Video Games: Still Booming in a Bad Economy

The economic downturn may be dampening holiday spirits across most of planet earth, but so far it's still fun and games in the virtual world. While mortals contend with looming bankruptcies, foreclosures and unemployment, the hoard of nearly 58,000 video game aficionados who attended the opening day of the Asia Game Show 2008 last weekend in Hong Kong had loftier concerns — battling laser-throwing automatons, for instance. Or vaporizing fire-breathing dragons. International gaming retailers like Microsoft and Nintendo were also there in full force, buoyed by fall's record product sales and cautiously optimistic about the year ahead.

Dedicated fans started queuing up at 10 p.m. the night before the 7th annual Asia Game Show opening ceremony at the Hong Kong Convention and Exhibition Center. With over 120 stalls, this year's show was touted as the biggest in history despite the brutal global economic backdrop. A brochure distributed to participants by Asia Game Show Holdings Limited read: "Your presence at the Asia Game Show reinforces our belief that gaming is 'recession-neutral' and that gaming offers psychological pleasure without spending much money."

Although the U.S. retail industry has projected the slowest Christmas sales growth in six years, the video game industry is on track to increase revenues by 30% in 2008, according to the Entertainment Software Association. A leading retail analyst firm, NPD Group, says sales of games and consoles have hit $16 billion this year, already a 20% jump over '07. "The industry is on pace to achieve record-breaking revenues of $22 billion for the year," said Anita Frazier, an industry analyst and spokeswoman for NPD Group. Halo 3, the best-selling title of 2007, took in more revenue in its first day of sales than the biggest opening weekend ever for a movie, (Spider-Man 3,) or the first-day sales for the final Harry Potter book.

Gaming systems tend to perform well in difficult times, says Frazier, because they are "relatively cheaper than many out-of-home forms of entertainment and because people do feel the instinct to 'nest' more when times get tough." Microsoft reported record-breaking Black Friday sales of Xbox 360 consoles, up 25% from a year ago. Nintendo also experienced skyrocketing sales in November. The company sold 2 million Wii systems and 1.56 million Nintendo DS, a new all-time high for a non-December month. Denise Kaigler, Nintendo of America's vice president of Corporate Affairs, acknowledges that while video games are not completely recession-proof and "everyone is concerned about the declining economic climate," Nintendo is very satisfied with sales and "has no plans to make any major adjustments."

Some analysts say the video game industry could be a silver lining in this global recession's gloomy cloud. "During a recession, what becomes most important is the psychological not the logical," said Hong Kong University Business School professor of marketing Gerald Gorn. "This is an activity that leaves your mind free from being pulled back to the present day realities and hardship."

Still, the average video game goes for somewhere between $50 and $60 a pop and requires a console can cost up to $500, which is a small fortune in rough times compared to movie tickets. But retailers insist video games are "the most economical form of entertainment because you can play the game for weeks and share with your family and friends," says Ronald Poon, Head of Product Management for Media Source Holdings Limited. "Time will prove this business is rarely affected by recessions." At the opening ceremony of the Asia Game Show in Hong Kong, president of Sony Computer Entertainment Tetsuhiko Yasuda, was slightly more circumspect. "If I say we haven't been affected by the financial downturn that would be a lie," said Yasuda. "However, the gaming sector hasn't been too badly affected compared to other industries.�

Although video game sales remain steady, the yen's sharp rise in recent months has threatened Sony's overseas business, where it makes 80% of annual revenues. On Dec. 9, Sony announced plans to lay off thousands of employees, delay spending on factories and eliminate more than $1 billion in expenses over the next year. Sony electronics has not fared so well versus Apple's iPod in portable music players and is taking a hit on flat screen televisions. During these critical times, video game customers are proving crucial, so Sony, along with Microsoft, is expanding its game console inventory.

Although electronics retailers continue to fret that consumer enthusiasm may wane as the global economy gets worse, core gamers seem unfazed. Thousands of titillated fans swarmed the convention center like teenagers at a Beatles concert when the doors opened at noon for Asia Game Show 2008. Flashing neon lights and techno music gave an aura of a disco as young boys in bottle glasses spun steering wheels they could barely reach and watched in awe as their cyber-cars careened off virtual cliffs. "The more you play the more invested you become in the story line so you start empathizing with your character," said Jason Kwan, 18, who watched a Street Fighter IV game on a screen in the center of the convention. "Soon, you become a part of the game and the game becomes a part of you."

Indeed, gaming's escapist foundations may also help explain some of the business's allure in dreary days. One enthusiast, Fiona Chan, 19, who wore a bright green wig and hot pink contact lenses, said, "If you're having a lot of worries about doing well at [college] and finding a job, then you want to forget those worries.� Dressed as her video game alter-ego from a Japanese animated science fiction space drama, Chan continued, "Transitioning to real life is boring and I'd rather stay in costume and play games all the time." It's not an attitude that everybody can afford to take these days, but it should at least offer holiday cheer to video game retailers.

source