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The industry once again has embarked upon a new video
games cycle. Hardware shipments for the previous generation (PS2, Xbox, GC) consoles are in decline (GameCube has been dropped already by most Western retailers and Xbox has been discontinued) although the total
installed base obviously continues to rise. Software sales during the last cycle peaked in some territories during 2005 although many territories, including the USA peaked in 2004 and fell in 2005 (before rising
again in 2006, partly fueled by Xbox 360's launch). A comparison of the previous cycles produces some interesting observations. The December 03 shipped hardware base of some 94m units represented an approximate 100%
increase over the shipped hardware base at the equivalent stage in the last cycle (around 1998). Interestingly, this had been achieved at a 40% higher price and PS2 (and Xbox) only reached a mass-market hardware
price point (around £100) in the second half of 2004. At this price, Sony sold the greatest proportion of its 102m PSOnes. Despite PlayStation 3 launching, we believe PS2 therefore will continue to sell in volume
throughout 2007 and into 2008 reaching a lifetime sales total of over 120m. Another lesson learned from previous cycles was the potential value of maintaining support for declining platforms. After PS2 was launched,
many publishers dropped PSOne support, focusing their development efforts on the newer console. Many have since admitted this was a major strategic error. Over $5bn in software for PSOne was sold worldwide in the
four years following the launch of PS2.
The new cycle has already confounded many analyst's expectations with a stronger than expected launch for Nintendo's mass-market focused Wii and a weaker than expected
launch for Sony's PlayStation 3. Microsoft, however continues to retain its lead benefiting from a 12 month head-start over its rivals. Individual console manufacturer analysis is provided below.
Placing a value
on the games industry can often lead to highly misleading results, especially where the figures are compared with other industries. Many include the value of hardware retail sales although for the majority of
companies within the industry, it is only software sales which are of direct importance. The global games software retail industry was worth approximately $19bn in 2006. This rises to $25.5bn including network games
revenues. These figures exclude hardware sales. (source: Games Investor Consulting Ltd).
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