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Is the game industry recession-proof?
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Darkschneidr
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Joined: Dec 31, 1969
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PostPost subject: Is the game industry recession-proof?
Posted: Mon Jan 05, 2009 1:50 pm
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www.gamespot.com/best-...tml?page=7



In the first half of 2008, concerns began to grow that the domestic housing crisis might--might--turn into a mild economic downturn. Though the "R" word was never used by the US government, many Wall Street analysts used it freely in their predictions for the year.

These same analysts predicted that one of the few sectors that didn't have to worry was the game industry, which saw double-digit growth from February to July, according to the NPD group. Terms including "recession-resistant" and "recession-proof" were bandied about, with both software (Grand Theft Auto IV) and hardware (Nintendo's Wii and DS) enjoying record-setting sales.

However, by the time the year ended, not only was the US officially in a full-blown recession, but the world was also mired in a financial crisis not seen for decades. On the surface, the game industry proved resilient, with revenue growth slowing slightly in August, dropping in September only because of Halo 3's massive launch the previous year, and then rising again in October and November.

However, though game-industry sales as a whole were healthy, many game companies' stocks were clobbered on September 29, when the Dow Jones Industrial Index suffered its worst one-day loss in history.

By the time October rolled around, most third-party publishers had lost billions of dollars in market value, and many would continue to see their market capitalization shrink. By early December, Electronic Arts' share price was hovering around $17--down from more than $60 one year ago. THQ was even worse off, with its share price currently bouncing between $4 and $5 after hitting nearly $30 last Christmas.

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Darkschneidr
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Posts: 1702
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PostPost subject: Re: Is the game industry recession-proof?
Posted: Mon Jan 05, 2009 1:51 pm
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www.gamespot.com/best-...tml?page=7

Is the game industry recession-proof? (Answer: Not really.)

The penultimate NPD figures of 2008 showed that, unlike virtually every other shrinking sector, the holidays were a boom time for the game industry. November's nearly $3 billion haul contained record hardware sales, led by 2.04 million Wiis sold. The 836,000 Xbox 360s sold gave the recently discounted console its second-best month yet, after December 2007's record 1.26 million-unit total.

Software sales were also up, with the Xbox 360 edition of Call of Duty: World at War nearly tying Gears of War 2 at around the 1.5 million-unit mark. Once again, though, the game chart was dominated by Nintendo, whose first-party games Wii Play (with remote - No. 3), Wii Fit (with balance board - No. 4), Mario Kart Wii (No. 5), and (gasp) Wii Music (No. 10) brought in strong sales.

However, with Resistance 2 landing at No. 9, NPD's November top 10 had only three third-party games. In other words, no third parties except Activision and EA had a product that sold more than 300,000 units during the make-or-break holiday month. That means many already cash-strapped publishers will report lackluster earnings early next year, sending their stock prices sliding further. In fact, EA has already warned its shareholders that earnings will be below expectations, jobs will be cut, and games will canceled, Tiberium-style.

Besides the obvious loss of monetary value, the financial crunch will have a far more pernicious effect on the very core of gaming: creativity. With the giant pool of money drying up, publishers will be less likely to take big risks on original IPs, lest they fizzle as Mirror's Edge did for EA. Even before the fourth-quarter market implosion, 2008 was littered with the corpses of such shops as Iron Lore, Perpetual, Stormfront, Pseudo Interactive, Castaway, and Razorworks. Microsoft revealed that it was planning to close Ensemble Studios, developer of Age of Empires and the forthcoming Halo Wars, with THQ also announcing that five of its internal developers would be shuttered. Even upstart publisher Brash Entertainment, which had $400 million in venture capital, flamed out in November.

Indeed, the credit crunch has turned one publisher's steady decline into a financial freefall. After canceling games in October and laying off staff in November, Midway Games revealed a crushing $240 million in debtin December--$72.5 million more than the Chicago-based company's assets are worth. Barring a miracle, Midway looks like the first casualty of 2009, a year that analysts balefully predicted will get worse for much of the game industry before it gets better.

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