Holiday Bonanza for Video Games

Despite concerns about a consumer spending slowdown, the video-game industry is poised for a blowout quarter, with plenty of big releases to reel in casual gamers and enthusiasts.

"Consumer spending might see a slowdown, but video games are generally insulated from that," says Dan Ahrens, portfolio manager for the Ladenburg Thalmann Gaming and Casino Fund. "Video games are designated consumer discretionary spending, but most people are pleasantly surprised to discover that the gamers are a loyal customer base."

Last month alone,

industry sales, including hardware, software and accessories, grew 73% to $1.1 billion, compared with $643.3 million a year earlier, according to data from NPD, a research firm. Since the beginning of the year, the video-game industry has raked in $10.5 billion compared with $7 billion in 2006.

Experts say music-based games and such popular titles as

Halo 3

and

Call of Duty 4

figure to be among the best-sellers during the holiday season, while sports games, some first-person shooter games and PC games such as

Crysis

might find it tough going among shoppers.

Among game publishers

Activision

(ATVI) - Get Report

,

Electronic Arts

(ERTS)

and possibly

Ubisoft

are likely to be frontrunners, thanks to their strong game lineup.

Meanwhile it could be blue Christmas for

THQ

(THQI)

,

Take-Two

(TTWO) - Get Report

and

Midway Games

(MWY)

.

"This is probably the best fourth quarter in history in terms of quality of games released," says Shane Satterfield, editor-in-chief of

GameTrailers.com

, a division of

Viacom's

(VIA) - Get Report

MTV Networks. "I have been buying games since the 1970s and have never seen a lineup as strong as what's coming up this season."

And despite investor worries over a soft fourth-quarter outlook, game retailer

GameStop

(GME) - Get Report

could see huge profits, say analysts.

In the highly competitive console market, there are some clear winners this season. Demand for

Nintendo's

(NTDOY)

Wii console and

Microsoft's

(MSFT) - Get Report

Xbox 360 will remain high.

Industry experts are also betting that the season's big winners could include games such as

Super Mario Galaxy

for the Wii from Nintendo, Activision's

Guitar Hero 3

and

Call of Duty 4

, EA's

Rock Band

, Ubisoft's

Assassin's Creed

and Microsoft's

Halo 3

.

Guitar Hero 3

and

Call of Duty 4

are shaping up to be a big success, and EA is putting out some exciting new games there, such as

Skate

and

Rock Band

, says Ahrens. "But I haven't gotten on board with Take-Two because there's too much turmoil there, and I am not invested in THQ because I don't like their slate," he adds.

Halo 3

has already enjoyed sales of more than 3.5 million copies of the game since its Sept. 25 release. And there is good reason to believe the trend will continue during the holiday shopping season. "Everyone who picks up an Xbox 360 this season is likely to buy a copy of

Halo 3

," says Jesse Divnich, an analyst for the online video-games fantasy stock prediction market, The simExchange.

Lost in the shuffle are likely to be THQ's

WWE SmackDown! vs. Raw 2008

, Midway's

BlackSite: Area 51

, Take-Two's

BioShock

which was released in August, EA's

The Simpsons

game and

Crysis

, a PC game, Activision's

Enemy Territory: Quake Wars

, which was released in early October, and the sports game,

Tony Hawk's Proving Ground

.

"Activision is likely to face cannibalization of its first-person shooter games, with both

Enemy Territory

and

Call of Duty 4

being released within weeks of each other," says Divnich.

And while

Rock Band

could be a sellout, investors need to temper their expectations for the game, says Satterfield.

"MTV Games and EA are going to have problems getting enough units out there," he says. "And it is also much more expensive than

Guitar Hero 3

."

Rock Band

, which includes a guitar controller, an electronic drum kit, drum sticks, a microphone and a software pack, is listed for $169.99. The

Guitar Hero 3

bundle, which includes the controller, retails for $99.99 for the Xbox 360 and Sony's PlayStation 3 console.

The large size of the

Rock Band

bundle could also make it difficult for retailers such as Best Buy to give up shelf space for the product, Satterfield says.

Another area of concern could be the genre of sports games. With casual, fun and innovative new games available this year, consumers could lose interest in many sports titles, which are mostly sequels and seen as bankable revenue-generators by publishers. The latest

Madden NFL

, for instance, is the 18th installment in the series, while Activision's current

Tony Hawk

release is the ninth in the series.

"A downside of having so many new titles in the market is that

Madden NFL

,

Need For Speed

and

Tony Hawk

could come in under expectations," says Divnich. "They are all excellent games, but gamers this year just seem to be not concerned about sports as much."

Consumer disinterest in the sports genre could also be bad news for Take-Two's new release, basketball game,

College Hoops 2K8

. Gamers may also be saving their dollars for the release of Take-Two's

Grand Theft Auto IV

, the latest in its blockbuster franchise, scheduled for early next year. In August, Take-Two said it will

push back the launch of the game from the fourth quarter to fiscal 2008.

A surprise loser could also be Microsoft's

Mass Effect

game, says Satterfield. The action role-playing game for the Xbox 360 was released Tuesday and has gathered tremendous buzz among gamers.

But it could find few takers during the holidays. "It's a very niche kind of product," says Satterfield, "very much for the core gamer."

"With the trend during the holidays towards games for a more general audience, it will be interesting to see if this title resonates with the average gamer."