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Analyst: Games To See $10b 2008 Despite Softening Economy
by Leigh Alexander
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January 23, 2008
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Lazard Capital Markets analyst Colin Sebastian recently commented that, since the game industry is driven by product cycles rather than consumer spending, he believes the current console cycle will remain resilient even amid reduced consumer spending.
In fact, Sebastian says the industry is entering "the largest, most robust cycle in history," and forecasts U.S. software sales to exceed $10 billion in 2008, representing growth of 10 to 15 percent, and not including "incremental" contribution from online and ad-based revenue models.
The analyst expects this growth to be driven by continued demand for Nintendo platforms and improving sales trends for PlayStation 3, which he says is "showing signs of life" since the recent price cut, and now has a "more compelling" software lineup, including Metal Gear Solid IV, Grand Theft Auto IV and Gran Turismo V.
Specifically, Sebastian expects sales of "next generation" software combined on the PS3, Xbox 360 and Nintendo Wii platforms to see approximately a 34 percent increase to $6.4 billion -- though this growth is expected to be offset by declining sales of previous generation software sales to less than a billion dollars.
According to the analyst, software for PC and handheld systems will also increase 10 to 15 percent, accounting for about $3.8 billion of sofware sales.
Added Sebastian, "We note that strong 28 percent growth in 2007 has created a more difficult growth comparison; however, we believe there is increasing visibility for a solid new release lineup for all three major platforms."
Sebastian also concluded that a softening economy could even benefit games, as playing video games is "an attractive per-hour entertainment value in comparison with other leisure activities, such as movies and vacations." The analyst noted that, despite the beginning of the economic downturn in the second half of 2007, video games saw growth of 21 percent, by his estimation.
Said Sebastian, "The interactive entertainment industry is product-driven, not macro-driven. Video game industry sales historically are driven by product cycles - in which sales of hardware and software follow a fairly predictable pattern - rather than by consumer spending and GDP growth. We believe the current console cycle should exhibit similar trends, even in the face of a softening consumer-spending environment."
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