In last week's column, I proposed three theories
for the scary drop in video game retail sales for January in the United States. What I hadn't gotten around to checking at the time was whether this was going on elsewhere in the world.
As it turns out, yes, there is another retail market - similar to the U.S. market in several respects - that is undergoing a similar contraction: the British retail video game market.
Like the States, the UK retail market saw spectacular sales of the Nintendo DS and Nintendo Wii several years ago, and since that time Nintendo's sales have collapsed spectacularly.
For example, in 2007 nearly 8 million units of Wii software were sold in the UK. The following year over 20 million units of Wii software were sold, but that had contracted to 18.1 million in 2009 and then 13.6 million in 2010. I don't yet have figures for 2011, but I'd put them at around 10 million or less.
I don't want to make this all about the Wii and the DS, although they are clearly an important part. The fact is, Sony's PSP has been moribund for a long time (it moved only 1.6 million software units in 2010, about 1/6th the software sold for the Nintendo DS that year) and its flagship PlayStation 3 console has failed to fill the space formerly occupied by the PS2, both on the hardware and software fronts.
Like the U.S., the UK market also has an affinity for the Xbox 360, more so than Europe generally.
Before I get around to the retail disaster in January, let's just look at where the UK market has been going in the past few years, especially compared to the U.S.
The figure below shows the rise and fall of these two markets since 2006. The data there includes all market segments: from console to handheld to PC, from software to hardware to accessories. It does not include used games, subscriptions, nor digital distribution.
The UK market peaked in 2008 at around Ł4 billion, just as the U.S. market peaked at $21.4 billion, rising 20% and 19%, respectively, from the previous year.
Since that time, both markets have contracted, but it must be noted that the UK market has taken a much bigger hit. The U.S. market has fallen just over 20% from its peak, while the UK market fell over 37%.
If U.S. retail video game revenues had contracted the same amount from their peak, the total last year would have been a mere $13.4 billion or approximately the size of the market in 2006 including the launch months of the Wii and PS3. Thankfully we're not that bad off ... yet.
Allow me to pull out software (console, handheld, and PC) as its own segment of the market and look at how that software has sold at retail. I've put that data into the figure below.
Here I'm fortunate enough to have a bit more data, going back to 2006 instead of just 2007. The picture here is very interesting, because you can see that the U.S. market grew a staggering 60% from 2006 to 2008 and then shrank by about 21% from that peak.
By comparison, the growth from 2006 to 2008 in the UK was a less torrid 40% but from there is has contracted by 25%, about in line with the trend in the U.S. market.
My experience looking at UK data is far more limited than my time with the U.S. data, but what I've seen so far appears to show that the two markets have risen and fallen in similar ways over the past few years. Sure, the UK market took a bigger hit in total market value, but when we pull out software by itself, the two markets look reasonably similar over the past 3-4 years.
One key difference between the U.S. market and its UK counterpart is that the latter gets weekly sales data estimates (units and revenue, among other things) while the former only gets monthly updates with much less detail.
So I'm in a position to compare January sales for the past few years in the UK with the corresponding data in the U.S., and then to look at the first two weeks of February sales in the UK as an indicator of what might happen in the U.S.
Here's that January data, in graph form.
Unlike the other two graphs, this one contains data for the current year, and it also shows the two regions out of sync for the first time. According to this data, January has seen falling revenue every year in the UK since at least 2008. (I don't have month-level data for 2007.) In the U.S., the decline began in 2010.
For me the really interesting bit is that the two countries saw similar declines in January 2012. The UK saw a contraction of about 30% while the U.S. saw its revenues fall by 37%. Not perfect agreement, but close enough.
You should recall from my last column that January 2012 in the U.S. was particularly hard hit because of a quirk of the retail calendar: the retail sales estimates only ran through the 28th of the month, and the next big set of games wasn't released until the 31st.
In the UK we already have some data for February, including the release of games like Final Fantasy XIII-2
from Square-Enix and SoulCalibur V
from Namco. How have those big releases affected the market?
In the first two weeks of February, UK sales are still down nearly 13% in terms of revenue and 19% in terms of units. Granted, that's not as dire as January, but it's still dreadful.
Given how closely the UK and U.S. markets appear to reflect each other, it seems likely that we'll see a similar drop on our side of the pond when the NPD Group releases its estimates for February's retail sales.
After referring to last month's terrifying sales as a "supermassive black hole", industry analyst Doug Creutz of Cowen and Company went on to predict that February's sales would be down around 10% compared to last year. When I first read that, I laughed wryly at his metaphor but was not yet ready to believe sales could go down 10%, especially given the list of games that would likely make the February chart.
Having looked more closely at the situation in the UK, now I'm not so sure.