On Thursday, the NPD Group released final 2008 retail sales figures for the video game industry, and corporate spin machines went into overdrive, with various companies sending out press releases to reassure investors and video game geeks that 2008 was a magnificent year.
One of the bullet points Nintendo highlighted, though, stood out. It read, “Industry annual revenues jumped 19% in 2008 over 2007, and Nintendo
products were responsible for 99% of those additional retail dollars.”
On Friday, Nintendo followed up that proclamation with a dubious pie chart. Basically, Nintendo’s reasoning is this:
1. Revenue for the entire video game industry grew by $3.35 billion in 2008 over the previous year.
2. Revenue at Nintendo grew by $3.31 billion in the same time period.
3. $3.31 billion is 99 percent of $3.35 billion.
4. Therefore, Nintendo accounted for 99 percent of the industry’s revenue gain last year.
This logical fallacy and its accompanying pie chart were swallowed hook, line and sinker by Web sites that cover the video game industry, without so much as a shred of skepticism.
But this line of thinking is bogus. Here’s why. While it’s true that the entire games industry saw revenues from the sales of hardware and software rise by $3.35 billion, that figure lumps together all the companies that saw their revenue go up with the companies that had revenue decline. You just can’t lift Nintendo’s numbers out of that, lump the other successful companies in with the losers and conclude that no one but Nintendo had a successful year. (Take-Two Interactive, publisher of “Grand Theft Auto IV,” might beg to differ.)
Confused? Here’s a simple example:
Let’s say, for simplicity’s sake, that there are three companies that manufacture cuckoo clocks. In 2008, Company A saw its revenue increase by $4 billion over the previous year. Company B saw its revenue increase by $1 billion in the same period. Company C, however, didn’t fare so well and lost $1 billion.
Using those figures, the cuckoo clock industry as a whole would have had $4 billion more in revenue in 2008 than it did the year before, or exactly the same gain that Company A had. Using Nintendo’s logic, Company A could then put out a press release claiming it was responsible for all of the cuckoo clock industry’s growth. Meanwhile, Company B could use the same dubious calculations and claim it was responsible for 25 percent of the growth. Neither would be correct.
Now let me make it clear that I’m not one of those Wii haters. While I tend to do most of my gaming on the Xbox 360 (and soon my new PlayStation 3), Nintendo’s console is bringing a ton of new faces into gaming. While this big influx of what some people derisively call “casual gamers” likely means the video game industry might experience a few growing pains in the short term, eventually some of these Wii bowlers and “Carnival Games” fans are going to crave games with rich stories, online play, voice chat and shared user-created content. The more, the merrier, I say.
At the same time, it is possible to overstate how successful Nintendo’s been. While this is a tough business climate for anyone to operate in, Take-Two sold millions of copies of “Grand Theft Auto IV.” Music games like Activision’s “Guitar Hero” and Harmonix’s “Rock Band” franchises are selling millions of downloadable songs not counted by NPD’s data. And while Microsoft and Sony aren’t selling nearly as many consoles as Nintendo, both the Xbox 360 and PS3 are on pace to easily outsell last generation’s No. 2 and No. 3 machines, Microsoft’s Xbox and Nintendo’s GameCube.