New data from industry analysts raises questions about the future of the PC game market.

NPD Techworld issued a press release this week that noted:

“PC games sales over the first ten months of 2002 reached $956 million compared with $945 million during the first ten months of 2001. Between January and October of 2002, 41.6 million units of PC games were sold compared with 44.4 million during the same period the year prior.”

This equates to a 1.2 percent increase in revenue and 6.3 percent decline in the number of games sold.

A couple of points stand out here. First off, the PC game market is sizable—almost a billion dollars—but this represents less than an eighth of the overall domestic game market. Second, while dollars are up, volume is down. This points to fewer games making money, but more hits carrying the market. A quick look at any top 10 PC games chart will show the Sims and its various add-on titles filling out four or five of the top slots. Take a way the Sims, and the actual number of computer games would plummet.

Of course, these up and down ticks are minimal. But consider that the industry as a whole is growing at a remarkable rate—increasing at 25% this year over last according to NPD data. Something is going on and it does not bode well for the PC game market.

I’ve written elsewhere about the challenge of the PC market., (see Gamewriters Group) explaining some of thefactors I see contributing to its decline.And this new data adds more fuel to the argument that PC games may be facing a long-term erosion in market share. In fact, that’s my perspective in a nutshell.

Why do I think PC games will continue to decline? Basically, their niche in the home entertainment space is being eaten away at by the video game console market. To my mind, the only significant advantage computer games have over video games at the moment is the resolution of the screen. The television’s 480x640 effective pixel resolution, and other factors (such as interlacing and round pixel shape), ensures that TV pictures cannot compete with computer monitors in clarity and quality of their picture. Sit a computer monitor and a television set side-by-side and the difference in resolution is obvious.

But that is changing as enhanced definition and high-definition televisions promise to bring competitive screen quality to TV set. This gradual change away from legacy television formats will probably gain momentum over the next 10 years, and ought reach full market penetration within 15-20 years. Over that period of time, the difference in the average viewer experience between television and computer monitors will decrease. Both will look about the same, regardless of the content being pushed through the display.

My guess is that following the adoption curve of new television display technologies will be a correlated decline in PC game sales. As the television display becomes better, gamers will migrate toward the cheaper and more stable hardware of the console for their gaming. So, minus bumps caused by hit PC titles, I would expect to see an annual trend in the numbers of PC game titles shipping each year dropping, while top publishers continue to consolidate the market, driving the remaining sales toward fewer and fewer triple A titles. Basically, I think that the NDP data on PC games this year will form a repeating cycle of dropping game volume, with increased pricing only holding off the inevitable for a couple of years.

As an aside, there are other forces at play here including the saturation of the consumer PC market, the slow growth of broadband adoption and the gradual growth of the average age of the computer gamer in demographics terms. And while these factors certainly contribute to the decline in PC gaming, I don’t think they are the key drivers.

At the very least, I think these trends do raise important questions about the medium and art form of video games. A few topics that I think merit further research include:

• What happens to gaming when most games are played on televisions, rather than computers?
• Moving the industry toward consoles and away from computers gives console makers undue influence over the production and distribution of games. The “garage” developer cannot hope to produce games for a console without the blessing of the console-maker. Sony, Nintendo and Microsoft control who writes games for their platforms. How would this shift effect the medium?
• As people move their entertainment options off the PC, what does that do to the PC market? People say they buy home computers for education and home management applications. But research shows computer users mainly use their machines to play games. What happens to the PC when people just don’t use it to play games any more?
• Does the movement of gaming from PC to consoles say something about the relationship of people to their technology? Do people like consoles because they connect to the TV—a device stored in a recreation and relaxation zone in the house--as opposed to the PC, a device often relegated o the “home office?”
• Or, is it unreasonable to assume that games will migrate off the PC?

These questions and many others will demand answers if, indeed, PC gaming continues to evaporate.