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Where Have All the Gamers Gone?

Last month was brutal for the video game industry. Retail-sales tracker NPD Group reports that hardware, software, and accessories sales fell a staggering 34% in January relative to the first month of last year.

Diehard gamers will argue that January lacked meaty releases, but that is typical for this time of year. Developers like to get their more popular titles out in time for the holiday shopping season.

However, let's take a closer look at what's been happening in January since the industry began its slide three years ago. Industry sales fell 4% in January 2011, and that was after a 13% slide in the prior January.

Why aren't developers taking advantage of the January lull? Why aren't holiday hits bleeding into the new year the way they used to?

NPD's data is incomplete. It lacks online retailer and digital downloads. Industry leader Activision Blizzard (Nasdaq: ATVI  ) reported last week that digital revenue is now accounting for a little more than a third of its business, and nearest rival Electronic Arts (Nasdaq: EA  ) has been snapping up mobile gaming specialists.

This doesn't mean that the business isn't changing. This doesn't mean that the video game industry is healthy.

Three years ago, Activision Blizzard was a three-headed beast with the success of its Call of Duty, Rock Band, and World of Warcraft franchises. Well, Rock Band was unplugged, and World of Warcraft keeps bleeding night elves.

You have to give the gamers credit for now. Activision Blizzard has found a way to keep growing in this climate, even though its stock has been mired largely in the pre-teens since its ill-advised two-for-one stock split four years ago. Even retailer GameStop (NYSE: GME  ) -- the one company that should be bearing the brunt of NPD's bleak retail checks -- hasn't been totally crushed. It sees comps declining by just 1%-2% in the fiscal year that ended in January. Then again, that guidance came just 10 days into January. The full extent of the bleak month had yet to unravel.

It's not just the games that are a problem.

Microsoft (Nasdaq: MSFT  ) sold just 270,000 Xbox consoles last month according to NPD, a far cry from the 381,000 it moved last January. New games do move hardware, but are gamers generally fatigued as they wait out whatever the box makers have in store for them next?

Casual gaming and mobile gaming may be the butts of diehard gamer jokes, but those simple diversions are clearly growing in popularity. They have altered the value proposition of full-blown games, and won over the masses that don't live and die by annual Call of Duty releases.

Traditional video game companies aren't going anywhere, but they do need to get going.

The next trillion dollar revolution will be in mobile gadgetry, but the best investing plays aren't necessarily traditional game developers. If you want to cash in on the upcoming trend, a new report will get you up to speed. Yes, it's as free as this article, but it won't last forever so check it out now.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of GameStop, Activision Blizzard, and Microsoft. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard and Microsoft; writing covered calls in GameStop; creating a bull call spread position in Microsoft; and creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2012, at 12:24 PM, steveat wrote:

    ATVI - While Blizzard has decent products with some stickiness, they are still losing valuable customers due to the company concentrating more on new customer acquisitions instead of concentrating on client retention. Blizzard has turned a blind eye to the current needs of the customer which has been mentioned many times of the numerous internet forums.

    Xbox/MSFT - Numerous used XBoxes are out there and people know that the NEW PS4/Wii/XBox is around the corner, so why not wait till that happens so they can get the original system for a discounted price and a new system at the same time. You may see a drop in the new XBox 720 because they sill NOT support used games. When you buy a new game for the 720, it will NOT work in any other XBox system. This means that you can't sell, trade or even buy used.

  • Report this Comment On February 13, 2012, at 4:06 PM, gx5ilver wrote:

    Small correction - Activision Blizzard had Guitar Hero not Rock Band as a franchise. Rock Band was an EA (ERTS) property.

    RE MSFT - Last year there was new a Xbox 360 form factor available (the black cased slims) AND they Kinect peripheral had just been released in November. They had no new hardware this year. That alone is going to account for a significant drops in hardware sales. steveat's comments are also valid regarding the rumor of new hardware, though that is going to play almost exclusively with the hardcore industry fans and not it's larger casual market.

    Last year in Jan 2011 we saw the release of DC Universe online, which saw strong release sales and Dead space 2 which moved millions of units. Jan 2012 also had 2 long term franchise releases (Soul Calibur 5 and Final Fantasy XIII-2), but those are more niche product than the 2011 product and they were released on Jan 31 so only had one day to contribute to Jan totals.

    It will take more time to determine if January's lack of sales indicates a real downturn, or just an anomaly caused by scheduling.

  • Report this Comment On February 13, 2012, at 4:55 PM, militauro wrote:

    Correction, Guitar Hero was the Activision franchise, not Rock Band.

  • Report this Comment On February 13, 2012, at 9:12 PM, HipsterBarista wrote:

    Everyone I know is just waiting for Diablo III to hit shelves. Watch ATVI spike 25-30% sometime this year on record breaking sales of Diablo III.

  • Report this Comment On February 13, 2012, at 9:48 PM, XMFBiggles wrote:

    @ HipsterBarista -

    Isn't that what was said about Starcraft 2? You know, South Korea's national sport? If that didn't move the needle, what hope do you think D3 has?

  • Report this Comment On February 13, 2012, at 11:45 PM, Gwypaas wrote:

    This is from a long lasting fan of Blizzards perspective, with their new implementation of they are hard at work alienating customers for a more casual and console touch of the system, of all the people I know that bought SC2 on the release day very few will buy the next expansion of the series because the current user experience on makes you feel lonely and left out for the general gamer, people expected to get years out of the game and experience, they got half a year instead.

    Right now the active core player base is dwindling as can be seen on ladder tracking services while the largest fan made community is seeing decreased traffic, and the mod scene which lifted Warcraft III and Starcraft Broodwar to heights never seen never took off due to the system not being functual for anything else than 15-20 somewhat played maps instead of thousands.

    Based on this I think ATVI will spike high and post record sales when Diablo 3 and Starcraft 2 Heart of the Swarm is released, although Heart of the Swarm may not post as high sales as predicted back when Starcraft 2 due to alienated players, but I think unless they change the course with these releases or the next one after hardcore fans are going to turn against them instead of with them, I have already seen hundreds of die hard Blizzard fans around the Starcraft 2 community pledging not to buy another Blizzard game until the current issues with the game is fixed, and it will not get better if more people start doing that and becoming even more vocal about it. Over the last 10 days over 1500 posts on all active community sites for Starcraft 2 have been made complaining and begging Blizzard to do something for the user experience on without Blizzard even acknowledging the complaints. This is not going to get better the closer to Heart of the Swarm we get without a change of course.

  • Report this Comment On February 14, 2012, at 11:23 AM, jessicatams wrote:

    The gamers didn't disappear - they just moved to casual games.

    The global casual games market has been steadily growing over the last decade and is still doing very very well with most sectors enjoying 15-25% year over year growth.

    I'm surprised you ignored the fastest growing and soon to be largest category of video games!!!

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