Analyst: iPhone, Social Games Aren't Eroding Core Market

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.