Video game executives believe consolidation will be crucial to their future, but they also want further cuts to hardware prices to boost short-term growth, according to a report set for release this week.
The authors of the 2004 Industry White Paper, produced by the IDG Entertainment unit of publisher and conference producer International Data Group, polled 54 analysts and executives on topics ranging from hardware prices to handheld games and retailing.
The report, a copy of which was provided to Reuters on Tuesday, indicates that 2003 proved disappointing to industry players because of a dearth of both blockbuster titles and significant hardware price cuts to stimulate demand.
But with new releases in some of gaming's most popular franchises -- "Grand Theft Auto," "Halo" and "Doom" -- the second half of 2004 is expected to be the biggest six-month period in video game history.
The report's editor cautioned that the industry has a history of bullishness which sometimes does not pan out.
"Optimism runs high every year," said Wes Nihei, who also serves as editor of IDG's GamePro magazine. "If we went back to the 2002 report, people were just as optimistic about 2003."
Cutting prices, joining forces
While Microsoft Corp. cut the price of its Xbox console to $149 in March and Sony Corp. matched the move for its market-leading PlayStation 2 in May, many of those surveyed said they would rather see prices of $129 or $99, the price of Nintendo Co. Ltd.'s third-place GameCube.
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"Fifty percent of all hardware units on the (original) PlayStation were sold at $99," Activision Inc. Chief Executive Bobby Kotick said in the report.
"For some reason, this is one of those industries where that $99 is such a magic price point, and it's such a catalyst for that mass-market consumer, that after four cycles of seeing the impact of it, it's not surprising," Kotick added.
Lower prices may not be enough for smaller companies to survive in the increasingly competitive industry, however.
Several experts said it was inevitable that more publishers and developers would have to merge to prosper.
"It's not far off, I think," said Mike McGarvey, CEO of Eidos Plc , which itself is exploring the possibility of a sale. "Six or seven (publishers) sounds about right."
Currently, the industry has dozens of game publishers who sell games, and numerous developers who create them.
Warming ties
In other areas, ties between game makers and Hollywood have strengthened in recent years after a long period of combative relations that made for many low-selling, movie-based games and left the industry feeling like an unwanted stepchild.
The report found a growing sense among games executives that they are now part of the "club" in entertainment, especially as production costs for games rise into tens of millions of dollars. The downside is that publishers are starting to confront the financial obstacles that movie studios have long faced from bloated film production budgets.
"Development costs are getting out of control vis-a-vis market potential," said Jack Sorensen, executive vice president of worldwide studios for THQ Inc. , in the report.
Others said the industry was maturing in its attitude.
"I think they're getting past the 'chip on their shoulders' stage," Nihei said. "Most definitely the attitude is that video games are right up there with movies, outselling movies at point-of-sale, outsell movies at the box office anyway."
The study's authors also found, among other things, that Wal-Mart Stores Inc. was the most difficult retailer to work with, while Electronics Boutique was the best.