Trends

• Individual video game sales dropped, but overall gaming sales jumped to $10.5 billion.
• Launch of new consoles this fall are expected to drive greater interest in the category.
• Sony's decision to raise the price of PlayStation3 could reduce individual game sales.
• The HDTV DVD war will increase interest in new consoles.
• Cross-platform gaming services are expanding.
• Game downloads will increase dramatically during the next five years.

The past year in video gaming could be characterized as the calm before the storm. Industry officials – and millions of game players – waited anxiously for the release of new game consoles from Microsoft (Xbox 360), Sony (PlayStation3) and Nintendo (Wii). However, at the start of 2006, only Microsoft had released its new edition. For various reasons, Sony and Nintendo pushed back the launch of their new players until late 2006.

Due to concerns that current consoles would be obsolete in the near future, many consumers reduced their spending on new video games. Individual video game sales (console, PC and portable devices) dropped five percent in 2005, according to NPD Group. Avid gamers wanted to save their disposable dollars for the next-generation of games which promise to offer HDTV graphics as well as other improvements. (Microsoft’s Xbox 360, which launched in November 2005, was the first to offer high-def graphics.)

The reduction in individual game sales was more dramatic when you consider that overall gaming sales (consoles, accessories and software) jumped to $10.5 billion in 2005, a six percent increase over the previous year, and an all-time industry record. (The previous record was $10.3 billion in 2002.)

Despite the lack of new hardware for most of the year, the industry continued to attract new fans among both children and adults. The increase in overall gaming sales bodes well for the industry when Sony and Nintendo release their new consoles later this fall.

The last year also saw an increase in services that let gamers play on devices other than consoles and personal computers. Wireless companies now offer games on their cell phones, and Sony’s new Play Station Portable and Nintendo’s DS portable both had boom years, giving the entire industry a big boost. Online services also expanded their businesses to enable gamers to download new games on their portable devices and computers. The download feature is scheduled to be expanded soon on game consoles, which should boost individual game sales.

There seems to be no limit for how big the video game industry can become. Graphics continue to improve, new consoles and computers are offering greater entertainment and convenience, and more adults are interested in the activity.

"The introduction of the Xbox 360 was a defining moment for the industry in 2005. However, it goes without saying that the full impact of next-generation consoles on the consumer market won't unfold until later this year when Sony and Nintendo's video game consoles hit U.S. retail shelves," said Anita Frazier, industry analyst, NPD Group. "The real story for 2005 was the incredible expansion of portable gaming. The GBA continued to realize stellar sales, and the introduction of the DS and PSP to the market brought older gamers to the portable format."

Annual Growth in U.S. Electronic Game Sales (in millions of dollars)
1995	$3,200
1996	$3,700
1997	$4,400
1998	$5,500
1999	$6,100
2000	$6,020
2001	$6,350
2002	$6,900
2003	$7,000
2004	$7,300
2005	$7,000
Source: NPD Group

Total Unit Games Sales Declined in 2005
Type of Game	2005 Sales	Decline from 2004
Console game & handheld	190.3 million	6.3 percent
PC game Unit	38 million	19 percent
Source: NPD Group