December 18, 2008

Gaming Enthusiasts Could Benefit Industry During Recession

The video game industry is reliant upon a group of gaming fanatics known as "core gamers." These consumers are those who are dedicated to their gaming consoles as a way to relax during downtime.

"As long as hard-core gamers have a job, they will continue to buy games," said IDC video games analyst Billy Pidgeon.

Core gamer Greg Wilcox dedicates much of his time to not only playing video games, but also writing about them. Wilcox says he's purchased about 100 games this year.

Wyatt Du Frane, a geology graduate student said been playing since he was a little boy.

"I like their scope," said Du Frane, 28, a student at Arizona State University. "A movie is only a couple of hours. A video game is more like a book or a TV series, where you can kind of continue the story."

The video game industry relies on players like Du Frane and Wilcox to be loyal to game series, brands and genres.

But the industry's ability to lean on core gamers is a bit of a twist, because video game makers have been working hard to grow by expanding their mainstream appeal.

The audience scope of companies began to expand in 2006 when Nintendo released its Wii console.  The Wii's appeal stretched into groups of people and families who may have never picked up a game controller.

Since then, Sony and Microsoft have begun borrowing tips in order to bring in new gamers by expanding what their game consoles offer, adding movies and TV shows.

Software publishers like Ubisoft Entertainment, Activision Blizzard Inc. and Electronic Arts Inc. have boosted their titles aimed at young girls, families and women over 35, who have helped push game sales higher.

Earlier this month, popular video game maker Electronic Arts announced it would likely miss its target earnings projections for its fiscal year because of slumping sales in North America and Europe during the holiday season. EA added that it intended to cut about 500 or 600 jobs "“ about 6 percent of its workforce "“ in multiple locations in order to lower costs.

The news came the same day that Sony Corp., which makes the PlayStation 3 game console and many other consumer electronics, said it would eliminate more than 8,000 jobs, or 5% of its workforce.

GameStop Corp., the world's largest video game retailer, has cut its earnings targets for its fiscal fourth quarter, which ends in January.

"The economy is negatively impacting the video game industry," said Arvind Bhatia of Sterne Agee & Leach in Dallas. "That said, the industry is performing much better relative to most industries."

But Michael Pacther, an analyst with Wedbush Morgan, said core gamers appear to be immune to the effects of a recession.

"They may be wealthy, they may be poor, but they have no clue we are in a recession," said Michael Pachter, an analyst with Wedbush Morgan.

Pachter said he believes that core gamers buy roughly half of all video games.

Wilcox said that "people will always be buying games," even in a recession, although even he admits to cutting back his game title purchases.

New blockbuster titles, like the post-apocalyptic "Fallout 3," the choose-your-own-adventure epic "Fable II" and alien shooter "Gears of War 2," go for $60 each. So if they don't have a lot of cash, core gamers have to get creative by renting, trading or selling used games. Du Frane uses this strategy to often avoid paying full price for games. But at least he's still buying them: In the economic downturn, instead of pulling back on games, he's cut back on going to bars and restaurants.

"For the same price I can get a game to occupy me," he said.

The video game industry recognizes the need to satisfy their core-gaming audience. In a recent conference call with analysts, GameStop Chief Executive Daniel Dematteo pointed to the success of new games such as "Call of Duty: World at War,""Gears of War 2" and "World of Warcraft: Wrath of the Lich King." All three are targeted at game enthusiasts.

"If the core gamers and the avid gamers are with us through these very unpredictable times, that's a very, very good sign for us," said R. Richard Fontaine, GameStop's chairman, during the call.

Americans are spending more money than ever on video games - nearly $3 billion in November, according to the NPD Group. That was a 10 percent increase from the same month last year.

In 2007, people bought $18 billion worth of games, consoles and accessories. Even with discretionary budgets shrinking, the NPD Group expects this number to grow to at least $22 billion this year.


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