Are Video Game Makers Up to Their Own Game?

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There may be a whole new game awaiting video-game makers, as public scrutiny intensifies following recent shooting incidents in Newtown, Connecticut. No businesses like to be dictated by social or political events, but few can operate in a vacuum and all have to adjust to changing environments for both their business bottom line and social image. There are likely more debates about potential links, if ever anything, between playing violent video games for entertainment and developing aggressive behaviors in real life. But trying to win the debates is hardly the only course of action. Video-game makers may be better off if they can divert unwanted public attentions away from their traditional action games and present critics and consumers with a wider selection of game titles based on more positively-perceived game genres.

Elsewhere, the motion-picture industry has also been on the hot seat with some studios already delaying or canceling premiers for movies of violent themes. But Hollywood may have an easier time explaining itself as to why there's an apparently violent American culture, which Hollywood has a seeming connection to. A ready defense for Hollywood is that many of its movies also portray and promote other non-violence subject matters such as romance, comedy, arts and so on, which the general public seem to accept easily. On the other hand, major video-game makers, including Electronic Arts (NASDAQ: EA), Take-Two Interactive Software (NASDAQ: TTWO) and Activision Blizzard (NASDAQ: ATVI), all deal with much narrower gaming themes, publishing mostly popular action titles. Faced with a potentially violence-aversion entertainment environment, video-game makers may have to explore other game-making ideas based on less controversial subjects.

Investors may also welcome such a change in game designs if new business initiatives can help protect their financial interests, while fostering a better corporate image. Current game offerings within the action genre, such as the widely-touted Medal of Honor from EA, Grand Theft Auto from Take-Two and Call of Duty by Activision, have yet to help yield better business results. Stocks of all three companies have never really recovered from their recession lows, while the markets in general have consistently gained. Revenues at these companies have been fluctuating at best and their shareholders’ equity has dwindled over time. As popular as action games seem to be among their hardcore followers, they may have attracted only a small part of a potentially larger customer base.

To reach a larger audience, video-game makers will have to develop different game titles from different game genres to tailor to varying customers’ tastes. Some game makers may have become really good at developing action games, but specialization doesn’t seem to offer an advantage in the gaming business whereby anyone can easily crack the same design codes for new games. To become more mainstream entertainment, video games have to cover more playing themes beyond the overly-concentrated action category. Thanks to their interactive features, video games may have the potential to post serious challenges to other forms of non-interactive entertainments such as movies. However, there is this oftentimes unspoken stigma associated with playing video games, and video-game companies have not been particularly effective in provide games that can be embraced and played by a more inclusive gaming demographic.

Developing games nowadays can be comparable to making movies. Production budgets can sometimes get surprisingly high for both, and a good game may also have to tell a really good story just like a winning movie must. While movies can imitate everything in life, so can video games. Rock Band, a music-themed video game published by Take-Two Interactive, wasn’t a bad tune to some customers’ gaming taste. But the intensity of the rock ‘n’ roll may have had some unnerving effect on certain prospective customers who are less into such high beats. Music games with softer rhythms featuring different bands and other music genres may help grow the total fan base. Unfortunately, as Take-Two CEO Strauss Zelnick recently said, the company is delivering fewer new titles, reflecting an industry reality whereby video-game makers are mostly seeking franchise gaming expansion from past popular game titles. With their anemic release schedules in 2013, video-game makers may not be able to correct their ongoing revenue-growth problem any time soon.   

Investors have their reasons to be concerned about video-game companies. It makes better business sense to offer gaming content beyond traditional action themes to help expand customer base. The more people become gamers, the more revenue for game makers. Until then, it’s hard to see how video-game makers can play their game well, while stuck in their limited game offerings.

JJtheArdent has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard and Take-Two Interactive . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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