Game analysts: hardcore players, gesture controls critical to console market

At the retailer-focused Game Supply conference today, a panel of game analysts made some interesting forecasts for the year ahead in the game market. Here are some of the key data points they delivered:

Nick Williams, (pictured, center) analyst at OTX and creator of the Game Plan report, noted that the purchase intent of hardcore gamers (those who play more than 20 hours a week) is what will keep the traditional retail-focused game business afloat in 2010. While casual game players (less than 10 hours a week) are much more plentiful, the hardcore folks plan to buy 6 games on average in the coming months, far more than the casual players.

Williams also noted how interconnected console ownership is in homes now, five years into the console launch cycle. Among light players, about 28 percent of Xbox 360 owners have a Wii and 42 percent of Wii owners have a Nintendo DS. About 26 percent of iPhone/iPod Touch owners have a Wii. And among hardcore gamers, 59 percent of Xbox 360 owners have a PlayStation 3.

Colin Sebastian (pictured, right), an analyst at Lazard Capital Markets, said that Nintendo Wii and DS hardware and software purchases accounted for 99 percent of the growth of the game business in 2007 and 2008. But the Wii slowed down in 2009. Williams noted that Wii owners play fewer hours on the weekend than owners of the PS 3 and Xbox 360. (One in 10 Wii owners play for more than five hours on the weekend).

Williams said that the most-anticipated titles of 2010 on the Xbox 360 are Halo: Reach, Gears of War 3, BioShock 2, Fable 3, and Final Fantasy XIII. On the PlayStation 3, the most anticipated titles are God of War III, Final Fantasy XIII, Gran Turismo 5, BioShock 2, and Dante’s Inferno. On the Wii, the most anticipated titles are Super Mario Galaxy 2, the next Legend of Zelda game, DJ Hero 2, Metroid Other M, and LEGO Harry Potter. You see why research is cool? I would have never guessed these titles.

Sebastian noted that Wall Street isn’t happy with the publicly-traded video game companies now, largely because of the 10 percent drop in software sales in 2009, the tough economy, the dearth of blockbuster games, and the decline of the Wii’s popularity. Stock prices fell in the fall and they’re slowly coming back now.

The decline in demand for the Wii could have something to do with the competition on other low-priced game platforms. Sebastian noted how FarmVille on Facebook — a free game where you have the option to pay for virtual goods — now has 79 million monthly active users. Those users are paying for some goods. That’s why, he said, Zynga is on track to report revenue of $400 million in 2010. The Apple iPhone is also serious competition.

The cost for an hour of console and handheld game entertainment (single player games) is about $1 or $2. On World of Warcraft, the massively multiplayer online game, the cost is about 50 cents. And on casual game platforms such as the iPhone, the cost is pennies per hour, Sebastian said.

The result for traditional publishers is that they are not getting return on game development investment. High quality is the focus of many companies, but many quality titles aren’t selling well. Sebastian predicted we will see another round of console hardware price cuts in 2010, new handheld hardware announcements in 2010 from both Sony and Nintendo, and the launch of digital distribution services such as OnLive.

Sebastian said that the launch of Microsoft’s Project Natal and Sony’s PlayStation Arc gesture-control systems for the consoles (which will make them more Wii-like) should boost the market. Overall software sales will likely be flat, but because of digital online game growth, overall game sales should rise 10 percent in 2010.

Game prices are likely to fall. Sebastian noted that Amazon advertised BioShock 2, a new title from Take-Two Interactive, at $54.99 instead of the usual $59.99. It is also selling Call of Duty: Modern Warfare 2, the monster hit from the holidays, for just $45.99. Wal-Mart, meanwhile, gained a huge amount of market share in the fourth quarter, largely due to price promotions, said Jesse Divnich, analyst at EEDAR (pictured, left).

Divnich noted that by 2011, there will be more games released on digital distribution platforms (such as Xbox Live) than on the consoles or the PC. Most of those are small titles such as downloadable add-ons for console games, but it is interesting that publishers are making a big push in digital downloads on the consoles. Still, there should be an increase in the launch of console games this year because of new games coming for Natal and Arc.

Divnich noted that the margins on digital distribution games are considerably higher than the high-cost retail games, making the digital games on platforms such as the iPhone attractive for publishers. But the actual sales are still pretty small. The biggest hit on the consoles, Modern Warfare 2, generated $1.15 billion in sales in 2009. Meanwhile, EA’s The Sims 3, the biggest iPhone hit, generated $11 million, and Battlefield 1943, the biggest hit released online only on Xbox Live, generated $17 million in sales. That’s why publishers still have to commit huge resources to retail games, even as digital is starting to look attractive.