Life still left in video game industry

Execs 'cautiously optimistic' during economic downturn

NEW YORK -- Video game sales are expected to be strong this year and in 2009, despite the economic troubles that have hurt some retail stores that sell the games, industry executives said on Thursday.

Speaking at the BMO Capital Markets interactive entertainment conference in New York, they said their optimism is fueled by solid sales of advanced game consoles made by Nintendo, Sony and Microsoft.

"I think it's going to hold up a lot better than other industries," said Mindy Mount, CFO of Microsoft's entertainment and devices division. "We remain cautiously optimistic."

Reggie Fils-Aime, president of Nintendo of America, said its Wii console continues to sell out, while sales of the pocket-sized DS game machine have risen almost 20% year-over-year. For that reason, Nintendo has no plans to cut the price of the $250 Wii, he said.

Microsoft in September cut the entry level price for its Xbox 360 to $200, and Sony last year lowered U.S. prices of the PlayStation 3, which comes with an 80 GB hard drive and a Blu-ray video disc player, to about $400.

"If I look at this from an industry perspective I think cautiously optimistic is quite appropriate," Fils-Aime said in an interview. "If I look at it from a Nintendo perspective, I would say very optimistic.

The outlook for video games is rosy in contrast to many other industries that are suffering from the global financial meltdown and rising unemployment, which has prompted shoppers to curb spending.

This week, Best Buy, the No. 1 U.S. electronics chain, slashed its profit forecast, and Circuit City Stores filed for bankruptcy.

Yves Guillemot, CEO of France's Ubisoft Entertainment -- maker of the hit "Splinter Cell" franchise -- said video games are selling well at low-cost retailer Wal-Mart and game seller GameStop.

"In general, there's a lot of competition (from other publishers), but we see that software is selling well, just due to the fact there are a lot of machine owners who need software," Guillemot said.

He said he still expects 2008 North American and European video game industry software sales to grow by more than 20%, and added that 2009 "will also be a great year."

Ubisoft's shares jumped 9.55% to 38.07 euros in Paris.

BMO analyst Edward Williams estimated that there are 50% more video game consoles installed now than a year ago, and that will spur robust sales as their owners shop for games during the holiday season.

But the challenge for future growth is to draw in consumers unfamiliar with video game systems, who may already be too concerned about their wallets to buy into games.

"The question is the person who is a little more marginal, the person who is new to gaming and is not as interested in video gaming," he said. "That's where I think there is greater potential for risk."

The slump in consumer spending will hurt some game makers, particularly those lacking major hits, analysts have said.

For example, THQ posted a dismal third-quarter earnings report last week and cut jobs, canceled some games and said it plans to retool.

Strauss Zelnick, executive chairman of Take-Two Interactive Software, maker of the blockbuster "Grand Theft Auto" series, said overall holiday shopping "doesn't look very promising" for those who do not have huge hits on the shelves.

"I'm concerned that it's going to be a pretty rough holiday season," he said. "Everyone's going to be shopping less. First you are going to see less foot traffic and then less inventory on the shelves."

Peter Moore, president of Electronic Arts' EA Sports unit, which makes the popular title "Madden NFL," also voiced "cautious optimism."

"We are entering uncharted water from an economic standpoint," he said. "We are holding our breath and hoping the consumer comes out to play."

On Nasdaq, EA rose 7.08% to close at $22.22, while Take-Two fell 1.02% to $10.69.