Why The PC Game Industry Figures Are Baloney
According to the NPD Group, PC games enjoyed a very modest but measurable growth last year, posting a 1% growth over 2005, to the tune of $960 million dollars. While it's small compared to the $12.5 billion enjoyed by console gaming, it still contributes a noticeable share to the gaming industry.

So the PC games industry isn't dying after all! It's small but growing, right?

I agree with the conclusion that the rumors of PC gaming's death have been greatly exaggerated. But I will be one of many who will be calling "Bull!" on those numbers.

Not that I think that the numbers themselves are wrong, but that using them to gauge the growth of the PC games market is... well, ludicrous. It's obvious to me that the NPD group is only counting boxes. Their press release details that this research is limited to "Retail, U.S. Sales." That still works for consoles - for a while.

But counting boxed retail sales for PC games? THAT is what is dying. Not PC games.

But surely the figure isn't too far off, is it? Counting boxes is still a pretty good indicator of the overall revenue by the PC games business, isn't it?

Subscription-Based Games
First off, let's look at World of Warcraft. As of March last year, it has had a total of SIX MILLION subscribers, and that number was reportedly up to eight million recently. Chinese subscribers (that make up a little less than half the subscriber base) are only paying $5 per month for the game, but the rest are paying between $13 and $15 per month.

Averaging it out, we'll assume $9.50 a month per subscriber. With 6 million subscribers shortly after the beginning of the year, and 8 million at the end, that averages to about 7 million subscribers for the year. We can be conservative and say 6.5. million times $9.50 a month

That comes out to $61,750,000 per month... or nearly $750 million for the entire year. IN SUBSCRIPTION REVENUE ALONE! That's not including boxed sales, which evidently accounted for another 2 million sales times the average retail price worldwide. What, 25 bucks, maybe? Another cool $50 million - which is probably all NPD counted when they say World of Warcraft was the #1 seller.

So World of Warcraft made almost as much as the NPD is reporting all by its own little lonesome. And that is a conservative guesstimate in my opinion. So maybe nobody bought anything else OTHER than World of Warcraft last year, except for me?

Like the TV sales pitchmen are fond of saying, "But that's not all!" Last count, World of Warcraft accounted for just something north of 50% of the MMO subscriber market. So let's take that $750 million, and let's multiply it by, say, 1.9, to represent all the MMO market out there. That brings us to 1.425 billion dollars.

Okay. No big deal. So the NPD Group is short by a half a billion dollars. Sure, that's an honest mistake.

Though we still haven't counted the boxed-sales of those games into the figures yet. And the ride gets rougher still.

Casual Games
In 2005, the "Casual Games" industry made $713 million in revenue, according to the DFC Intelligence joint market report. It is estimated to grow to $1.5 billion in 2008. Using the ol' rule of 72, that means a 24% growth rate per year. So if casual games continued to grow this year rather than making an unexpected downturn (and from what I could tell, nothing of the kind happened - it's been a great year!), that would mean $884 million in sales this year.

Yeah, once again - almost the entire NPD-reported PC games sales for the year, by Casual Games alone. Now, some of those (a third, maybe?) were boxed game sales sold at Wal*Mart or whatever, and thus included in the NPD report. But at this point, we're now talking $2.3 billion in sales.

So the NPD group is now short almost a billion-and-a-half dollars. Oops. And we're still not yet counting all those shiny shrink-wrapped packages of World of Warcraft, The Sims, and Oblivion that were greedily snatched by gamers everywhere off of the shelves of GameStop and Wal*Mart yet.

Incredible.

Hardware Sales
According to the GameDaily Biz article, the NPD report for console sales included "portable and console hardware, software and accessories." That's all well and good, and should be included. Except it also compares apples to oranges when you are comparing it to PC sales, where (I'm guessing) only the actual software is counted.

But in 2005, Alienware had $173 million in sales --- part of the reason it was gobbled up by Dell. Alienware specialized in - let's face it - game machines. And it was supposedly on track to sell $200 million worth of game machines in 2006. So to make things fair, we could toss that value onto count, for over $2.5 billion in PC gaming sales to include some hardware.

But Alienware is only a drop in the bucket. Logitech had $422 million in sales in 2005 (and probably a similar amount last year), much of which is going to feed the PC gaming appetite.

And let's not forget NVidia, which apparently had $2.5 billion in total sales in 2005! One company! And ATI, which made $2.2 billion. While much of that was going into consoles (and Alienware machines), there has got to be a metric buttload of that money coming from the PC-based business. And who needs NVidia or ATI hardware in their machines? Gamers!

Granted, not everyone who gets a "gaming-oriented" motherboard or 3D card is actually going to be using it to play games, which makes the actual calculation extremely fuzzy and impossible to difficult to quantify with exact numbers. So I won't fault marketing analysts for not wanting to touch this one. But I think it illustrates what a big difference it would make if you tried to make a fair comparison

The Long Tail
That doesn't bring into consideration the other sources of "long tail" revenue. Nobody asked ME how much Rampant Games made selling non-casual downloadable games last year. Not that it would have made a dent in their calculations. But there are a LOT of guys like me out there, selling their software, hardware, peripherals, and game-related services (like FileFront.com) over the Internet, mail order, or what have you.

While we may all fly under the radar of these intelligence-gathering firms, collectively we form a "long tail" of entertainment software sales that might actually be a significant number. I won't even hazard a guess at this point, other than to say, "several million." Whether several means $3 million or $30 million or even $300 million I have no clue.

But at least in having no clue, I don't seem to be alone.

You Can't Get Away With Counting Boxes Anymore
With consoles, game distribution is still based on traditional distribution channels. While it's expanding to downloadable game sales, it's still tightly regulated by the console manufacturers themselves. Sell-through numbers are still notoriously hard to come by, but these market analysts have been at it a long time, and I'm assuming they are pretty good at it.

But unless there are a lot of people grossly exaggerating numbers out there, my quick-and-dirty guesstimation seems to indicate that the NPD group (and they aren't the only ones) are grossly underestimating the PC game market. If you make the assumption that they really have been just counting boxes, and add that to my rough estimation above the PC games industry last year probably made around $3.5 billion in sales last year. And that's NOT including game-oriented PC hardware sales.

Unfortunately, that's not a direct comparison between consoles and the PC. The NPD numbers are for U.S. sales only, so you can probably double their numbers for worldwide sales. On top of that, their numbers include hardware sales, and gathering that number for PCs sounds extremely difficult. But I think it's clear that traditional retail sales is telling far less than half the story.

If you could then manage to exclude the console hardware sales so that we could make a more "apples-to-apples" comparison of game sales, I think you'd find that PC games are generating perhaps a quarter of the games revenue for the entire industry.

To me, that sounds like a very healthy gaming platform.

(Note: Tip o' the sombrero to Scorpia for the GameDaily link!)

(Vaguely) Related Tirades
* PC Gaming Is Far From Dead
* It's the Reseller's Fault!
* A Pirate Story
* How to FUBAR an MMO Launch

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Labels: Biz, casual games, Mainstream Games

- posted by The Rampant Coyote @ 5:00 PM (Permalink)