Armchair Analysis: Interpreting the Nielsen Effect

by: Peter Skeritt -
Most analysts use NPD sales data to fuel their predictions and forecast future sales trends, but data released by a different source recently also bears watching. A report from Nielsen released late last week indicates that consumer spending is trending away from new video game sales and going towards other leisure activities. Spending on traditional video games was down 9% in 2010 versus 2009, while spending on other leisure activities rose 23% during the same period. 

The report stops short of saying that this trend is universal, however. Cell phone entertainment purchases, including cell phone games, was up nearly 40% in 2010. This increase certainly makes sense given the increase in smartphone penetration. More and more consumers use their phones for more than just making phone calls or sending text messages, and with phones getting more powerful and being able to do more things, it's a safe bet that this trend will continue in 2011. 

Why is video game spending decreasing?

One possible explanation is that video games are too expensive. This console generation is well into its fifth year and $60 games are still the standard for two of the three major platforms. A few games have been released at lower price points, but there doesn't seem to be any kind of movement to adjust to what continues to be a challenging economic climate. There's also an indication that consumers want to be out and about as compared to sitting at home in front of a television or monitor. The examples of leisure spending that the report cites indicate this: going out shopping, dining out, and going to parks all have "going out" as a common denominator. 

Video games are still popular, as there are still millions of dollars in revenue generated by the video game industry. There are still blockbuster titles, and 2010 was no exception given the sales successes of Call of Duty: Black Ops and Red Dead Redemption. There is certainly a growing gap between these blockbusters and the rest of the field, as there were many games that were sales underachievers in 2010. Blur, Split/Second, and Enslaved are a few such titles that spring to mind. It's possible that there are too many games available and not enough interest (or money) for them all. As March approaches, it's likely that we'll see the same gaps. Homefront and Crysis 2 could play out similarly to the Blur and Split/Second scenario that played out last May, but it's likely that we'll see a more prominent winner this time as preorders for Homefront continue to build in advance of its March 15th release. It can be argued that too many games-- especially in the same genre-- release too close together can lead to disappointing sales and perhaps some indifference from consumers who feel overwhelmed and unsure of what to spend their limited disposable incomes on. 

Initial reactions to the Nielsen report have been highly defensive. Most believe that the Nielsen numbers aren't a wide enough representation of households and don't paint an entirely accurate picture of the current spending climate. Unfortunately, the report only serves to echo the trends that recent NPD numbers have been bringing to light: consumers are spending less on video games than they have in recent years. The industry and its analysts would do well to pay heed to these trends and figure out how to reverse them instead of being wholly concerned with the bottom line and how to extract as much money as possible out of each consumer. As prices remain high and the feature sets in retail software offerings diminish in favor of future downloadable content and additional revenue streams, consumers are finding other less-expensive pursuits of leisure and entertainment and this trend could remain dominant in 2011 despite new hardware and solid software offerings. 

Please check out the raw Nielsen numbers via the pictured chart below, and feel free to chime in with your own thoughts about this data. Is the trend about to be reversed with the launch of the 3DS in March? Is cell phone gaming becoming a legitimate competitor to more traditional console and PC games? Has your video game-related spending changed in similar or different ways than the Nielsen report indicates?

The floor is yours. 

Source: The Nielsen Company

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