GeekStrike

According to CNBC, sales figures for video games in May 2009 amount to 893 million. This mark the first time video game sales have dipped below the 1 billion mark in 6 months. In stark contrast to last May’s 1.12 billion dollars, the market has evidently contracted to 2007 levels (815 million).

While we do not claim to be experts at reading the video game markets, I am going to go against the tide of conventional wisdom that “this May is incomparable to other Mays before” and the conventional question of “is the market suffering from recession”.

This May’s performance is very similar in nature to May 2007. May 2008 was the oddity. The real question is not if the market is suffering from recession (Not really) but if the market has reached a plateau. In which video games sales surge to a billion (plus) when killer apps hit and dip below when there is nothing on the horizon.

The companies probably know this (and laugh behind the presses’ back at their framing of this as a possible recession rather than a market at saturation) and respond instead by saying they are counting on more killer apps and expanding the market.

The first strategy probably means building more sequels to killer-apps (or hype in the case of new killer-apps) and staggering their releases so they can get a “killer app” out more often. This does not change the plateau situation in anyway; the maximum volume of sales never changes. However, this allows companies to continue making large profits even in the “slow” months. This writer never liked the killer-app model for game developing, but until he conquers the known world this will probably not change. One can’t blame them for wanting to make money.

The second strategy is more interesting, with all the talk about attacking side markets like girls, children and the casuals. This is a strong signal that insiders do not view this as a recession but rather a bottleneck in growth. Considering the success of Wii Fit, which was in the top 3 last May and is in the top 3 again this May, some companies might be wising up to it. Nintendo’s business strategy might have been right all along.

Its important to know that companies do not ramp up production in times of recession. Instead, they do longer term investments to maximise production and efficiency in preparation for the eventual recovery. Both strategies are obviously focused on the former.

Therefore, the month to watch now is June, when “Sims 3” will make the bulk of its sales. The game is both a killer app and a market builder, its performance will be indicative if the industry is truly suffering from a recession or not.