Ed Barton, Screen Digest

On how recent economic setbacks could affect Microsoft and Sony's respective consoles...

I think both platforms will have a robust year. We are forecasting that PS3 will sell around 30 percent more consoles on a year-on-year basis, while Xbox 360 will generate sales in the region of 8 million units by year-end.

In addition, we are forecasting packaged games sales across both PS3 and Xbox 360 to be in excess of $10 billion in 2009. Given the global economic situation, I think these are credible results.

Both platform owners have ambitious plans for the year and consumers are likely to benefit from continually evolving online services in Xbox Live and PSN, as well as excellent software line-ups, and perhaps a hardware price cut or two.

So my outlook for both platforms is cautiously optimistic. The problem is that the games industry was expecting more dramatic growth rates. Currently, it looks like we will experience a flatter, longer growth curve in this generation as opposed to the more dramatic peaks of previous cycles.

On how layoffs and downsizing could affect game development output...

While sales of the top ten games continue to be robust, sales of games lower down the charts are suffering significantly compared with recent years. Hence, while consumers might not be giving up on their number one or number two top priority games purchases, they do appear to be holding back on buying games further down the list.

As a reaction to this, retailers are getting pickier about which games receive prime shelf space, as well as stock levels in general, reflecting their customers' behavior in many ways by becoming fussier and less profligate in their spending.

As these impacts have made their way up the value chain, publishers have been forced to react. So currently there seems to be a desire from publishers to increase focus on their top-tier titles, while decreasing resources invested (development time, marketing support, etc.) in titles they aren't so confident about.

In some cases, these titles are cut completely. Publisher appetite for risk is likely to decrease in 2009, and investment in new and unproven games may drop off.

There is, however, a lot still to learn regarding mastery of the new distribution channels and business models available to publishers -- selling games and add-on content across multiple distinct distribution channels, gaming on social networks, F2P/VI business models in Western markets, ad-supported or ad-supplemented business models.

Despite the depressing, recent news, I believe that there are rewards for publishers who can meaningfully exploit such emerging opportunities over 2009 and beyond.

On whether there could be more layoffs, mergers, buyouts, etc....

It's not the best time to sell a firm, given corporate valuations are currently very low; however, circumstances may push some operators into transactions.

Companies in a position to ride out the economic slowdown are unlikely to want to sell themselves based on historically low valuations.

On the other hand, it is a good time to acquire firms that have no choice but to sell themselves. I would expect the biggest publishers to be looking at small- to medium-sized publishers for acquisitions.