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July 22, 2008 1:25 PM

Gamefest: Games more expensive and recession proof, bigger than Batman

Posted by Brier Dudley

Video game software and hardware are getting more expensive, but the industry should keep growing despite the recession, NPD analyst Mike Klotz said during a presentation at Microsoft's Gamefest conference in Seattle today.

Last year the average retail prices grew 15 percent for game hardware and 16 percent for game software, he said.

Overall game sales at retail totaled $19 billion, closing in on retail sales of toys ($22 billion last year) and home videos ($24 billion). Left in the dust are movie tickets, which totaled $10 billion last year, and music sales, at $11 billion.

Klotz also noted that despite the huge opening weekend for the latest Batman movie -- $155 million for "Dark Knight" -- that pales next to $300 million opening day sales of "Grand Theft Auto IV."

NPD believes that "recessions have little effect on video game sales,'' Klotz said.

One reason is that games are still a relatively inexpensive form of entertainment. With games becoming more social, families may opt for games they can play together again and again, he said.

"People, they don't want to go out and spend $50 for a family to go out to a movie, they want to spend $50 on a game that gives them countless hours of entertainment,'' he said.

(I wonder, though, if they're factoring in the increasingly common cost of add-on content like new songs for "Guitar Hero" ... )

There's also still room for the game market to grow, since only 56 percent of U.S. consumers are now playing video games, he said.

"Maybe in a couple of years we'll be able to say video games are more popular than gardening,'' he said.

Other tidbits from his presentation:

Klotz was bullish on sales of games for handhelds, such as the Nintendo DS and Sony PSP, noting that they have a higher installed base than the current generation of consoles, the Xbox 360, Wii and PlayStation 3.

Yet the best-selling console since November 2005 has continued to be Sony's aging PlayStation 2, showing that on average people still favor smaller and less expensive video game hardware.

Klotz expects PS3 sales to "show continued strong growth" but he said the growth won't necessarily come from people who previously owned PS2s.

"They're actually more attracted to the Wii so far and even to the 360,'' he said.

NPD surveys found that only 10 percent of PS2 owners also own PS3s, vs. 20 percent who own either Wiis or 360s.

On the PC, NPD found that sales of online game subscriptions now match retail sales of PC games, with both categories posting $900 million in sales last year.

Among subscriptions, $700 million were for massively multiplayer games such as "World of Warcraft" and $200 million were for subscriptions to game Web sites.

We'll have to see how the subscriptions are affected by Microsoft's big announcement today that it's dropping subcription fees for multiplayer gaming on its Games for Windows Live service.

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Gadgets and games | Fun stuff I've written about lately includes Apple's iPhone, Hewlett-Packard's HDX laptop and Microsoft's Halo3. Also on the radar are new digital video boxes such as the Tivo HD and the Vudu.