The consensus among respondents to our survey was that 2000 was a tough year for the game industry. Even though unit sales were up slightly in 2000, it appears the majority of publishers lost money. The industry’s fuel in 2000 was primarily a narrow range of titles/franchises such as Pokemon, Tony Hawks, WWF products, Madden Football, Zelda, Final Fantasy, The Sims, Who Wants to be a Millionaire and Rollercoaster Tycoon In addition there was a demand for older, back–catalog product that was priced at a deep discount. The year 2000 didn’t introduce many new franchises. The only company that seemed really happy about 2000 was Activision. Indeed, driven by Tony Hawks’ products, Activision had a great year, becoming the number three software publisher, after Nintendo and Electronic Arts.

While 2000 was a bad year for most publishers, the result was not unexpected, with the conclusion that this is a time of market transition. Sales were actually expected to be down in 2000, which is different from the market attitude in the 1984–1986 and 1994–1996 timeframes when, for many, the future of the entire interactive entertainment business was in doubt. Now going into 2001, a stagnant market isn’t necessarily a sign that the market has permanently peaked.

For the past several years, DFC Intelligence had predicted a stagnant market in 2000 and 2001, to be followed by significant growth in 2002. So far, the results have borne out our predictions. According to sales data from the NPD Group overall, the U.S. interactive entertainment software sales revenue was flat in 2000, even though unit sales were up 5 percent. In terms of specific market segments, PC game revenue was flat while unit sales were up 8 percent, and while video game software revenue was down 4 percent, unit sales were up 2 percent. The only true star performer of 2000 was the portable (or, in this case, Game Boy) market with software sales up a significant 26 percent.

While these numbers were unspectacular, they were also anticipated. DFC Intelligence’s predictions for the year 2000, which were forecast before the fact in 1999, came within 10 percent of accuracy for all platforms. Furthermore, in some cases, the market actually exceeded our projections, with a less severe decline. PlayStation’s software revenue declined 18 percent in 2000, whereas DFC had projected a decline of 28 percent. And, DFC’s projections for the new 128–bit game systems were right on the money!

Although a stagnant market was anticipated, it seems that some of the troubles Sony encountered with the PlayStation/PlayStation 2 were not expected. The biggest single source of frustration for the year 2000 seemed to be with Sony and the PlayStation 2. Even though the PlayStation 2 created a big media splash it had a negligible impact on overall software sales. In fact in 2000, sales of PlayStation 2 software were less than Dreamcast software sold in 1999. Many felt that much of the softness in the market was due to the fact that Sony encountered hardware manufacturing problems for both the PlayStation 2 and the original PlayStation. In essence, Sony halted marketing the PlayStation brand for about six months in mid–2000.

In our 1999 survey everyone was very bullish on the PlayStation 2, yet this year revealed much more doubt about the long–term future of the PlayStation 2. For some respondents, the PlayStation 2 has been a major disappointment overall, with some of the harsher complaints centering around the poor software lineup, the difficulty of developing PS2 software and even some claims that the PlayStation 2 is simply not a compelling hardware product when compared with the Microsoft Xbox.

Nevertheless, make no mistake, despite the complaints regarding Sony’s handling of the PlayStation 2, no one believes that the PlayStation 2 will fail. In fact, most respondents think that the PlayStation 2 will be the number one game system over the next several years. The main difference of opinions appears to exist between those who think the PlayStation 2 will win the hardware race by a "country mile", and the executives who project that the market could be fairly evenly split among three game systems.

Furthermore, the PlayStation 2 seems to be the only system in which everyone is fairly confident. There were fewer consensuses over the Microsoft Xbox and the Nintendo GameCube. Some think the Xbox may outsell the PlayStation 2, while others anticipate that the Xbox will likely be a failure.

Regarding Nintendo, most executives remain circumspect, claiming they aren’t aware of many details pertaining to Nintendo’s plans. Typical comments include, "There is always room for Nintendo," "Nintendo will continue to lead in the under 14 market," and "It is always hard for third parties to make money on Nintendo systems." Many respondents had doubts of whether the GameCube would even be released in 2001.

In the end, there is a great deal of uncertainty about the future of the video game hardware platform wars in the next two years. Most publishers seem to be bracing for another rough year in 2001, however there is little doubt that demand for video games is strong and growing even stronger, which seems to bode well for 2002 and beyond.

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