Friday, December 12, 2008

The Financial Future of Video Game Firms

We do believe that the continued popularity of our products, even during these tough economic times, are evidence that consumers are judging us as a good value and a great way to engage in social interaction.

-Denise Kaigler, vice president of corporate affairs for Nintendo America

Video gaming is not immune. It's certainly been robust over the last couple of years, and it's gotten much more popular, and a much broader install base of users, but they're certainly not immune, especially if it's a deep recession.

- Van Baker, analyst for Gartner

In Daniel Terdiman, "Is the video game industry recession-proof?" CNet, November 25, 2008

The quotes represent two views of an industry that is used to flying high. Certainly Nintendo and other videogame companies are hoping that people will continue to buy video games despite the sharp economic downturn. Consumer surveys suggest that people consider video games important elements of their leisure. And it's hard to ignore that on November 13, Blizzard Entertainment's Wrath of the Lich King, the second expansion to the mega-hit, World of Warcraft, broke the for one-day sales for a PC game. It sold 2.8 million units of the $40 upgrade on that first day of release.

Nevertheless, there are observers who argue that the notion that the video game is recession-proof is misguided, and they see clouds ahead for the video game companies. They suggest that if the recession deepens, as expected, people will be watching their money very closely and will be loath to spend even $50 for a game. The industry may do better than other electronics areas (such as large flatscreen TVs), but it's growth will slow substantially. It is no accident, they say, that the stocks of the leading firms have tended to fall even lower than the general market.

Long-term things will undoubtedly improve, but some experts on the industry predict that the big video-game makers will have a tough time. One critic is Corey Bridges, a co-founder of the virtual world platform developer The Multiverse Network. He believes that the fundamental problems facing the industry have more to do with the fact that its biggest publishers design and distribute their games aro. the dominance of giant publishers like EA and their general reliance on physical, in-the-box, units, can't hold up. Instead, he said, "new tools, ubiquitous broadband and hungry independent developers are going to all combine to eat away at the continued supremacy of the $60 big-name title. And that could spell big trouble for the industry."

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