WalkingCaptain (39.00)

The Gaming Industry Part 1

July 26, 2010 – Comments (17) | RELATED TICKERS: NTDOY.PK , ATVI , EA

The Gaming Industry Part 1: Onlive

Hello fellow Fools,

 I have been a fool for a little while now, and am a long time avid gamer. I feel this makes me somewhat qualified to discuss the future prospects of the companies that make up the video game industry, and despite my lack of formal training, I think I can even go slightly into their future financial prospects.

To begin I will give my picture of the current state of the industry, as well as where I see it going. I personally know more about the larger game industry, and have little insight into the booming mobile app niche of the industry.

Onlive

I recently have been fascinated with the effect the release of the Onlive system will have on the industry. The service advertises that you play games on a remote server, meaning you do not need to install them, you do not need a cd, and you do not need more than a monitor or television screen to start playing. In reality there are some system requirements for the computer version, and the service is going to cost about 5 dollars per month just to have it. The problem here is that the games you purchase through onlives service you do not actually own, you are basically leasing it from them, if you do not pay onlive, you can not play your game. 

One feature that was pretty neat was the ability to try any game free for 30 minutes, to get a taste of the game. You do not have to install anything, just start playing. Most demos take a while to install for the 20 minutes of tease gameplay that they give you, and it is fairly obnoxious. I tried the popular Gearbox Software game Borderlands, and was not impressed with the performance. The play was less than smoothe, particularly during combat, making the gameplay much more difficult and less pleasant in general.

Giving Onlive the benefit of the doubt, assuming that they get their **** together and make the gameplay experience better (which should theoretically happen by itself with increased broadband speeds) and that people actually buy this service, what impact can they have on the industry as a whole? A fairly large impact is possible, but will be localized to hurt specific other companies. Gaming producers and developers should not be impacted at all, on the contrary; the service could bring gamers into the industry that could not previously afford high hardware costs of consoles and pc's. This will also bring consumers one step closer to the game producers. Sony and Microsoft have the most to lose here as the producers of rival consoles.  

Nintendo

You might ask why I did not include Nintendo in the above statement, as the kings of the home video console industry, with the Wii outselling both the Playstation 3 and the Xbox 360 by a wide margin. The reason is that unlike sony and microsoft, Nintendo makes the majority of the top grossing games for its Wii console, meaning that they have the security of the popularity of their games to continue selling their system. They are not dependent on 3rd party developers to make their system popular, which means that they can continue to underperform sony and microsoft in terms of hardware specifications, and continue to outperform both in system sales. I rate Ntdoy.pk a great buy at 32 dollars per share.

State of the Art

Now that you understand my take on hardware systems, we will move on to the the production side of video games. There are three companies that I like in this industry, and one of them I have already mentioned. In the current video game industry, so much code is going into the games by so many different programmers that projects are becoming extremely expensive, meaning that every project needs to see a lot more sales. This is forcing all of the producers to cut their less popular games and franchises for the benefit of focusing on their major titles.

Activision Blizzard

As mentioned above, Nintendo is excellent at this. Between the Mario, Zelda, and Donkey Kong series', Nintendo has an amazing set of franchise titles as a backbone to its future game development. The two other companies I am very fond of are Activision Blizzard and Valve. Activision Blizzard gets a lot of negative attention in the gaming community, particularly CEO Bobby Kotick. But the gaming community is pretty much as dependent on him as an addict to his meth dealer.  World of Warcraft remains and will continue to remain the top grossing MMORPG for the forseeable future. The coming expansion pack will assist those sales. In the future we can look forward to Diablo 3, some new additions to the Call of Duty franchise, and potentially even a sequel to WoW.

Starcraft II

Starcraft 2 comes out tomorrow and deserves its own section. This game has been anticipated since the first games' release in 1998. This game might outsell last years Call of Duty 4: Modern Warfare 2, and either way its going to be close. In addition, the company is going to release two expansions to play the single-player campaign for the other 2 races. This is going to result in a lot of revenue from this one game alone. As mentioned by fellow fool Matthew Argersinger, This is possibly the most anticipated video game of all time. So with this series, the Call of Duty franchise, Diablo 3, and the future revenues from world of warcraft plus expansions and sequels, with all sales potentially increasing with the development of Onlive, I rate ATVI as a great buy below 11 dollars per share.

Valve

Valve is not a publically traded company, they develop games that are partially produced through Electronic Arts, but distribute a lot of their games through their online distribution system Steam. Valve developed Steam as a method of delivering updates to their games as easily as possible, and in a sense brings the gaming experience into the cloud similarly to Onlive. The difference is that while your game is owned in the cloud, you download and install it on your computer. This system allows for lots of statistics tracking software, as well as easy content delivery. The valve development team has created the hit titles Half-life, Counter-Strike, and Team Fortress 2, arguably some of the finest first person shooters in the PC gaming industry. What makes valve unique is that they continue to update their games for years after their release, giving consumers free content as a means to continue selling their game. The last update for Counter-strike was released last year, a full ten years after the game was released in 1999. For team fortress 2, they have more than doubled the amount of content that originally came in the game, which is how the game is still played on the xbox 360 version. If valve were to become public ly traded in any way, I would be the first to rate them a buy.

The others

Electronic Arts, THQ, Take Two Interactive, and everyone else. Except for the Grand Theft Auto series, and the booming mobile app market, the rest of the gaming industry is pretty boring. The Grand Theft Auto series and the newly released Red Dead Redemption are Amazing games with a capital A. They should continue to make Take Two a great buyout opportunity for other companies, assuming it cant figure out how to make money itself. Electronic Arts has boring games. Thats all ive got to say. They are a boring gaming company, and unless they dominate the mobile gaming industry they will continue to be boring. Nuff said. THQ is also pretty boring. I have little to say about them. Everyone else can suck ma balls. 

So, there you have it Motley Fool, my first blog post. If this is all your reading, a brief summary:

Activision Blizzard (ATVI) - Buy $11.00 per share

Nintendo (NTDOY.PK) - Buy $32.00 per ADR share

Valve Software - Buy if they ever become public or acquired

Onlive - for those who are curious, major investors include Engineering software maker AutoDesk (ADSK) and motion picture producer Warner Brothers

Everyone else can Suck Ma Balls.

WalkingCaptain