Video game industry struggles to grow, a year after new consoles launch

After months of subsisting on strong sales of new game hardware, overall game spending plummets in November.

Activision Blizzard's newest installment in the Call of Duty military shooter series, titled Advanced Warfare and featuring actor Kevin Spacey, took the top software spot in November. Activision

The video game industry managed to reverse an almost year-long trend in November, but the question now is at what cost?

Nearly every month since Microsoft and Sony launched new game consoles in November 2013, hardware purchases have made up for the fact that players just weren't buying that many new games.

Yet last month the industry flip-flopped. Hardware sales at US retail stores fell 23 percent to $1.01 billion from the same time last year, according to a report from industry researcher NPD Group. Game sales, meanwhile managed to almost break even with a 2 percent decline to $1.09 billion. Year over year, overall retail game spending across hardware, software and accessories dived 11 percent to $2.41 billion.

The problem? Console makers, particularly Microsoft, might have chosen to cut prices too soon, hurting the industry's prospects for revenue growth.

"Despite a decline in dollar sales, hardware unit sales for eighth generation consoles increased by 3 percent over November 2013," NPD analyst Liam Callahan said in a statement. That means price cuts, like Microsoft's $50 reduction for its Xbox One console in the US and aggressive bundling of free games with console purchases to further entice customers, may have done more harm than good.

The games industry has struggled to show consistent growth since launching the new Xbox One and PlayStation 4 video game consoles a year ago. So far, the trend has been that hardware has sold well, while software has underperformed.

Industry executives blamed an unexpected falloff in sales of games for older video game consoles. Now, they must contend with falling hardware sales figures as well.

Despite the less than stellar results, Microsoft is confident that it's back on track thanks to its pricing and bundling tactics. "November set a new record for sales of Xbox One, and Xbox One was the best-selling console in the US and UK," Mike Nichols, Microsoft's corporate vice president for Xbox marketing, said in a statement.

Among games sold in November, Activision Blizzard's military shooter Call of Duty: Advanced Warfare was the top selling title, with Take-Two Interactive Software's updated version of crime thriller Grand Theft Auto V coming in second. Nintendo's new Super Smash Bros. fighting game for the Wii U was ranked third.

In a bright spot for the industry, the spending trends over the Internet continue to favor a disc-less world of downloads. Spending on titles and additional game add-ons over the Internet surpassed $1 billion last month, a 23 percent increase over last year that was helped largely by Black Friday and Cyber Monday deals, according to competing industry watcher SuperData Research.

In an interesting twist, the aggressive physical retail tactics of game console makers and software providers may be accelerating the transition to Internet-made purchases, the firm said.

"Traditionally, digital games do not follow the drastic seasonal spikes of retail, which remains vastly dominant during the holiday season," SuperData CEO Joost van Dreunen said in a statement. Yet retail's sizable discounts on consoles "were instrumental in driving digital mobile and console game sales," he added, pulling in revenues of $355 million and $111 million, respectively.

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