WheezerSales of video game consoles and video game software are down this year as are sales of DVDs, none of which are supposed to happen in a recession.  Hollywood thrived during the Great Depression, remember?  And now the U.S. Centers for Disease Control drops a bomb on us that the average U.S. video game player is 35 years old, overweight, and somewhat depressed.  This is news?  Apparently it is, and looking behind these numbers helps make some sense of the economic picture.

In the entertainment industry video games have provided really significant revenue for more than a decade.  If we start with the base movie business the sole revenue source used to be theatrical releases, then in the 1960s came broadcast television distribution of movies. The 1970s brought cable TV distribution and toy merchandising (action figures). The 1980s brought home video distribution through VHS tape sales and rentals, and the 1990s converted those VHS businesses to DVD. In the 2000s the incremental revenue bump was different, coming largely from a new synergy between video games, comic books, and movies augmented by an exploding international market.  Many new movies were based on video games and comic books, while many video games were based, in turn, on movies. Simultaneous global releases became the norm.

To a movie producer, then, the decision to invest an average $100 million in making and marketing a major motion picture comes down to planning for all these different lines of businesses right down to and including Happy Meal toys at McDonald’s.  With enough lines of ancillary income it didn’t matter so much if the film was a critical or even a box office success: eventually it would make a profit.

Then along came 2009.

The film box office is slightly bigger than in 2008, thanks in large part to higher ticket prices, but most of the other sources of income are lower, some of them dramatically so.  DVD sales, for example, are down by 25 percent.  Is this the effect of Red Box $1 movie rentals or maybe video piracy?  Nope. The $60+ billion domestic entertainment industry we thought was based on teenage boys is in trouble because it was actually based on middle-age men pretending to be teenage boys.  And those middle-age men need to support themselves.

That’s what’s going on here: the guys stopped buying games so they could make their car payments, instead.  It took an unprecedented recession — the worst in 70 years — to coax-out this effect but it is clear that if things get bad enough even Hollywood hurts.

Economies are cyclical things and a lot of economic recovery is just surviving to play another day.  We see that in the game console price cuts that just came from Sony and Microsoft and will surely come shortly from Nintendo, too.  These price cuts are intended both to keep the factories running until natural demand can recover and they are supposed to stimulate game sales which in turn pay royalties back to the console makers. And it will work, though at a cost to the companies not just in dollars but also in market positioning.  Just as we’ve seen in PCs, there is a downward trend in product price points for games, too.  Sony is very unlikely to introduce another $399 game console ever, just as the $2000 PC is pretty much an artifact of history.

This is good, right?  Cheaper is better.

It is VERY good for game players and other consumers, I think, for two reasons: 1) in game software there will be an inevitable flight to quality as crappy new titles are killed before they get to market and the game companies put their marketing dollars behind their better games, and; 2) this may be a fantasy on my part, but now that we know the market sweet spot is actually 35, fat, and depressed, maybe the game designers will start to write for their real audience.

We could be about to enter a video game renaissance.