Sales of traditional video games are stagnating as attention turns to online, social and mobile games.
This shift is creating a new generation of industry leaders. They include likely IPO candidates Zynga, known for Facebook games like “FarmVille,” and Rovio Mobile, creator of the “Angry Birds” franchise for smartphones and tablets.
Digital download and online games have captured the attention of investors and game industry executives because of their rapid growth and popularity with users.
NFL players Peyton Hillis (from left), Clay Matthews and Ray Lewis helped EA unveil “Madden 12″ at E3, but social games were also a hit. View Enlarged Image
Their impact is being felt this week at the annual E3 video game conference in Los Angeles, which ends Thursday, where old-guard companies are grappling with how to approach the new markets.
Zynga is widely expected to file for an initial public stock offering this month. That will really put a spotlight on the sector, says Kushal Saha, managing director of the information technology practice at Cascadia Capital.
“Zynga is going to be an IPO to look out for in the gaming space,” Saha said. “I would be shocked and surprised if we didn’t have three or four gaming IPOs between now and this time next year.”
Other major privately held companies in online, social and mobile games include Big Fish Games, Digital Chocolate, PopCap Games, Valve and WildTangent, Saha says.
The traditional console game industry sells costly games ($60 for top titles) for specialized hardware. The new players in the industry sell cheap games that can be played in Web browsers on PCs or in apps on smartphones and tablets running Apple‘s (AAPL) iOS or Google‘s (GOOG) Android.
Some games are free to play, but sell virtual items for use in the game. Others let you try a few levels of the game before you buy it (for $7 or less). And some online games are free and advertiser-supported.
With traditional gaming hitting a wall, the focus has shifted to the new business models. Electronic Arts (ERTS), Activision Blizzard (ATVI) and other publishers have boosted their presence on the new platforms, while supporting their core businesses.
Last year, U.S. retail sales of new video game hardware and software fell 6% to $18.6 billion, says the NPD Group.
Social and mobile games probably aren’t drawing sales away from the console games business, but are “expanding the pie,” said Pietro Macchiarella, an analyst with Parks Associates. “They attract people who didn’t play games before.”
But mobile games on iPad, iPhone and other tablets and smartphones could be eating into sales of mobile games for devices like Nintendo‘s (NTDOY) DS and Sony‘s (SNE) PlayStation Portable, he says.
Article source: http://www.investors.com/NewsAndAnalysis/Article/574804/201106081832/Online-Social-And-Mobile-Games-Win-E3-Buzz-Vs-Console-Games.aspx
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