Latest Industry Report Suggests Console Gaming Is Virtually Doomed

It's common knowledge that game console and game sales have been in a serious slump this year. According to conventional wisdom, this is part of the console refresh cycle -- sales of older hardware falls off as customers await new products, even when manufacturers are publicly committed to long life cycles for current generation hardware. Makes sense, right? Right. But a new comparison between long-term hardware sales for Sony and Nintendo products makes it clear that the recent decline in shipments isn't a new development -- it's been building for a long time.

Take a look at Sony and Nintendo's combined sales for consoles and handhelds from 2008 - 2013.

In mid-2008, the two companies combined sales were pushing nearly 100 million units a quarter. In Q2 2013, they'd fallen to less than 50M units. The author of this report, Horace Dediu Dirk Schmidt, doesn't give Microsoft data, because he says MS doesn't formally release sales numbers. Informal estimates are over at VGCharts, which gives us an opportunity to see a breakout for every device over the same time period. What do we see when we add the Xbox data in?

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This data curve isn't identical to what Schmidt claims, but it's not far off. Specifically, it shows the PS3 (faint yellow line) and Xbox 360 (red line) holding a steady line from 2009 - 2011. During that same period, sales of the PlayStation Portable and Nintendo DS both plunged while the Wii sank dramatically as well. This suggests that the nature of the decline has been somewhat different for consoles rather than handhelds, with the Wii looking more like a handheld product than its console brethren.

But here's the part that's got to have Sony and Microsoft both deeply worried -- sales of their own platforms have plunged downwards starting in January 2012, long before serious conversations around next-gen products. Both companies started seeing declines after 2011, but sales for all products are now in the gutter. I ran the monthly charts to make sure I wasn't misjudging this. From January - August of 2008, total sales of all consoles and handheld gaming hardware, from all companies, came to some 44.6 million units. In 2013, that total stands at 20.9 million units.

Ugly Truths

The hardware gaming market is less than half the size it was five years ago. A significant part of that is handheld games, which have been eaten up by mobile phones -- but console sales are in the gutter, too. Worse, the declines started long before the next generation was being talked up. But it's also why Microsoft and Sony went from confidently talking about new consoles being far in the future a few years back to Microsoft's frantic attempt to make the Xbox One appeal to everyone, followed by an equally frantic attempt to fix everything they made awful in the upcoming product.

No one knows what the heck happens in two months. Oh, sure, the PS4 and Xbox One are going to sell well through Christmas. That's a given. There's pent up demand and plenty of hardcore gamers that are going to buy into both consoles. But consoles are a game where you win on volume and you win in the long-term -- or at least, they used to be. If you think of them as an uncertain bet, with a dubious risk/reward ratio, you understand why Sony went one way and MS went another. Sony is betting on hardcore gaming, Xbox is betting on living room integration. But both companies were concerned enough about the long-term sales forecast to make major changes to their current approaches.