Gaming industry weathers the global recession

In a shiny network gaming center in UTC, Aaron Kirby’s eyes flit across an LCD screen, watching his heroic digital avatar finish off yet another foe.

Meanwhile, in boardrooms across America, analysts evaluate the strengths and weaknesses of a possible hero of their own -- the video game industry -- hoping its revenue projections and profit potentials can protect their capital from an even more cruel foe, the global economic recession.

But is the video game sector as “recession-proof” as some would suggest?

Unparalleled growth

Since the introduction of home video games in the late 1970s, the market has grown explosively into a multibillion-dollar industry, and there is little evidence to suggest it is slowing down.

Market research firm NPD Group estimates worldwide video game hardware and software revenues at just under $50 billion for 2008, with U.S. sales up 15 percent over 2007, in seeming defiance of other consumer trends.

Kirby, who is 32 and lives in Del Mar, is just one of an estimated 11 million of players of World of Warcraft, a massively multi-player online role playing game. Launched by Blizzard Entertainment for the 2004 holiday season, North American players happily plunked down $50 for the game in addition to an ongoing monthly fee of $15 for the opportunity to play in giant shared worlds with thousands of other adventurers. While the actual numbers are closely guarded, estimates of monthly revenue from the North American players -- of this one game -- approach $4 million.

More online games and the spread of the gaming to the more casual demographic targeted by Nintendo’s Wii console are just two positive trends that might keep the video game healthy in the current economic climate. Carmel Valley-based research firm, DFC Intelligence, has forecast global revenues of the video game industry to reach $57 billion in 2009.

“Consumer spending on software is at record levels and the game business seems to actually benefit from a recession because games are a relatively cheap form of home entertainment,” said DFC analyst David Cole in a 2008 press release.

Economic escapism and the great connection

It is often suggested, usually by frustrated parents or angry spouses, that video games seem capable of transporting the player to another plane of existence -- one slightly removed from homework, household chores or even grim economic realities. And even gamers admit that playing does help them escape the humdrum of their everyday lives and gain a sense of accomplishment for a game well-played.

But in a foundering economy, is there a limit on the price gamers are willing to pay for their entertainment?

It would seem so. Payam Manavi, owner of The Office Games, has noticed a drop in the number of “hands on keyboards” at his state-of-the-art gaming center at the University Town Center mall.

“We’re seeing a decrease of 10 to 12 percent in sales from last year to this year,” Manavi said.

As though tracking the overall health of the economy, the decline became more pronounced in the months prior to the November elections, but rebounded afterward and through the holiday season. The numbers for early 2009 have dropped off, too -- a fact Manavi attributes to the nature of the business, which charges about $6 per hour to play the most popular games on top-of-the-line PCs or X-Box 360s.

“We’re not selling food here -- this is a service industry,” he said, alluding to the fact that service luxuries are often the first to be trimmed from budgets in lean times, “but I expect it will recover.”

The reason for the recovery and perhaps the simple secret to the success of video games? The very human need for social interaction.

“People have coffeemakers at home,” Manavi said. “So why do they go to Starbucks and hang around for hours? To be social. It’s the same with gaming. [Gamers] like to sit beside their friends, to play together, to talk about strategies, to share their experiences. People need to be connected.”

Game on

Social needs aside, as the decline in mall foot traffic affects gaming centres like The Office Games, it ripples up the chain, from game retailers to the game publishers. Electronic Arts and Activision/Blizzard, the two industry titans, both reported losses for the latter part of 2008.

It seems unlikely that any consumer industry can escape the effects of a truly global recession, even if the consumers are gamers. But the resiliency of the gaming sector, along with its historic and projected levels of growth, makes it a relatively safe harbor in rough economic waters.

BRUSH UP ON YOUR VIDEO GAME TRIVIA

-More than half of American adults play video games.

-97 percent of teenagers consider themselves to be gamers.

-Blizzard Entertainment’s Wrath of the Lich King sold more than 2.8 million units in its first 24 hours on sale.

-The best-selling game on the Atari 2600 was Pac-Man, which sold 7 million copies in its lifetime, leaving Atari with an estimated 5 million unsold cartridges.

-Top three selling games of 2008: Grand Theft Auto IV, MarioKart and Guitar Hero.

-Founders of Harmonix, the creator of Rock Band, were named to Time Magazine’s 100 Most Influential People list for 2008.

-PLAY! A Video game Symphony is a full touring orchestra and choir that performs live concerts of the most memorable music from video games.