hardware was up 5%.
  • Ibis World predicted that the video game industry would reach $41.9 billion, rising from $27.2 billion in 2004. Nintendo's Wii was said to have helped the industry, as their game brought in more female players. Female players in 2009, made up 38% of the demographics.
  • Much of 2009's sales came from Nintendo, which had seven of the ten top selling console and portable games of the year and record-breaking hardware sales.
  • From January through May 2009, gamers claimed to be playing more hours per week than ever before. The year-over-year comparisons for each of these months indicate consumers were devoting one to two additional hours to game play and have purchased one additional used game compared to last year.
  • 2009 Nielsen Survey- Value Gamers & The Recession
    • 42% of gamers age 7-54 claim to be playing or plan to play more than last year.
    • 41% claim to be playing the same amount.
    • In terms of the segments driving this increase, males 18 to 24, males 35+, and females 13 to 17 had some of the largest gains with monthly increases of over 50% compared to last year.
    • 35% of gamers claim they were spending more money or plan to spend more on gaming in 2009 compared to 2008, and 39% claim they are spending the same amount.
    • Those who said they were cutting back on both playing and buying are more likely to be female, older and more casual gamers.

Advertising Revenue

  • Advertising from videos remained strong, while banner advertising decreased.

Types of Gaming

PC Games

  • In October 2009, the latest World of Warcraft expansion broke the all time record for single day PC game sales. They sold 2.8 million units of the $40 upgrade, which surpassed their record set in 2007 (2.4 million).
  • In 2009, EA laid off 1,500 workers and bought Playfish to add to their Pogo offerings, in a shift to social, online gaming.

Consoles

  • 46% of consumers expected to buy a video gaming system of some kind during Black Friday 2009.
  • In October 2019, Nintendo sold 803,000 Wiis, up from 617,000 (September) and 453,000 (August) the two previous moths.
  • In October 2019, Microsoft sold 371,000 Xbox 360s, up from 347,000 in September and 195,000 in August.
  • Wii adds a Wii Fit and a balance board to offer exercise and Yoga, attracting the female demographic.

Casual Gamers

  • In 2008, there was a 27% increase in the number of people playing casual games. Many people, feeling the pressure of the recession, moved to the online space where more could be done with their free time and for a relatively inexpensive price.
  • The ability to play for free and download for a fraction of the price of other games led to their growth.
  • Big Fish Games and WorldWinner earn record revenues. Big Fish saws a 23% increase in sales in September 2009, compared to 2008. They grew their 340 employee count by 60 positions in 2009.
  • Casual game growth was thought to have been because there were multiple ways to create revenue, like advertising, downloads, and in game purchases.
  • Gamesville, in 2009, did not report more users, but that their users were spending more time on the platform, from 40 minutes to 90 minutes. They also noticed their younger female base grow. Big Fish experienced that same growth in the female demographic.

Social Gaming Takes Off

  • The recession of 2008 saw a boom in social gaming.
  • During this period social gaming saw a rapid increase in users, revenue, and employee hiring.
  • Zynga became the biggest Facebook app developer with more than 40 million monthly active users. They were on track to make $40-50 million. 75% of their sales were coming from the sale of virtual poker chips for Texas Hold'em. That application alone has more than 12 million Facebook users. Mafia wars and YoVille were gaining in popularity.

Demographics

Customers That Game During Recessions

  • The average player in 2009 was 35 years old and has been gaming for 13 years.
  • In 2008, 26% of video gamers were over the age of 50.
  • Customers that were playing and buying more fell into the categories of Xbox 360 games, sports gamers, ages 7-1`2, Xbox live subscribers, parents of children under 18, DS owners, African Americans, makes, and those earning over $100,000 per year.
  • Those playing less and buying less fell into the categories of being Asian or Pacific Islander, ages 18 to 24, female, strategy gamers, Wii owners, and video game rental subscribers.
  • Customers that were playing more and buying less fell into the categories of life simulation gamers, DS gamers, females, earning less than $30,000 yearly, age 35+, four or more people households, and white/Caucasians.

Reasons Gaming Remained Strong During 2008 Recession

Large Expenditures are the First to Suffer in a Recession

  • People will always spend money on entertainment, but when times are rough, consumers search for high value options to get the biggest bang for their buck. Video hardware and software deliver that bang better than a movie ticket, for example.
  • Video game sales remain high, but consumers demand first-rate games.
  • In a poll by the NPD group, conducted in 2008, more than half of the consumers polled said they were least likely to cut purchases and spending habits on affordable purchases like books, movie, cosmetics, or fragrances.

Diversion

  • Video games take people's minds off the troubles they are facing. This is very similar to the movie boom in the 30s.
  • Additionally, they offer a high level of interactivity and engagement. They are not a passive activity, making them a perfect choice for diversion.
  • Avid gamer Kevin Rummings of Florida stated, "“If I have a job and the extra money to spend, I will,” he wrote in an e-mail. “Games are my only hobby. I don’t play golf or tinker with cars … games are a great escape for me, always have been.”
  • Playing an online game, in 2008, was far cheaper than going to a movie or out to eat.
  • Some even thought that the increase of unemployed persons attributed to the growth of online gaming.

Lipstick Effect

  • The "Lipstick Effect" is when an economy enters troubled times, that some categories will remain strong, as they are considered affordable luxuries. This term was coined by Leonard Lauder, Chairman of Estée Lauder, at the beginning of 2001 when he observed that lipstick sales tend to be inversely correlated to economic health.
  • Big ticket items saw a 2-7% decline, but affordable luxuries like alcohol, beauty items, and pet care experienced a 2-7% growth.
  • When faced with less favorable economic conditions, consumers tend to save on big-ticket items, such as holidays abroad, but spend more on small “feelgood” products. This trend manifests itself in different categories over time and place. While the lipstick effect may no longer be applicable to lipstick itself, the concept remains and is still going strong, thriving on the back of consumers’ desire to splash out on small things so as to make life “worth living”.
  • Online gaming and casual gaming seem to fit this theory perfectly.
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