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Analyst: iPhone, Social Games Aren't Eroding Core Market
Analyst: iPhone, Social Games Aren't Eroding Core Market
January 29, 2010 | By Leigh Alexander

January 29, 2010 | By Leigh Alexander
More: Console/PC

The game industry had a down year in 2009, and softer hardware sales alongside the rise of mobile and digital revenue streams have left many investors leery of investing in traditional game publishers.

This means weaker stock for leading companies as mixed messages abound on the fate of the core market; companies like Electronic Arts have reacted to missed estimates by reducing the prices of certain console SKUs and stressing new digital revenue pipelines, while companies like Ubisoft and Activision have centralized on their core franchises for the majority of their revenues.

But Cowen Group analyst Doug Creutz says it's still a great time to be in the console business, and that new markets are simply adjacent segments, not rivals that will erode marketshare.

"Notably, we reject the notion that competition from non-traditional video gaming formats such as the iPhone and social gaming have significantly impacted the traditional console cycle," he says. "We believe that these newer gaming media represent a distinct and non-competitive market segment from console gaming, which is dominated by the core gamer."

If growth in the traditional game industry saw challenges during 2009, says Creutz, it's because the current console cycle was slow getting started due to high launch prices for current-gen hardware. The Wii dominated so easily at first because of its low price and mass-market audience, but only with price cuts for the Xbox 360 and PlayStation 3 could success continue.

"While the Wii and the music genre helped grow the market beyond the traditional core gamer during 2007-08, casual gamers appear to have backed away from video games during 2009 (in part due to the recession), which drove the majority of the overall sales decline," explains the analyst.

"Sales of core gamer titles (those that were actually released on time) remained strong during 2009 despite economic weakness," he points out. And now thanks to price parity, things are ready to turn around, he says, predicting positive year-on-year comparisons to start showing around March 2010.

"With Xbox 360 and especially PS3 prices now entering the mass market range, we believe that the cycle will reaccelerate to the benefit of the publishers that are positioned to take advantage," he concludes.

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John Gordon
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It sounds like the the iPhone is not a threat to the DS after all. ;)

Kelly Johnson
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I don't know anyone who is a gamer who has switched from standard gaming platforms to social games and phone based games. To me, those games embody a step backwards for anyone used to playing on a standard platform. All the people I know who are using social games weren't gamers and that's who comprises most of this new market. The low quality of the games are not an issue for this new type of casual gamer because essentially the games are primarily time killers. These people in the past may have played Solitaire or similar free computer games but the draw to these new games is the social aspect (being able to show your accomplishments in Farmville or Mafia Wars) or the fact that is one more thing to play with on their phone. The new paradigm of the digital social world is less face time with people and more status updates and comments as interpersonal communication. A void is being created from a decrease in actual time spent with people and that void is being filled with what the digital devices give easy access to, like watching YouTube videos and playing cheap and easily accessible games. I think it is a symptom of the world in which we find ourselves where many people are feeling lonely and isolated and are waiting for something to happen.

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Victor Reynolds
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Well duh...casual gamers don't spend the big bucks on games on a consistent basis....big surprise.

When the mainstream found the next "cool" thing to do (read: video games), they spent some money on it, but its obvious that they wouldn't spend money on games often. Why? Well, because they are CASUAL players, meaning, they are not interested in playing games often. I mean, why would the mainstream spend money on something they don't do very often, especially since the next big thing is something else?

Mark Morrison
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@ John Gordon

Huh? This article doesn't even contain the letters D or S next to each other. Btw, it's now DSi; and, the iPhone has completely eaten off the DSi table. It continues to do so at a voracious rate IMO. Every kid I know leaves their DS on the shelf in favor for the iTouch. Why wouldn't they?

Now, for some context:

This is an analyst speaking from his (and presumably his companies) point of view. Cruetz, Pachter, and pretty much all analysts we see here validate their existence with this type of information. Their clients invest in the console space. Imagine if they started spreading negative opinions of the core console space. Probably not a good selling tactic for their futures.

In this situtation, I would agree that the entire game space is growing and not shrinking. To think that a Halo or COD fanatic will leave that experience for Mafia Wars is like switching from Tequila to chocolate milk.

Thank gawd we have these analysts to keep us real ;)

Megan Swaine
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Casual gaming platforms have proven that you don't have to have eye-bleeding 3d graphics and a celebrity cast of voices to have an engaging, enjoyable game. That is a good thing- it's keeps things in perspective. If people can pay less to get the same amount of entertainment, we can't blame them for that. It's not going to affect the video game industry negatively- it just going to motivate us to make better games. ;)