It was another good year for the video game industry, which continued to eat up a sizable share of entertainment dollars – even without new systems to drive sales. Looking back at the category’s performance in 2004, hardware price reductions and major inventory shortages in the critical fourth quarter were offset by sales surges in software and portable hardware. So total sales for the year pretty much stayed the course at US$9.9 billion – a drop of less than 1% from 2003’s US$10 billion, according to industry tracker the NPD Group.

‘It’s important to note that the market continues to grow, and is probably somewhat understated,’ says Douglas Lowenstein, president of the Entertainment Software Association. ‘Without the hardware shortages, it’s safe to assume software would have been up even more, which is noteworthy because this growth is occurring in the twilight of the [hardware] cycle, when you would typically see much more leveling off.’

Hardware revenues declined by 17% to come in at US$2.4 billion for the year, but the consoles to watch were definitely of the handheld persuasion. Portable sales grew by 9% to crack the US$1-billion mark (thanks in part to the launch of Nintendo’s new DS platform) and corner 43% of total hardware sales. For 2005, NPD entertainment industry analyst Anita Frazier says her team is keeping an eye on how Sony’s new PlayStation Portable performs, as well as how the potential unveiling of the next-gen consoles will affect the market.

Despite a widespread anticipation that software would experience a price drop along with hardware, most premium titles retained a US$50 price-point this year. And software sales for consoles and handheld players accounted for 62% of the total revenue, up almost 8% over 2003.

E-rated games are still tops with consumers, raking in 55% of total sales. But entertainment licensing made little impact in 2004, with only one title – Activision’s Spider-Man: The Movie 2 – cracking the top 20. Franchises dominated the sales charts last year, with titles like Nintendo’s Pokémon Fire Red and EA’s Madden NFL 2005 banking some of the biggest draws. This trend will likely continue into 2005, which is already peppered with impending releases from solid-gold franchises like Gran Tourismo, Final Fantasy and Zelda.