The Investor's Guide to The Video Game Industry

[Editor's Note: Rumen Hutchinson is the 16-year old son of Martin Hutchinson, contributing editor to both the Money Map Report and Money Morning.  As someone who owns eight different video game consoles and spends as much as four hours a day "gaming," Rumen is all but a certified expert on today's video game market. Rumen knows something that no Wall Street analyst does - how today's video game audience thinks. He knows what games are on the cutting edge, and more importantly, what games and consoles are most playable and popular among his peers.]

Despite all of the uncertainty of 2008, video game sales have been booming.

U.S. sales of video game hardware, software, and accessories surged 36% in the first half of the year to $8.27 billion. That even outpaces the $6.1 billion grossed over the same period in 2007, which was a record year for the industry.

Indeed, the video game industry has acquired the reputation of being recession proof, and the statistics bear that out.

In 2002, after the technology bubble burst, the Dow Jones Industrial Average dropped 22%. Meanwhile, video gaming revenue climbed 43%.

And after a banner year in 2007, in which industry sales soared 50% to an all-time high of $18.85 billion, 2008 - even with all of its misgivings - is shaping up to be a new industry standard.

Worldwide revenue is expected to exceed $57 billion in 2008, up 35% from the 2007 record of  $41.9 billion.

With 267 million video games sold, an average of nine games per second were carried out of retail stores across the country last year.

But as remarkable as that is, video games are flying off the shelves even faster in 2008, with sales up 41% in the first half of the year.

As the world's leading format of entertainment, the video game industry had global sales of $41.9 billion in 2007 - double the total sales of 2002, according to PricewaterhouseCoopers LLP.

At this rate, global sales will hit $68.3 billion by 2012. That's a 10.3% annual increase over the next four years.

Below is an analysis of 15 of the most anticipated video games set for release this season.  And that's just the beginning of an investor's guide that details which games, consoles, and companies are primed for success over the next year.

The Video Game Cheat Sheet 

Video games have come a long way from the days of Pac-Man, Donkey Kong, and Pong

There are gun-toting shooter games like Call of Duty, Halo, and Grand Theft Auto.  There are fantasy, or role-playing games (RPGs), like Spore and Final Fantasy, that allow players to reshape an imaginary world in their own image.

And now, with recent advances in motion and sensory technology, there are games like Guitar Hero, MarioKar, and Wii Fit, that allow players to become active participants in the games they play, and physically control the onscreen action.

Here's a quick look at the games that have sold the most copies over the past 12 months, in order of sales to date. (Note that the sales figures are approximate, and that the release date is the first date the game was released globally.)

1. Call of Duty 4 for the PlayStation 3, Xbox 360, and PC (10 million copies sold-Released November 6, 2007)-Activision, now Activision Blizzard Inc. (NASDAQ: ATVI)

2. Halo 3 for the Xbox 360 (8 million copies sold -Released September 25, 2007)-Microsoft Corp. (NASDAQ: MSFT)

3. Grand Theft Auto 4 for the PlayStation 3, Xbox 360, and PC (6.5 million copies sold -Released April 29, 2008)-Take Two Interactive Software Inc. (NASDAQ: TTWO)

4. Mario Kart Wii for the Wii (6.5 million copies sold -Released April 10, 2008)-Nintendo Co. Ltd. (Pink Sheets: NTDOY)

5. Super Mario Galaxy for the Wii (6 million copies sold -Released November 1, 2007)-Nintendo

6. Super Smash Bros. Brawl for the Wii (5 million copies sold -Released January 31, 2008)-Nintendo

7. Wii Fit for the Wii (5 million copies sold -Release December 1, 2007 (in Japan, later elsewhere)-Nintendo

8. Metal Gear Solid 4 for the PlayStation 3 (3 million copies sold -Released June 12, 2008)-Konami Corp. (NYSE: KNM)

These are the games that have proven most popular over the past year. It's important to note that all, except one, Wii Fit, are sequels to previous releases. This is important because it shows that gamers are most comfortable buying and playing updated releases of games they've enjoyed in the past.

Likewise, the newest installment of the popular John Madden NFL football series is a sure-fire seller every year.

Of course, knowing what has sold in the past isn't enough. That's why we took the time to analyze 15 games set for release heading into next year. We've detailed each game's unique appeal and whether or not it is likely to succeed or fail.

(Note: all upcoming release dates are subject to extreme change at the discretion of the publisher.)


Publisher: Electronic Arts Inc. (NASDAQ: ERTS)
Release Date: Released
Platform: PC

This is one of the most interesting games that have ever come from the creative genius that is Will Wright (the creator of SimCity and The Sims - two games that have won video game audiences over with formats that let players take control of their own make believe worlds).

Like many of the best sellers we looked at earlier, the appeal of Spore is that it elaborates on an already popular format - namely simulation. Rather than managing a city, or simulating a human life, this game almost literally lets users "play God."

The player starts off as a single cell, which grows into an organism and interacts with other life forms. In its unique life cycle the organism founds cities and eventually ventures into space.  Of course what is most intriguing about Spore is its application of user-generated content. Almost everything in the game can be created and customized by users, giving them complete control over the environment surrounding their life form. Users can then share their creations with others over the Internet.

The game is impressive in its vastness and depth.  Users are presented with a vast and epic universe, which makes exploration part of the fun. The final stage in the game consists of over 500,000 planets, each with its own unique landscape and organisms. It is literally impossible to explore all 500,000 in an average human life (though many will try).

This game will almost certainly revitalize the market for PC gaming - a sector that has lost ground to PlayStation, XBox, and Wii consoles. 

Madden NFL 09

Publisher: Electronic Arts
Release Date: Released
Platform: Nintendo DS, PlayStation 2, PlayStation 3, PlayStation Portable, Wii, Xbox, Xbox 360

The Madden NFL franchise is, perhaps the most successful in the industry. A new version comes out every year with new rosters and new gimmicks that add depth and playability. It is the only game officially licensed by the National Football League, which means it is the only game that can use NFL teams, logos, stadiums, and active players.

Besides having much better graphics and more realistic physics engine than previous installments, Madden 09 delivers an assortment of new game play additions such as control when being tackled, a skill test that lets the CPU adjust to a players ability, and a replay system that analyzes what a player did wrong on any given play.

The online mode has been revamped to be easier and more efficient to use as well as more interactive.

This game appeals as much to young gamers as it does to 20 and 30-somethings who wish they could join the action they see on the field every Sunday.

Madden has been a cash cow for its publisher, Electronic Arts, and will continue to be so long as professional football is popular in the United States. It was the top selling video game in the third quarter of 2008, selling nearly 3 million copies.

Little BigPlanet

Publisher: Sony Corp. (NYSE: SNE)
Release Date: Released
Platform: PlayStation 3

Like Spore, LittleBigPlanet is a creation game. It lets players author their own game and their own experience by building a two-dimensional level of their choice. Whether a user wants to create a game where you have to solve a puzzle in order to advance or a game that lets you do whatever you want, all the tools are at their disposal. Users can then share that level with players online, essentially turning the game into a community effort.

This is a very good example of a game that is, in a sense timeless, because players are only limited by their imagination and can construct as many levels as they like. With plenty of hype going into the Christmas season LittleBigPlanet could be a big hit for Sony and its PS3 console.

God of War III

Publisher: Sony
Release Date: 2009
Platform: PlayStation 3

There is little known about this game to date. However, with the hype it is already generating and the quality of its two predecessors, I am fully confident that this game will become a pinnacle part of the PlayStation 3 library. The following is all assumed: This game will be a traditional hack-n-slash game. It will take place around the Ancient Greek era.

In the U.S., this is what is written on God of War II's rating label: Blood and Gore, Intense Violence, Nudity, Sexual Themes, Strong Language. Well, that speaks for itself, doesn't it?

However, a lot of games can say the same thing. What sets this one apart is the combination of a fluid combat system that makes even the most lousy gamer feel like a pro and a puzzle system that is actually fun to figure out.

Final Fantasy XIII

Publisher: Square-Enix Co. Ltd. (TYO: 9684)
Release Date: 2009
Platform: PlayStation 3, Xbox 360

Originally, this game was meant for the PS3 but after E3 2008 (a video game convention), the game went on to the Xbox 360 as well and shocked many gamers. Thanks to the hype that generated and to the sheer amazing graphics and game play of a Final Fantasy game, this game will quite possibly redefine the RPG (role-playing game) genre -- or at least sell the usual multi-million copies that Final Fantasy games sell.

This game lets the player take the role of a traditionally heroic character (or one that becomes heroic) and find in-game friends to do battle with. In doing this, the player's stats (things such as health, attack power, magic power, etc) are raised. Then, with your new stats, you go fight more things and have adventures (and usually save the world but that's generally a side-victory).

Resident Evil 5

Publisher: Capcom Co. Ltd. (TYO: 9697)
Release Date: JP-March 12, 2009   EU+NA-March 13, 2009
Platform: PlayStation 3, Xbox 360

This game has been in the works for quite a while now and with the release of new trailers, it's becoming one of the most anticipated games of 2009. The game focuses on the origins of the Resident Evil series, while still being a true sequel. The series is focused on surviving in a world that is dominated by a rogue virus that turns people into zombie-like creatures.

Zombies. No, seriously, you shoot zombies. You survive. What's there not to like? The game is going to be a pinnacle step in horror games. The same people that love horror movies want to be able to participate in those movies interactively. Resident Evil gives them that opportunity.

Gears of War 2

Publisher: Microsoft
Release Date: Released
Platform: Xbox 360

Gears of War was the second-best selling game on the Xbox 360 last year. With the improved game play, graphics, and online experience, this could well surpass its predecessor. With a new and improved game engine, this game has already won multiple awards for its life-like graphics.

Gears of War is similar to the wildly popular Halo series. Like Halo the game is a very fluid shooter set in the future with a solid sci-fi storyline. It allows gamers to shoot brilliantly-created alien creatures with futuristic weaponry, which has a surprisingly broad range of appeal.

Gran Turismo 5

Publisher: Sony
Release Date: TBA (probably 2009 but might be bumped to 2010)
Platform: PlayStation 3

Sony issued a demo of Gran Turismo 5 for PS3 called "Gran Turismo 5: Prologue." That demo sold over 2 million units and was the best-looking game on any console at the time mathematically (most polygons per model).  The game defines the racing genre for video games, and each previous installment in the franchise sold over 10 million units.

If you ever wanted to test the top speed of a Porsche or Aston Martin, or if you ever wanted to turn London or New York into a race track, this game is for you. Gran Turismo 5 lets you do all of those things in the most realistic simulation to date.

This game is notorious for having real racecar drivers test it to prove it. When a race car driver gets x time with y car on z course, they also get the exact same x time - within a couple milliseconds usually - with the same y car on the same z course in the game.

Guitar Hero World Tour

Publisher: Activision Blizzard Inc.
Release Date: Released
Platforms: Xbox 360, PlayStation 3, Wii, PlayStation 2

This is the fourth installment in the hugely successful Guitar Hero franchise. It lets gamers play along with their favorite tunes on what is, essentially, a toy guitar. Unlike previous editions GH World Tour features support of a drum set, microphone, and bass, allowing players to form complete bands in their living rooms.

The appeal of this game is that it lets players who may, or may not, have any musical talent whatsoever enjoy the rock star experience. It also lets them take their friends along for the ride. Players can travel from city to city and bask in all the adulation of adoring fans without spending months on end in a tour bus. And if your band breaks up, you can always find some new mates online.

Rock Band 2

Publisher: MTV, a subsidiary of Viacom Inc. (NYSE: VIA-B)
Release Date: Xbox: Released
Platforms: Xbox 360, PlayStation 3, Wii, PlayStation 2

Rock Band is the main competition to Guitar Hero. Like GH World Tour, Rock Band features a guitar, drum set, and microphone and let's players create their own characters. These games are essentially the same thing. The only thing that sets them apart is the set list. Both, no doubt, be hugely successful.

Wii Fit

Publisher: Nintendo Co. Ltd.
Release Date: Released
Platforms: Wii

This game is already selling out and on back order at most retailers. It is by far the best exercise video game that has ever been released, if not the only exercise video game ever released. It is one of Nintendo's most successful innovative ventures to date and will undoubtedly continue to attract users for the next year or two.

This is one of those truly innovative games, like Guitar Hero, Grand Theft Auto, or Gran Turismo that comes along only once every so many years. Wii Fit turns exercise, which many consider to be a chore, into a game. There is no annual membership fee and no overpriced equipment. And it lets a user work out in the comfort and privacy of their own living room.

Call of Duty: World at War

Publisher: Activision
Release Date: NA: Released
Platforms: PlayStation 3, Xbox 360, PC, Wii

This is the next installment in the extremely popular Call of Duty series, which received significant recognition after its blockbuster game, Call of Duty 4: Modern Warfare. While Call of Duty, Call of Duty 2, and Call of Duty 4 were developed by the Infinity Ward game design team, Call of Duty 3 and Call of Duty: World at War were developed by the Treyarch design team.

This game is a first person shooter set during WWII. Another notable feature of this game is that it will take place in the Pacific, rather than on the European, front - a rare choice for WWII games.

However, is unlikely that Call of Duty: World at War will be as popular as its predecessors. The media will also hype this game and, for a small moment before it's released, it will seem like it will ACTUALLY be able to surpass all previous Call of Duty games. But I believe it will fall short.

Call of Duty 4 was a blockbuster for two reasons:

  1. It didn't take place in the overdone WWII era (hence the game's full name: Call of Duty 4: Modern Warfare).
  2. It was developed by the amazing team that did the original Call of Duty, Infinity Ward.

This game is not only going to be done by the team that did the extremely tedious and overly boring game known as Call of Duty 3, it is also going to be put BACK into the WWII era. If there is a game on this list that will be a complete flop, this is it.

Fable II

Publisher: Microsoft
Release Date: NA-October 21, 2008 UK-October 24, 2008
Platforms: Xbox 360

Fable II is a Role-Playing Game (RPG) that features advanced level "artificial intelligence" (AI) and a never-before-seen online system that lets players interact much more easily than in previous games. It is the sequel to the well-received Fable for the original Xbox and PC. Fable II is well on its way to becoming one of the most anticipated RPGs on the Xbox 360.

An example of this game's advanced level of intelligence and responsiveness:

Roughly 45 minutes into the game, the player's character will encounter a pet dog. The dog will obey three laws: First, do not irritate the player. Second, unconditionally love the player. And third, self-preservation. When the player goes into a shop, the dog will wait outside. If the player is wounded, the dog will become more protective. It will alert the player to threats, attack enemies and will learn different behaviors over the course of time, based on the player's experiences.

This is just the beginning. Throughout the game, the player's character will have the choice of marrying (same or opposite sex) and having children. The player may also choose whether or not to join the side of good or the side of evil. This, and a number of other decisions, alter the gaming experience, and ultimately, its outcome.

Killzone 2

Publisher: Sony
Release Date: February 2009
Platforms: PlayStation 3

The original Killzone, while having minor technical issues, was one of the best sci-fi shooters on the PlayStation 2 and was hailed as the ‘Halo Killer' prior to its release. Killzone 2 might just accomplish what its predecessor couldn't do, or at least get much closer. Killzone 2 is a first person shooter that takes place in the future on an alien planet (stop me if you've heard this before), where humans are battling an evolved species of humans for domination.

The game is going to try to deliver not only an amazing shooting experience, but a breathtaking Hollywood cinematic experience. As has already been discussed numerous times in this report, gamers are perfectly comfortable buying and playing reworked releases of games they've enjoyed in the past.

The game may be unoriginal, but so long as it adheres to the formula of its predecessors, and combines familiar controls with well-designed graphics and a captivating storyline, Killzone will be a success. 

Animal Crossing: City Folk

Publisher: Nintendo
Release Date: Released
Platforms: Wii

This is the sequel to the original Animal Crossing for the Nintendo GameCube, which makes Animal Crossing: City Folk is a surefire sale to fans of the old game.

Animal Crossing is an open-ended life simulation game with little, if any, plot. There are tasks the player can choose to complete, but nothing is required. The game is played in real-time (observing days, weeks, months, and years) and has a full calendar of holidays. The main goal is for the player to increase the size of his or her home.

The game will be the first to utilize the Wii's new, soon-to-be-released speaking module.

Resistance 2

Publisher: Sony
Release Date: November 2008
Platforms: PlayStation 3

The Resistance series is based on an alternate reality timeline where WWII never happened due to alien interference. The aliens, of course, now try to take over humanity.

Resistance 2 is a first person shooter where the player is tasked with the objective of surviving while the human race is destroyed. Resistance was a flagship game for the PlayStation 3 and its sequel is sure to continue the quality of gaming.

Resistance 2 has a very interesting storyline that appeals to most sci-fi buffs, while not actually being in the future on another planet. A big reason the original Resistance sold was because of the ingenuity of the guns and what they could do. A player could have a gun that shot through walls, or one that had bullets that got directed to the enemy.

Combined with the processing power of the PlayStation 3, this game's innovation will be its selling point for gamers.

World of Warcraft and MMORPGs

A large group of western gamers enjoy what are known as Massive Multiplayer Online Role-Playing Games (MMORPGs). These games let a player create a character of his choosing, and then shepherd that character through an imaginary world.  What sets them apart from the rest of the games we've covered is that there are just a few dominant titles and they are generally played on personal computers, rather than a video game console.

The most popular MMORPG is World of Warcraft (WoW). This PC game lets a player create a being of his choosing (elf, dwarf, troll, undead, or just plain human) and take them on adventures that build that character's attributes and earn in-game money to buy in-game items. To play WoW however, the player must pay a monthly subscription of $12.99 to $14.99 depending on the subscription length.

With 10 million subscribers, WoW is the world's biggest MMORPG and a lot of other similar games are copying its price model. World of Warcraft is made by Blizzard Entertainment which was recently bought by Activision, creating Activision Blizzard Inc.

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