Thursday, June 3, 2010
JW Healy
Date: 5/28/2010
Unless you've been stuck on Pandora for too long or have been trapped inside the World of Warcraft or Final Fantasy video games, you know that we've been hit by a major recession. According to the National Bureau of Economic Research, the United States has been in a recession since December 2007, and our current economic plight is the worst since the Great Depression of the 1930s. Since the recession began, we've lost 20 million jobs. Our country's unemployment rate more than doubled over the past two years, going from 4.9% unemployed to a whopping 10.1% unemployed (with my badly mismanaged state, California, even higher than that). It almost doesn't matter how this happened — was it due to reckless spending, unsustainable lending, governmental intervention? Who cares? We're in it; we've been in it and some analysts say we're going to continue to be in it until 2011. What does this mean, exactly? Forgetting the economic mumbo-jumbo that "experts" like to mutter, the simplified answer to this question is: we're all doing without...without jobs or careers, without new clothes and staple items and certainly without entertainment.
It's true... sales of video games have been fairly disastrous. Similar to all other segments of our lives, the economic recession that cast a pall over our country has not ignored the gaming industry. The past two years have seen flat sales, with sales down 11% this year.
However, there are key indications that the downward trend is about to change. A number of video game publishers have reported earnings over the last quarter or fiscal year. For example, Ubisoft announced higher-than expected revenue due to the release of new titles such as "Avatar" and "Just Dance." In addition, the French company is likely going to get an even bigger bump in sales when Disney releases "The Prince of Persia," the big-screen live-action special effects-laden version of its game. Meanwhile, Square Enix reported that its sales were up 42% (with profits up 50%) over its full fiscal year, thanks to five of its titles selling more than 1 million units, including Final Fantasy XIII (5.5 million units), Dragon Quest IX (4.2 million units), Batman: Arkham Asylum (3.4 million units), and Just Cause 2 (1.2 million units). Activision Blizzard's stalwart franchises "Call of Duty" and "World of Warcraft" saw sales improve by 33% to $1.3 billion. Even Electronic Arts, which has been on a three-year downward slide, posted a profit of $30 million in the fourth quarter of 2009 due to the sales success of games such as "Battlefield: Bad Company 2," "Mass Effect 2" and "Dante's Inferno."
In addition, the positive sales numbers of Rockstar's "Red Dead Redemption" are encouraging. It sold 550,000 units in its first day of release and analysts project a worldwide first week of 1.3 million games sold. My 18-year-old son and his buddies went directly from school to the store to buy this title on the day it was released, then each retired to his own home, inserted the game, got online and played each other — something he hasn't done in years. This is only one game but it shows that if there's a title out there that gamers want to play, they'll buy it.
Adding fuel to these projections is a recent report by Wedbush Morgan Securities. Analysts Michael Pachter and Edward Woo project that entertainment overall is going to grow 2% between 2009 and 2011, but the growth of video game software will be much higher - 9%. Pachter and Woo say that "games are the fastest growing entertainment market with a bright digital content future." Currently, video games represent 15% of overall entertainment spending of $75 billion (including movie box office, DVDs and entertainment-related books) and they expect this percentage to grow since games are the fastest-growing entertainment sector. This is because gamers continue to play when they get older. For example, in the 1980s, the average gamer was under 20; now, the average age of the gamer is 35. In addition, women continue to be pulled into the gaming world. According to Casual Games Association, more than 200 million people play casual games and the majority of them are over 30 and female. (And, that's just one segment of video games!)
Adding to the positive projection of video game sales are non-traditional sources, such as online games, casual games, mobile phone games, downloadable content and in-game advertising. These segments are all expected to grow in a major way. In fact, according to Pachter and Woo, by the year 2020, "digital content is expected to account for almost all of the game industry's growth."
It should be noted that some of these company profits were created not only from sales of games but from significant cost-cutting measures and restructuring. And, the recession is still making it uncomfortable for consumers to plunk down money on this kind of entertainment source. But, the Wedbush Morgan Stanley report also believes that once consoles begin a resurgence in sales, then downloadable games and in-game advertising will naturally grow. So, if analysts are correct, the gaming industry can start smiling again.
How do you feel about these projections? Are you thinking more positively about the economy or do you think the analysts at Wedbush Morgan Securities should go off to Pandora and never come back?
Date: 5/28/2010
Unless you've been stuck on Pandora for too long or have been trapped inside the World of Warcraft or Final Fantasy video games, you know that we've been hit by a major recession. According to the National Bureau of Economic Research, the United States has been in a recession since December 2007, and our current economic plight is the worst since the Great Depression of the 1930s. Since the recession began, we've lost 20 million jobs. Our country's unemployment rate more than doubled over the past two years, going from 4.9% unemployed to a whopping 10.1% unemployed (with my badly mismanaged state, California, even higher than that). It almost doesn't matter how this happened — was it due to reckless spending, unsustainable lending, governmental intervention? Who cares? We're in it; we've been in it and some analysts say we're going to continue to be in it until 2011. What does this mean, exactly? Forgetting the economic mumbo-jumbo that "experts" like to mutter, the simplified answer to this question is: we're all doing without...without jobs or careers, without new clothes and staple items and certainly without entertainment.
It's true... sales of video games have been fairly disastrous. Similar to all other segments of our lives, the economic recession that cast a pall over our country has not ignored the gaming industry. The past two years have seen flat sales, with sales down 11% this year.
However, there are key indications that the downward trend is about to change. A number of video game publishers have reported earnings over the last quarter or fiscal year. For example, Ubisoft announced higher-than expected revenue due to the release of new titles such as "Avatar" and "Just Dance." In addition, the French company is likely going to get an even bigger bump in sales when Disney releases "The Prince of Persia," the big-screen live-action special effects-laden version of its game. Meanwhile, Square Enix reported that its sales were up 42% (with profits up 50%) over its full fiscal year, thanks to five of its titles selling more than 1 million units, including Final Fantasy XIII (5.5 million units), Dragon Quest IX (4.2 million units), Batman: Arkham Asylum (3.4 million units), and Just Cause 2 (1.2 million units). Activision Blizzard's stalwart franchises "Call of Duty" and "World of Warcraft" saw sales improve by 33% to $1.3 billion. Even Electronic Arts, which has been on a three-year downward slide, posted a profit of $30 million in the fourth quarter of 2009 due to the sales success of games such as "Battlefield: Bad Company 2," "Mass Effect 2" and "Dante's Inferno."
In addition, the positive sales numbers of Rockstar's "Red Dead Redemption" are encouraging. It sold 550,000 units in its first day of release and analysts project a worldwide first week of 1.3 million games sold. My 18-year-old son and his buddies went directly from school to the store to buy this title on the day it was released, then each retired to his own home, inserted the game, got online and played each other — something he hasn't done in years. This is only one game but it shows that if there's a title out there that gamers want to play, they'll buy it.
Adding fuel to these projections is a recent report by Wedbush Morgan Securities. Analysts Michael Pachter and Edward Woo project that entertainment overall is going to grow 2% between 2009 and 2011, but the growth of video game software will be much higher - 9%. Pachter and Woo say that "games are the fastest growing entertainment market with a bright digital content future." Currently, video games represent 15% of overall entertainment spending of $75 billion (including movie box office, DVDs and entertainment-related books) and they expect this percentage to grow since games are the fastest-growing entertainment sector. This is because gamers continue to play when they get older. For example, in the 1980s, the average gamer was under 20; now, the average age of the gamer is 35. In addition, women continue to be pulled into the gaming world. According to Casual Games Association, more than 200 million people play casual games and the majority of them are over 30 and female. (And, that's just one segment of video games!)
Adding to the positive projection of video game sales are non-traditional sources, such as online games, casual games, mobile phone games, downloadable content and in-game advertising. These segments are all expected to grow in a major way. In fact, according to Pachter and Woo, by the year 2020, "digital content is expected to account for almost all of the game industry's growth."
It should be noted that some of these company profits were created not only from sales of games but from significant cost-cutting measures and restructuring. And, the recession is still making it uncomfortable for consumers to plunk down money on this kind of entertainment source. But, the Wedbush Morgan Stanley report also believes that once consoles begin a resurgence in sales, then downloadable games and in-game advertising will naturally grow. So, if analysts are correct, the gaming industry can start smiling again.
How do you feel about these projections? Are you thinking more positively about the economy or do you think the analysts at Wedbush Morgan Securities should go off to Pandora and never come back?
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