Overall Economic Situation
As a whole the global economy developed positively over the reporting period. Despite rising oil and energy prices, the euro area and emerging countries enjoyed considerable economic growth. It was only the knock-on effect of the US real estate crisis on European banks that provided for turbulence on the stock exchanges mid-2007.
In Germany, the announcement of the VAT increase at the beginning of 2007 stimulated the pre-Christmas business in 2006 and provided for additional sales of high-priced goods in particular. In the second quarter, general consumer behavior flattened out after the tax increase mentioned above. However, there was no cooling off of the economic boom, as was initially feared in some circles. Instead, economic growth continued. The number of unemployed sank to 3.5 million by September 2007, thus reaching the lowest level for almost twelve years.
Industry Performance
While there were positive influences on the economy as a whole, business development in the field of photography, video and music software was subject to other effects. On the one hand, the introduction of the new operating system Microsoft Vista caused irritation worldwide with regard to the procurement of new software products. On the other hand, the market for consumer electronics was reorganized in particular in the Anglo-American world.
For the first time, the new MS operating system was not downward-compatible, such that customers are not able to continue using some of their old software. This led to more cautious consumer spending behavior in the run-up to the introduction of Windows Vista. Consumers wanted to first await developments in this area before making new software purchases. The repeated delays in the release led to a situation where software manufacturers did not have a final version of the operating system available for them to adapt their own programs until the end of January. Thus, the manufacturers were not able to launch Vista-compatible versions of their own products on the market until the beginning of 2007. By this time, however, the pre-Christmas business had already come to a conclusion and the entire software industry suffered a considerable decline in sales.
In the Anglo-American world, the retail trade was affected by far-reaching changes on the market for entertainment electronics. In the USA, chains such as BestBuy and CompUSA closed down a number of their brick-and-mortar stores and in Great Britain there was similarly a reduction in the number of shelves dedicated to software.
In Germany, the VAT increase caused an additional drop in consumer demand for multimedia products in the lower-priced market segment. Consequently, there was a preference for higher-priced consumer goods before the turn of the year, again causing the pre-Christmas business to suffer. Consumers throughout Germany then exercised caution in the first half of 2007 due to the general increase in prices. It was not until the second half of the year that retail trade again saw an increase in software sales in the field of photography, video and music.