Recession Hits Gaming Industry

Includes: MSFT, NTDOY, SNE
by: Bruce Everiss

It is a widely held belief that the video game industry will prosper during the recession. Much as the film industry prospered during the great depression. And there is much evidence to support that view with industry turnover well up on last year and the console platforms selling in record numbers. It all looks rosy. And I believe that the industry will do better than most over the coming months, however there are some massive caveats.

For a starter, just now people are enjoying their last Christmas blow out before facing the inevitable. And unemployment is going to rise very sharply in the new year. So things will probably drop back a little from the current high, even allowing for seasonal factors.

Secondly, retail will not do as well as the industry as a whole. This is because gaming is going online. Which includes content delivery, subscriptions, micropayments, advertising and other business models. All of which do not involve high street retail. So retail must, inevitably, fall away sharply from the peak that this Christmas will be.

Thirdly, whilst two of the platform holders are running with good profits, there is one, Sony (NYSE:SNE), that is in deep trouble. They have gone from being the leading brand in the last generation to being third and last in this generation. And they are falling further behind with each passing day. Their stock price is in free fall and they are making 16,000 redundancies. This is not good for the industry because Sony bring a lot to it.

Fourthly, there will be a different profile as to what sells well. Hyped up hits, often with licensed IP will not do so well. People will be more discerning with their spend, buying solid, quality titles with many hours worth of play. We are already seeing this effect and the game sales charts are looking a lot different to what people were expecting.

Fifth, with less money around people are more likely to steal games. There will be a far higher incentive for piracy. So industry revenues could be severely hit, even though their products would be reaching more people.

Sixth, the Wii bubble could very well burst, for a number of reasons that have already been explained on here. The occasional, very casual “toy” user will be more careful with their money. It is the regular, consistent gamer who will keep going most through the bad times.

Seventh, we are at the beginning of a netbook explosion. These things are going to sell in many tens and eventually hundreds of millions. People will move away from spending time with consoles to spending time with netbooks. So online PC is going to grow massively at the expense of the three big console platform holders. Home and mobile gaming consoles will be hit. This is where I would invest money in gaming right now.

So we are looking at interesting times over the next two years, but then this industry is never boring.

Disclosure: None