Video Games: A Recession-proof Business?
By Peter Koeppel
Amid an avalanche of bad economic news, including the subprime mortgage meltdown, the loss of 80,000 jobs in March and record home foreclosure rates, I set out to find a business that is thriving despite the economic turmoil. I found one: video games. The major player in that still-burgeoning marketplace is GameStop.
GameStop's sales grew from $5.3 billion in 2006 to $7.1 billion in 2007 and its profit rose to $288 million from $158 million the prior year, according to an April 8 article in the Dallas Morning News. GameStop plans to open 600 stores in 2008 and the Morning News reports that sales are expected to increase at about 20 percent. That's a significant level of growth compared to many other stores that are issuing earnings warnings. And there are several big-name releases that are planned for 2008 that should continue to propel the growth of the industry.
NEW OPPORTUNITIES
During the last recession in 2001, overall video game sales went from $8 billion in 2000 to $10.3 billion in 2001 and to $11.7 billion in 2002. At $50 to $60 a game, it's a relatively cheap form of entertainment, since people play the average video game for 20 to 40 hours, according to the Morning News. And during difficult times, people tend to spend more time at home consuming media such as video and online games, TV and movies.
Like every business, GameStop will face some challenges in the coming year, since there are no major hardware launches planned and the popular Wii console will be more readily available at stores such as Target and Wal-Mart, which could cut into GameStop's sales. However, business among GameStop's core customers--the hard-core gamers--should remain strong even if soccer moms migrate to the big-box retailers for their game purchases, according to Michael Pachter of Wedbush Morgan Securities.
Both video and online gaming continue to grow among all age groups, even seniors. People are devoting more time to gaming. A new "Online Gaming 2008" report from the NPD Group finds that 72 percent of the U.S. plays video games, a dramatic increase from the 63 percent who said they played in the previous year, according to Ben Kuchera from ars technica. Most online games are played through a PC, followed by games played through a game console. Games played on a cell phone make up only a small share of the marketplace.
I find it interesting to analyze businesses that are thriving during difficult times, since understanding the dynamics of those businesses can often help spur ideas that might improve your business or lead to new product ideas that appeal to consumers in a depressed economic environment. Savvy direct marketers with the right products also have the potential to thrive in this environment, since consumers will be spending more time at home watching TV and online, and more DR inventory should become available as general advertisers cut back.
Peter Koeppel is president of Koeppel Direct Inc., a full-service media buying agency based in Dallas. He can be reached at (972) 732-6110, or via e-mail at pkoeppel@koeppelinc.com.
