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In a Recession, It's Fun and Games

Despite recession, 2008 was a banner year for the gaming industry.
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With a half dozen video games spread on the glass counter before him, James Davis handled each carefully. He scrutinized. He talked with salesman and customers. Finally, after 20 minutes of considering the semi-finalists, he opened his wallet and bought Super Smash Brothers Brawl and Go, Diego, Go! Sixty dollars bought a game for him, and one for his four-year-old son.

"You've got to really pick the game you're going to enjoy," said Davis, 38, a correctional officer who lives in Brooklyn, New York. Davis, a lifelong gamer, is not a casual consumer: "I did a lot of research with this Smash Brothers Game."

U.S. video game sales rose by 15 percent in 2008, according to Top Global Markets, a joint report from industry research firms. Sales grew thanks to bestsellers such as Nintendo's Super Smash Brothers, which sold over six million copies globally. But private companies also pulled their weight, like Bethesda Softworks, whose mega-hit Fallout 3 had $300 million in sales by late 2008.

"We're able to go head to head with anybody," said Pete Hines, Bethesda Softworks' VP of marketing. "There isn't a level on which we can't compete with anybody in this industry."

Hines said he isn't concerned that the global recession will cause a serious downturn in game sales.

"Guys like me who play video games all the time aren't going to stop when times get tight," Hines said. "If anything, we make cuts in other places but continue to do that, because it's some of the best entertainment for the dollar that you can get."

Another private company that is flourishing is GameFly, which rents video games by mail, a la Netflix, to a customer base of subscribers. CEO David Hodess said he still expects his company to grow in 2009, and he agreed with Pete Hines that games are a bottom-dollar consumer item: "The value of video gaming is high, because they use these games 10, 20, 30 hours or more."

Hodess said that GameFly so far hasn't needed to offer any kind of price cuts or recession specials. In fact, the company recently did some spending of its own, buying Shacknews.com, a video game news site with a sister site, FileShack, that offers downloads of PC games.

Not every video game company is seeing major growth, but even the smallest growth is appreciated in a recession. Florida-based eDimensional, No. 3523 on the 2008 Inc. 5000 list, grew by 92.7 percent from 2004-2007, but inched from $3.2 million in sales in 2007 to $3.3 million in 2008. eDimensional's business focuses on a flight simulator game for computers, and on gaming accessories like controllers.

"We were fortunate that we finished the year strong," said CEO Michael Epstein. "Most people that come out flat [during a recession] are happy about that. Had it been a different situation we probably would have ended up a lot higher."

Popular video games for major consoles like the Xbox, Wii and Playstation 3 are usually created by large companies. Many smaller companies compete in the area of games for handheld video game devices like the Nintendo DS and Sony's PSP.

Powerhead Games in New York City falls under that category. Powerhead develops games for licensing and distribution companies including French video game company UbiSoft, for whom it created a Nintendo DS game based on the crime show CSI.

"The news has been filled with companies scaling back and down," said Powerhead founder and President Jason Schreiber. "But there's a lot of opportunity there."

Schreiber's company employs 25 developers plus some freelancers, and focuses almost exclusively on DS games. He believes the market for the DS will stay strong, and points out that there are already 100 million DS units sold worldwide with a new version on its way this year. The new DS already sold out in Japan, according to Schreiber.

"Things are looking good for us," Schreiber said. "To me the market looks fantastic."

In the end, though, Epstein repeated the mantra of game companies: It's the value, stupid.

"It's not recession proof, but gaming in general seems to be more resilient than some other industries because it's a cost effective form of entertainment," Epstein said. "If you already own a console, the price of a new game, at 40 to 60 dollars, gives you a lot of entertainment compared with going out to dinner or even seeing a movie."

Last updated: Feb 12, 2009




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