Next Big Moneymaker: Video Games Offer Cross-Platform Options

There is a strange disconnect between the surprisingly high number of adults playing video games and the sudden hiccups in an entertainment form that has been the rock of interactivity for a decade. Although video games continue to be the hidden treasure of the digital age, something is amiss.

Electronic Arts rocked the industry this week when it lowered its year-end profit forecast for the second time in six weeks, after cutting its staff 6% and reporting quarterly losses that were 50% greater than expected. Citing consumer behavior and holiday buying uncertainty, EA says it will focus on games with a stronger online component to extend catalog title sales, although higher-than-expected development costs are partly contributing to its financial woes. This came just days after the Pew Institute disclosed that more U.S. adults are video game players than previously believed.

It is a curious set of circumstances, given the resilience of video games as the most consistently robust of entertainment sectors. While this is largely considered the domain of the young, statistics have pointed to a solid core of middle-aged men who are regular gamers. More than half of American adults play video games (mostly on PCs) and one in five play almost every day, according to a survey of 2,000-plus consumers by the Pew Internet & American Life Project. More than 80% of respondents between the ages of 18 and 29 said they play games, compared with 23% of people 65 and older. Not surprisingly, nearly every teenager--or 97%--is a game-player. Half of all women and men say they play video games, which are increasingly catering to families.

As interactivity becomes ubiquitous on a new generation of wireless devices--including smartphones and PDAs with larger screens--the proliferation of games will prevail even in tough times. Video games are poised to again prove themselves recession-proof as a relatively inexpensive form of entertainment at an average $50 per game. Nintendo's Wii, selling an average 30 million units annually, has been a breakthrough as a family pastime.

So what explains the seeming slump?

On the surface, it appears that EA and other video game producers may have underestimated the interest of female as well as male adults and their willingness to spend discretionary income on this form of entertainment. It also makes a compelling statement about the broad appeal of interactive pastimes in and out of the home.

There are thriving examples of video games as tools of education and commerce. Video games represent the form of interactivity that is closest to television's general entertainment experience and can drive looming TV-PC convergence. Video game applications are blending traditional storytelling, socializing and marketing in successful efforts, such as the virtual Second Life. And there is still more to come. Apple has made artful downloadable games through its iTunes Store for iPod Touch and iPhone a core offering. just as Sony Ericsson has done with its stable of phones. It also will tap the longtime video game magic of Sony, which has cut 8,000 jobs and investments. That Sony Ericsson and others in the Open Handset Alliance have embraced Google's new Android mobile device platform means that intriguing new game applications are coming from Google.

Perhaps the most adaptive ingenuity of video game software and hardware producers is Nintendo's new deal with publisher HarperCollins to turn its DS portable game console into an electronic book reading device in the United Kingdom using a special book cartridge. In a depressed economy, there will be other such moves to entice consumers to use their existing devices--such as an iPhone or e-reader--for new, inexpensive uses.

There is, in fact, the potential for a renaissance in video games even during the recession. While high-quality games can cost as much as prime-time television shows to produce, the ROI can be evergreen. Another strike against the TV and film industries--this time threatened by the Screen Actors Guild--would send television networks scrambling for creative, competitive content. They would be wise to adapt existing and developing new game-related content.

The ability to integrate marketing and advertising elements into and around game-related content makes it an absolute no-brainer when measured media ad spending is down nearly 4% in an election year. Indeed, video gamers are more likely than non-gamers to buy tech products and engage in click-and-buy opportunities. Just as late-night banter, news and live competition showcases can become staples of broadcast and cable network offerings, so can video games. Because of their universal appeal, games also can generate syndicated revenues globally. The global gaming market is expected to be worth $68 billion by 2012 from $42 billion last year, according to PricewaterhouseCoopers.

Although the media conglomerates that own the TV networks have had some initial involvement, they have yet to embrace games as a content strategy. Wall Street bankers desperate to do deals have resurrected speculation that Walt Disney should buy EA (valued at about $7 billion); its own creative shops, from Pixar to ESPN to Disney films, would provide plenty of synergy. It holds the promise of a union that could bring together the best of storytelling and social networking to create a new mainstream entertainment form. As the networks struggle to keep their television fiefdoms from imploding in an all-digital marketplace after next February, they may discover that video games are more than child's play.

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