Video game makers are poised to cash in as consumers look for ways to get the biggest bang for their entertainment buck in a deteriorating economy.
Betting on a consumer technology when spending is expected to slow may seem odd, but analysts expect video game sales will take less of a hit than other entertainment and technology industries, as North Americans eschew more expensive pastimes.
Video games have a lower cost, per hour, than other means of entertainment, such as hockey games, restaurants, theatre or movies, said Michael Pachter, an analyst with Wedbush Morgan Securities who tracks the industry. Video games are comparable to cable television in terms of leisure value and cost, he said.
Middle-class families that have already invested in video game consoles, such as Sony Corp.'s PlayStation 3, Nintendo Co. Ltd.'s Wii or Microsoft Corp.'s Xbox 360, are likely to buy games as a substitute for more expensive activities, he said. As families cut back on non-essential leisure activities, video games are looking more cost effective.
"They're the exact people who are going to axe the Disney World vacation and up the video game purchases, because they feel guilty they aren't doing something for their kids," Mr. Pachter said.
Although video game companies are expected to perform better in the slowing economy than firms in many other technology sectors - such as business software - investors should remain cautious, said Brent Thill, a Citigroup analyst who has slashed estimates on 11 of the 22 technology stocks he covers.
"We believe it's prudent to cut estimates on select gaming companies to better discount broader consumer spending uncertainty," he said.
Nintendo shares closed at ¥41,000 ($412) yesterday in Tokyo after hitting an intraday low of ¥40,700, the lowest level in more than 12 months, while analysts have cut their ratings on game producers such as Electronic Arts Inc., the stock of which hit a 52-week low of $34.47 (U.S.) yesterday before closing at $34.97 on the Nasdaq Stock Exchange.
Mr. Pachter did say things are likely to get worse in the short term in the video game world. When industry trackers begin revealing September video game sales figures later this month, investors aren't going to like what they see, he said.
Last September, U.S. consumers spent $653-million (U.S.) on video games, fuelled by the unprecedented success of Microsoft Corp.'s popular Halo 3 title, which accounted for $225-million on its own.
That means that even if the industry were to grow by 50 per cent over its non-Halo numbers from last September - bringing video game sales to about $642-million - sales would still be down from last year's totals, and most analysts expect September game sales to fall well short of those levels.
Fortunately for the industry, October is expected to provide the industry with a boost. In addition to marking the kickoff for the holiday shopping season, high-profile titles set to hit stores in October include Guitar Hero: World Tour and Rock Band 2, two of the most anticipated - and expensive - games of the year.
