Consumer Nation

For Video Game Makers, Stakes Are High for The Holidays

Chris Morris|Special to

The holiday season is traditionally viewed as a time of good cheer and hope, but for many video game publishers, 2009’s will be filled with shot nerves and stress.

Modern Warfare 2

There is no more important time to the industry than the fourth quarter. Publishers typically hold their biggest games until the holidays, hoping to ride the wave of consumer spending, but often creating a logjam so thick that titles get lost in the shuffle — and $30 million or more in development funding disappears before their eyes.

That’s in good times. Add in a recession and a customer base that’s growing more resistant to the $60 price point of software and you’re more likely to find executives drinking Pepto Bismo than eggnog as we head into December.

In 2008, the holiday quarter represented 44.7 percent of the video game industry’s revenue. More than 38 percent was generated in November and December alone.

This year, a notable percentage of that will likely come from a single game — Activision’s “Modern Warfare 2” — which is expected to be the biggest single entertainment event of the year.

Already Activision claims the game has set a record for sales on its first day of release by selling 4.7 million copies, or $310 million of sales.

There are, of course, other notable titles that are expected to sell well.“Assassin’s Creed 2” has a growing buzz among core gamers — and mass audiences could flock to the videogame adaptation of “James Cameron’s Avatar”. Nintendo will likely do well with “Wii Sports Resort” and “New Super Mario Bros. Wii,” a remake of the Nintendo Entertainment System classic that first came out in 1985.

Catalog sales — that is, sales of older games, including those that came out earlier this year — will likely be weak, though. And that could further hurt gaming’s bottom line.

“I think that’s one of the most disappointing things in the market this year,” says John Taylor, an analyst with Arcadia Research. “Titles are launching and fading faster than they have in the past.”

Also concerning is the number of games people are buying for their systems. It’s called the tie-ratio in the industry — and it’s starting to decline.

Lower prices on gaming hardware might help boost the installed base of systems — Microsoft , Sony and Nintendo have all cut the retail cost of their systems this year. But every game machine is being packaged with a game or two during the holidays.

That’s an incentive to buy a console — but not one to buy new games.

“Consumers seem to be pretty happy with the bundle title,” says Taylor. “Their propensity to go out and get a second or third game is much lower this year. . . .People aren’t complaining about hardware. In fact, they’re pretty happy about the PS3. What’s happening, though, is people aren’t buying any software with it.”

It’s not the sort of news publishers — or investors — want to hear. But there is a silver lining of sorts. While they’re not likely to be gangbuster months, November and December should see year-over-year sales gains. And many analysts believe that will be the beginning of a long period of growth — even if it’s not enough to save this year’s numbers.

“We expect October. . .may mark the bottom,” says Colin Sebastian, an analyst with Lazard Capital Markets.

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