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At Annual E3 Trade Show, Hoping for a Video Game Rebound

A woman works her abs while playing the 'Core Luge' game from Wii Fit U from the new Wii U console on the third day of the E3 videogame extravaganza in Los Angeles on June7, 2012 in California.
Frederic J. Brown | AFP | Getty Images
A woman works her abs while playing the 'Core Luge' game from Wii Fit U from the new Wii U console on the third day of the E3 videogame extravaganza in Los Angeles on June7, 2012 in California.

Will Santa come before Christmas this year? Game makers certainly hope so.

As publishers and console makers in the video game industry gather in Los Angeles for E3, their annual trade show, sector players are looking for a lift ahead of the holidays.

The sector hasn't seen a month of brick-and-mortar sales growth since November 2011. Smartphones and tablets have lured away casual players. And last year's launch of the Wii U from Nintendo did nothing to turbo charge the sector.

Still, for many gaming companies—and gamers—the next generation of products really doesn't start until the holiday season—when new systems from Microsoft and Sony hit stores. And with that reboot of the console market, many hope things will start to rebound.

Seeking Breakout Hits

There's lot of pressure, meanwhile, for breakout gaming hits. Sony first unveiled the PlayStation 4 in February—and while it earned marks for its earnest appeal to developers, it failed to wow players with the games it showed (and the console that wasn't shown). Microsoft followed suit a couple weeks ago, but its focus on non-gaming functionality irked some core gamers.

Both companies have danced around rumors of restrictive policies on used games, which is not only making gamers nervous, it's causing GameStop investors to lose sleep. (The retailer's stock has dropped more than 8 percent since Microsoft's event.)

Clarity about holiday launch lineups and used game policies could immediately lift the sector, analysts said.

"We believe additional details on the PS4 and Xbox One will help to drive share prices higher as investor perception about the long-term outlook of the video game industry improves," said Michael Pachter of Wedbush Securities. "Attractive starting price points for hardware and software will be a key factor in the success of the next-gen consoles."

No one, though, thinks either company has truly alienated players.

"Sony is probably going to put more of its shoulder behind core games to establish the PS4 as the ultimate gaming race car," said John Taylor of Arcadia Research. "Microsoft has spread out more broadly to go after the core with things like 'Halo' and 'Gears of War' and some that aren't targeted at the core, but will bring to the life the features and capability of the new and improved Kinect."

Nintendo, meanwhile, is hoping to kick start sales of the WiiU, which have fallen far short of expectations. The company is expected to showcase several fan favorite franchises such as "Mario Kart," a new Mario game and a new Zelda game.

The company is also eschewing E3 tradition and foregoing its annual pre-show press conference. They're opting instead to host an event for investment analysts, while speaking directly to customers via a Webcast. Nintendo has also partnered with Best Buy to offer demos of some of the same games on the show floor in retail locations around the country during E3.

New Consoles

For publishers like Electronic Arts, Activision and Ubisoft, the launch of new consoles is an opportunity to not only give a boost to existing franchises, but introduce new ones.

Three new series are expected to stand above the others. Activision will finally show players game footage from "Destiny," a new series from Bungie, the creator of "Halo." Ubisoft's "Watch Dogs" remains a title of interest for players as well. First unveiled at last year's E3, the action game has kept a consistent buzz among core fans for a year now.

EA, meanwhile, will give a first look at the first game from Respawn Entertainment—the studio founded by the creators of the "Call of Duty" series after their acrimonious split with Activision two years ago.

Take-Two Interactive Software, however, is keeping a low profile at the show, foregoing a booth to show off its games entirely. Combined with Nintendo's step back from its high profile E3 events, it has raised the question of whether the video game industry's biggest event is losing relevancy in this changing market.

How Important is E3?

"It's a really expensive show to mount," said Taylor of Arcadia Research. "The fact that Nintendo pulled back on the keynote suggests people are watching their promotional money. ... With the acknowledgement that most of the growth, in a general sense, in gaming is coming outside of retail, I think we're going to start hearing discussions about how important E3 is."

E3 has weathered discussions about its fate before. And even Taylor acknowledges it's an important tool for the industry to alert its fans about what's coming.

Pachter of Wedbush Securities agrees, noting that even as publishers and console makers hold their own events outside of E3, there's never a drought of information at the show. "[I] expect E3 to again be a spectacle—full of news and useful information for video game fans and investors," he said.

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