Video game industry prays for resilient 2009

LOS ANGELES, US: Game publishers, in a rare moment of solidarity, joined forces on Wednesday to convey optimism for the future of their $30 billion industry despite spiraling consumer spending and a global economic downturn.

Electronic Arts, Activision and THQ Inc -- with Activision the sole profit-maker in its last reported quarter -- hope to focus on developing mainly blockbuster titles while finding ways to eliminate costs.

A year-long recession has slowed sales growth. Research house NPD estimates spending on U.S. video games dived 17 percent in April. With top titles often costing as much to produce as a Hollywood film, publishers have had to make tough choices.

After a wave of belt-tightening in the past year, including widespread job cuts, studio closings and title cancellations, many now adopt a strategy of diverting resources to only their most bankable franchises.

"Our actual net development budget has been significantly reduced this year to $120 million ... but its focus is on a few of these quality titles," THQ CEO Brian Farrell told Reuters.

Executives see glimmers of hope in new audiences and more casual users, expanding beyond the industry's traditionally heavily male demographic to women and older people.

Electronic Arts CEO John Riccitiello sees 1 billion game players from just a few hundred million now.

Crucial to that vast expansion will be games that appeal not just to the hard-core, but also to families and casual gamers, as exemplified by the enormous take-up of Nintendo's Wii and its best-selling Wii Fit fitness title.

Hope Springs Eternal

Video games -- even those that cost more than $50 -- are likely to score significant sales in coming months as recession-weary consumers go for cheap entertainment instead of taking vacations or buying big ticket items, Take Two Interactive Chairman Strauss Zelnick argued.

Hudson Square Research analyst Daniel Ernst pegged video game sales for the fiscal year ended March at $29 billion, up 13 percent and surpassing the $27 billion movie business.

Partly because of brightening expectations, as well as painful cost-cutting, THQ -- backer of games like "Saints Row" -- is now more confident of attaining its goal of achieving profitability again in fiscal 2010. Its shares climbed 8 percent on Wednesday versus a 0.6 percent fall on the Nasdaq.

And publishers may get a welcome boost when -- as many analysts predict they will this year -- console makers like Sony and Microsoft cut prices.

"We love those price wars," Farrell said. "I wouldn't rule out that if Sony cuts, Microsoft and Nintendo may respond. When those guys have their hardware wars, we supply the ammunition."

Flash In The Pan

But even with all the talk of "green shoots" and data showing the worst of the economic downturn may be over, Zelnick says overall consumer sentiment will take a while to blossom.

"We've seen some recession resistance," he said. "We'd all be happier if the consumer economy were more robust... That said, we (the industry) are pretty well positioned, even if the consumer economy continues to be troubled."

Looking ahead to the crucial holidays period, Farrell was cautiously optimistic, calling games "a bright spot."

Others were less sanguine.

"I would say we're very concerned. We've been very conservative on our shipping plans," Activision CEO Bobby Kotick said in an interview. "Based on the anticipation around games like 'Guitar Hero' and 'DJ Hero,' there may not be inventories to satisfy that demand."

As for the E3 show itself: though this year's gathering paled in comparison to past years', when it drew 80,000 people, many thought it was a welcome return to the glamour of yesteryear after 2007 and 2008, when organizers suppressed the event, hoping to draw mainly industry insiders.

This year, a scantily-clad wizard greeted people at the entrance to the Sony Online Entertainment booth. A nurse in fishnet stockings posed for photos to promote a game called "Trauma Team." Nearby, two men dressed as Ghostbusters wave proton accelerator guns at onlookers.

"The decision to change it two years ago was obviously incorrect," says Billy Pidgeon, an analyst at Game Changer Research, who has attended for years. "Companies learned, I think, that spending more money and putting on more of a show is necessary to give these games the platform they need."

Still, in some cases caution prevailed.

Take Two refused to splash out on glitzy showcases at E3, eschewing the flash surrounding Electronic Art's and Ubisoft's displays and opting for private analyst meetings.

"You can spend a lot of money on one of these shows. We'd rather put the money into the games," Zelnick said.