Video Game Consoles and Games - US - August 2004

SUMMARY

The video game industry has seen an overall leveling off in sales following the banner year of 2001, when new systems were released and backed with heavy promotion in both advertising and retailer support. With the current generation of consoles aging, hardware prices have fallen sharply. Yet, the fact that total industry sales held steady in 2003 shows great interest by consumers. In 2004, consumers are biding their time until the next generation of consoles is released, starting with Nintendo's planned launch of Nintendo DS (a dual screen hand-held), Sony's PlayStation Portable (PSP) for the 2004 holiday season, and Microsoft's Xbox Next slated for 2005.

The video game market saw sales of $10 billion in 2003, unchanged from 2002. Video game software sales have buoyed the market while consumers wait for the new console releases. Sony Computer Entertainment of America continues to be the market hardware leader, with the installed number of PS2s vastly outnumbering those for GameCube and Xbox. However, new sales for the 2003 to 2004 period show Xbox as the leader, followed closely by both PS2 and then GameCube.

In the portable game category, combined hardware and software sales of $1.6 billion in 2003 are far smaller than the console business, at 7.5 billion, but growing much faster throughout 1998-2003. Portable games make the most of their anywhere/anytime advantage, and have enjoyed continued play from young adults who started playing as pre-teens. This part of the market will undoubtedly continue growing as more handhelds join Nintendo's Game Boy franchise, particularly with Sony's PSP in 2005.

The added features that came new with the current generation of game consoles have proven to be popular with many users, as they utilize DVD, CD, and online capabilities. These have redefined game playing for many gamers, and have also aided in increasing the average age of the video game player. With broadband connectivity increasing at an annual rate of 29.4%, access to online gaming via the console is also increasing. In 2002, 7 million wireless subscribers worldwide had game-capable handsets. That number is expected to reach 40 million by 2007.

Mintel anticipates that the market will continue strong growth in 2004-2009-also continuing to grow very cyclically, with the next upsurge in 2005-2006. The strongest factor for the industry is increasing market penetration as the average age of gamers rises, while the biggest negative factor is the many competing forms of entertainment, including PC gaming, DVDs, DVRs, and MP3s.

For the purposes of this report, the video game market includes hardware, software, and accessories. This report excludes sales of computer games such as Minesweeper and Solitaire, as well as computer-associated gaming hardware.

TABLE OF CONTENTS

INTRODUCTION AND ABBREVIATIONS

• Introduction
• Other relevant reports
• Definition
• Abbreviations and terms
• Terms

EXECUTIVE SUMMARY

• A growing, cyclical market
• The games are the real key to the market, but new consoles will provide another cyclical boost in 2005-2006
• Three leading manufacturers all with reasons for optimism
• Big budgets and big changes for advertising and promotion of games
• Electronics stores and specialty retailers lead in new sales growth among retailers
• Consumer survey shows that kids and teens are fully engaged-making young adults and older adults the new key market
• Future sales growth remains both strong and cyclical

MARKET DRIVERS

• Age influence
• Figure 1: U.S. population projections, 2000-2009
• Kids' ownership of video games
• Fastest-growing market is aged 25-34
• "Gray Gamers"
• Females not to be discounted as gamers
• Figure 2: Hours spent playing video games by college-age men and women, 2003
• Hispanics spending more on entertainment
• Figure 3: Ownership of cameras and video game hardware, by Hispanic origin, 2002 and 2003
• Figure 4: U.S. population projections, by race/ethnicity, 2000-2009
• Much competition for leisure time activity
• Figure 5: Consumer leisure time activities, 1999-2003
• Game consoles competing with computer/Internet games...
• ...and converging with them
• Multiple game console ownership more common
• Falling hardware prices a main driver in 2003-2004
• Industry backlash
• Are video games influencing behavior?
• Protests against game violence ongoing, but unlikely to slow the overall market even if successful
• Figure 6: ESRB ratings, 2004
• Availability of games drives console purchases
• Video games a key player in popular culture

MARKET SIZE & TRENDS

• Figure 7: Sales of video game consoles and games, 1998-2003

MARKET SEGMENTATION

• Overview
• Figure 8: Sales of video game consoles and games, segmented by product type, 2001 & 2003
• Graph 2: Sales of video game consoles and games, segmented by product type, 1998-2003
• Console software
• Figure 9: Sales of video game console software, 1998-2003
• Figure 10: Sales of video game titles ranked by total U.S. units, 2003
• Console hardware
• Figure 11: Sales of video game console hardware, 1998-2003
• Accessories
• Figure 12: Sales of video game console accessories, 1998-2003
• Figure 13: Top selling video game console accessories, 2003
• Portable software
• Figure 14: Sales of portable video software, 1998-2003
• Portable hardware
• Figure 15: Sales of portable hardware, 1998-2003
• Online-capable game software
• Figure 16: Unit sales of online-capable video game titles for Sony, Microsoft, and Nintendo combined, 2002-2003

SUPPLY STRUCTURE

• Overview
• Sales by manufacturer
• Figure 17: Sales of video game consoles (only), by manufacturer, 2001 & 2003
• Major companies and brands
• Console manufacturers
• Nintendo of America, Inc.
• Sony Computer Entertainment America, Inc.
• Microsoft Corporation
• Software developers
• Acclaim Entertainment, Inc.
• Activision, Inc.
• Capcom, Inc.
• Electronic Arts, Inc.
• Infogrames Entertainment S.A.
• LucasArts Entertainment Company, LLC
• Midway Games, Inc.
• Sega of America, Inc.
• Take-Two Interactive
• THQ, Inc.
• Vivendi Universal Games, Inc.

ADVERTISING & PROMOTION

• Nintendo
• Sony
• Microsoft

RETAIL DISTRIBUTION

• Overview
• Figure 18: Sales of video game consoles and games, by channel, 2001 & 2003
• Mass merchandisers and club stores
• Figure 19: Top mass merchandiser operating statistics, latest fiscal year-end
• Figure 20: Percentage change from latest fiscal year-end versus year prior
• Toy stores and specialty retailers
• Toy stores
• Specialty retailers
• Figure 21: Top toy retailer statistics, latest fiscal year-end
• Figure 22: Percentage change from latest fiscal year-end versus year prior
• Electronics stores
• Figure 23: Top electronics stores' operating statistics, latest fiscal year-end
• Figure 24: Percentage change from latest fiscal year-end versus year prior
• Online stores

THE CONSUMER

• Introduction
• Ownership of video game consoles
• Figure 25: Game console ownership, June 2004
• Figure 26: Game console ownership, by age, May 2004
• Figure 27: Game console ownership, by presence of children, May 2004
• Type of game console owned
• Figure 28: Type of game consoles owned, June 2004
• Figure 29: Type of game consoles owned, by educational attainment, May 2004
• Figure 30: Type of game consoles owned, by presence of children, May 2004
• Age of primary and secondary game console players
• Figure 31: Age of players for whom latest console was bought, June 2004
• Figure 32: Estimated number of game console players, by age, 2004-2009
• Figure 33: Age of player for whom latest console was bought, by presence of children, May 2004
• Figure 34: Age of player for whom latest console was bought, by urban/rural status, May 2004
• Most recently purchased type of game console
• Figure 35: Most recently purchased game console, June 2004
• Place of purchase of game console
• Figure 36: Place of purchase of most recently bought game console, June 2004
• Rental and later purchase of rented games for game consoles
• Figure 37: Rental and later purchase of games for game consoles, June 2004
• Figure 38: Rental and later purchase of games for game consoles, by presence of children, May 2004
• Figure 39: Rental and later purchase of games for game consoles, by marital status, May 2004
• Kids' and teens' ownership of video game consoles and handheld video games
• Figure 40: Game console ownership profile of kids and teens, January-September 2003
• Frequency of video game play for kids and teens
• Figure 41: Frequency of vide game play for kids and teens, January-September 2003
• Summary

FUTURE & FORECAST

FUTURE TRENDS

• As the market continues to grow, stiffer competition is inevitable
• Online gaming is picking up speed
• New technologies...
• ...but still a disposable product...
• ...until further morphing into multi-capable, upgrade-able units

MARKET FORECAST

• Video game consoles and games
• Figure 42: Forecast of U.S. sales of video game consoles and games, at current and constant prices, 2003-2008
• Graph 3: U.S. sales of video game consoles and games, 1998-2003, and forecast, 2004-2008
• Video game titles (console and portable software combined)
• Figure 43: Forecast of U.S. sales of games played on video game consoles and handhelds, at current and constant prices, 2003-2008
• Video game console and handheld hardware
• Figure 44: Forecast of U.S. sales of video game consoles and handhelds, at current and constant prices, 2003-2008
• Video game accessories
• Figure 45: Forecast of U.S. sales of video game accessories, at current and constant prices, 2003-2008
• Forecast factors

APPENDIX: TRADE ASSOCIATIONS

APPENDIX: RESEARCH METHODOLOGY

• Consumer Research
• Sampling & Weighting
• Presentation & Definition
• Further Analysis
• Trade Research
• Informal trade research
• Formal trade research
• Desk & Internet Research
• Sources
• Definitions
• Forecasts

APPENDIX: WHAT IS MINTEL?

• Mintel Publications
• Mintel Services
• Product retrieval
• Retail audits
• Tailored research
• Global New Products Database
• Research Support/Consultancy/MIC
• The Mintel Information Centre (MiC)
• PR Research