GameStop 2006 Annual Report Download - page 19

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Industry Background
According to NPD Group, Inc., a market research firm, the electronic game industry was an approximately
$13.5 billion market in the United States in 2006. Of this $13.5 billion market, approximately $12.5 billion was
attributable to video game products, excluding sales of used video game products, and approximately $1.0 billion
was attributable to PC entertainment software. According to International Development Group, a market research
firm, retail sales of video game hardware and software and PC entertainment software totaled approximately
$10.3 billion in Europe in 2006. The Canadian Press has reported that the video game product market in Canada was
approximately $800 million in 2006. According to the Interactive Entertainment Association of Australia, the
Australian market for video game products was approximately $700 million in 2006.
New Video Game Products. The Entertainment Software Association (formerly the Interactive Digital
Software Association), or ESA, estimates that 69% of all American heads of households play video or computer
games. We expect the following trends to result in increased sales of video game products:
•Hardware Platform Technology Evolution. Video game hardware has evolved significantly from the early
products launched in the 1980s. The processing speed of video game hardware has increased from 8-bit
speeds in the 1980s to high speed processors in next-generation systems such as Sony PlayStation 3 and
Nintendo Wii, launched in November 2006 in North America and worldwide, respectively, and Microsoft
Xbox 360, launched in November 2005. In addition, portable handheld video game devices have evolved
from the 8-bit Nintendo Game Boy to the 128-bit Nintendo DS, which was introduced in November 2004,
and the Sony PSP, which was introduced in March 2005. Technological developments in both chip
processing speed and data storage have provided significant improvements in advanced graphics and audio
quality, which allow software developers to create more advanced games, encourage existing players to
upgrade their hardware platforms and attract new video game players to purchase an initial system. As
general computer technology advances, we expect video game technology to make similar advances.
•Next-Generation Systems Provide Multiple Capabilities Beyond Gaming. Many next-generation hardware
platforms, including Sony PlayStation 2 and 3 and Microsoft Xbox and Xbox 360, utilize a DVD software
format and have the potential to serve as multi-purpose entertainment centers by doubling as a player for
DVD movies and compact discs. In addition, Sony PlayStation 3 and PSP, Nintendo DS and Wii and
Microsoft Xbox 360 all provide internet connectivity.
•Backward Compatibility. Sony PlayStation 2 and 3, Nintendo DS and Wii and Microsoft Xbox 360 are
backward compatible, meaning that titles produced for the earlier version of the hardware platform may be
used on the new hardware platform. We believe that backward compatibility results in more stable industry
growth because the decrease in consumer demand for products associated with existing hardware platforms
that typically precedes the release of next-generation hardware platforms is diminished.
•Introduction of Next-Generation Hardware Platforms Drives Software Demand. Sales of video game
software generally increase as next-generation platforms mature and gain wider acceptance. Historically,
when a new platform is released, a limited number of compatible game titles are immediately available, but
the selection grows rapidly as manufacturers and third-party publishers develop and release game titles for
that new platform. For example, when Microsoft Xbox 360 was released in November 2005, approximately
20 game titles were available for sale. Currently, there are over 115 titles for the Microsoft Xbox 360
platform available for sale.
•Broadening Demographic Appeal. While the typical electronic game enthusiast is male between the ages
of 14 and 35, the electronic game industry is broadening its appeal. More females are playing electronic
video games, in part due to the development of video game products that appeal to them. According to ESA,
approximately 38% of all electronic game players are female. More adults are also playing video games as a
portion of the population that played video games in their childhood continues to play and advance to the
next-generation video game products. According to ESA, the average game player is 33 years old. In
addition, the availability of used video game products for sale has enabled a lower-economic demographic,
that may not have been able to afford the considerably more expensive new video game products, to
participate in the video game industry.
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