Video game sales hit record despite economic downturn

Holiday sales of Nintendo's Wii console video game system and its Nintendo DS handheld system drove the video game industry to another record sales mark in 2008.

Total annual sales of $21.3 billion surpassed by 19% last year's record of $18 billion, says researcher NPD Group. During a otherwise depressing holiday retail shopping season, sales of video games, systems and accessories in December rose 9%, or $5.3 billion, over December 2007 ($4.8 billion).

NPD analyst Anita Frazier notes that the games industry has been growing since 2006. December is the first month that total sales topped $5 billion. "In 1997, annual revenues were $5.1 billion, and now a single month has realized that level of sales," she says. "Even as the economy deteriorated, the industry held its own. I think it's taking an ever-larger share of total entertainment spending because if you think about it, it's relatively inexpensive as compared to out-of-home forms of entertainment, and it (can) provide many hours of engagement."

At Carlsbad, Calif.-based Electronic Entertainment Design and Research, analyst Jesse Divnich agrees. "Because the video game industry offers the best bang for the buck even during times of economic downturn and recession, things like the Nintendo DS are very appealing items that can distract from the situation," he says. The 9% increase is "a healthy figure. Anything positive, we should be pleased with," he says.

The Wii continued to outpace its console competition selling about 2 million units in December, increasing its installed base to 17 million in the U.S.

Among its competitors, the Xbox 360 had its biggest year ever, while the PS3 nearly doubled its 2007 annual sales and had its best month since December 2007. Still, the Wii outsold both of its competitors combined in 2008: 10.1 million Wiis sold, compared to 4.7 million Xbox 360s and 3.5 million PS3s. (The Wii sells for $250, the XBox 360 starts at $200, and the PS3 starts at $400.)

Divnich and other analysts had projected that Nintendo could sell 3 million Wii systems in December. "Nintendo did not ship as much as we thought they would have," he says. "I believe they would have sold four million units had supply and demand been in equilibrium...The Wii doesn't follow any conventional sales model. Pretty much what Nintendo ships, they sell out."

That observation was confirmed by Nintendo of America's vice president of corporate affairs Denise Kaigler. "For the holiday season we pretty much sold out everything that hit the shelves for hardware." Nintendo also sold 3 million DS handhelds in December, breaking a monthly sales record for handhelds and console systems. Overall, consumers bought 9 million DS systems this year and 27 million since its release just more than four years ago.

Michael Pachter, industry analyst with Wedbush Morgan Securities, gives Nintendo much of the credit for the December success. "I think that Nintendo has expanded the market with devices that are fun and affordable," he says. "It's surprising to me that DS sales are up 20% year-over-year without a price cut, but they were (and) the Wii was up 50% year-over-year."

The company's Wii Play game, which sold nearly 5.3 million copies even beat out media darling Grand Theft Auto IV (5.18 million combined sold for PS3 and Xbox 360) for the top-selling video game of the year. Among Nintendo's other top selling games was aerobics game Wii Fit at No. 3 (4.5 million). Sales of Wii Fit and other unconventional games such as Wii Music suggest that consumers have bought into Nintendo's strategy of "continuing to create new ways to enrich your life," Kaigler says.

Guitar Hero and Rock Band games accounted for about 16% of all video game sales in December. "Pretty impressive," Pachter says.

Frazier expects to see a plentiful supply of non-traditional games in 2009. "The industry needs to keep serving up these types of compelling games to keep the newbies involved with the industry," she says. "That is how the industry will continue to realize growth. There are more people gaming now, but the industry needs to keep them interested."