The Changing Face of the Video Game Industry
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It's that time of the year again...the annual E3 video games show is this week. It comes at a time of change for the entire industry.
Sales for the traditional game console makers and disc-based games are down sharply. There is talk in industry circles that these players are facing a risk that they may be left behind as new gaming platforms, thanks to multi-core processors and improvements in graphics in devices such as tablets, lead to changes in gamers' habits. Maybe that is why console makers Nintendo Company ADR (NASDAQOTH: NTDOY.PK), Microsoft (NASDAQ: MSFT) and Sony ADR (NYSE: SNE) are emphasizing at the show this week other features that their consoles will offer, including music, movies and live television.
Game disc sales in the US are down 31 percent this year, the fourth consecutive year of decline. Game publishers have released fewer new titles, relying on sequels, as they anticipate the end of the current console cycle. In 2007, Electronic Arts (NASDAQ: EA) came out with 49 new titles while in 2012 the company is expected to be releasing only 19.
However, conditions are better for game creators such as Electronic Arts and Activision Blizzard (NASDAQ: ATVI) than the disc sale numbers indicate. Digital sales are not included in the sales figures for the industry. So sales are better than what one sees at first glance for Electronic Arts, which has been exporting some of its franchises to Facebook.
Activision has also been making lots of money by selling subscriptions for World of Warcraft and map pack extensions for Call of Duty, for instance. Also the Stream download service has become very popular for PC games. Activision's Diablo III sold 3.5 million copies in its first 24 hours last month, a record for a PC game.
Another important event for the industry occurred last month when Nvidia (NASDAQ: NVDA) unveiled new graphics processors for data centers that will deliver rich cloud gaming to even the simplest of devices. This should fuel the growth of cloud gaming and investors could logically assume that a lot more cloud gaming products will be coming out soon.
But what about the console makers? Will there be anything exciting coming soon besides Nintendo's announcement of a fourth quarter 2012 launch date for its Wii U? After all, both Sony's Playstation 3 and Microsoft's Xbox 360 are almost seven years old.
It looks like the next-generation consoles, expected in 2013, will be pitched to consumers as an all-around entertainment device. They may be sold at lower price if consumers subscribe to a monthly service ala satellite or cable TV. Microsoft is said to be experimenting with offering the Xbox 360 for $99 with a $15 a month Xbox Live subscription for two years.
That really doesn't sound like a big money maker like Nintendo's Wii was. Console manufacturers almost look like mobile phone makers when the iPhone hit the market. Investors in the sector should stick to the likes of Activision and Electronic Arts, which should benefit as gamers slowly shift away from consoles toward other smart devices where they will stream or download games.
tdalmoe has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. If you have questions about this post or the Fool’s blog network, click here for information.