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Personal Finance
Computer game cash cows
September 24, 1998: 5:38 p.m. ET

Entertainment software sales surge more than 30 percent in first half of 1998
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NEW YORK (CNNfn) - As the holiday shopping season approaches, video and computer gaming manufacturers are on track for record sales this year, according to a new report from an industry trade group.
     The Interactive Digital Software Association said Thursday that the industry grew more than 30 percent in the first half of 1998. Earlier this month, a separate report from NPD, which tracks software sales, said interactive entertainment software sales totaled more than $2 billion, a 33-percent gain compared with the same period in 1997.
     "Interactive entertainment is going through a dynamic period," said Douglas Lowenstein, president of the IDSA. "Video and PC games are becoming ubiquitous worldwide as the industry ... (creates) new technology and a range of content to keep up with growing demand from consumers."
     Console games, made for PlayStation or Nintendo, are the industry's fastest growers, as the number of households that own the machines has increased steadily. PC game sales are up just 9 percent, but executives at software-publishing companies expect that to grow as sub-$1,000 computers introduce a new generation of players.
     Those players, though, seem to be more cost conscious than the hard-core gamers the industry has come to depend on in previous years. This has been shown in the phenomenal success of the "Deer Hunter" game, whose sales have topped $14 million since its release, according to market research firm PC Data. A substantial part of the game's popularity has been attributed to its price, which is typically under $20.
     As a result, more companies are targeting consumers who want fun games at low prices.
     "The budget-priced category seems to be growing at a faster rate than the premium-priced category," said Lawrence Probst, CEO of Electronic Arts. "I don't thinks that's totally proven, but that's one conclusion you could draw."
     The IDSA report cites growing international demand, particularly in Europe, for entertainment software as a key reason for the growth. Retail sales of console software (such as Nintendo and PlayStation) soared 85 percent in London in 1997. French sales of all gaming software climbed more than 40 percent last year.
     The strong early numbers from the industry are encouraging, since sales typically increase dramatically toward the end of the year as new products hit store shelves. Electronic Arts (EA) estimates it will ship 20-23 new titles before the end of the year, including "SimCity 3000", "Madden NFL" and a new version of the company's "Ultima Online" game. Sierra (CD) will have 57 new offerings, including the anticipated "Half Life", "Grand Prix: Legends" and "You Don't Know Jack: Volume Four."
     While IDSA expects the 1998 numbers to exceed the 1997 figures, last year's results were pretty impressive on their own. Retail sales grew to $5.1 billion in 1997, a 38-percent increase from the 1996 totals.
     The IDSA report, though generally optimistic, does point to a few worrisome industry trends and obstacles. Chief among these is the escalating cost of developing titles.
     "I don't think you can do a good game any more for under $2 million," said Bernard Stolar, president of Sega of America.
     Adding to those costs is the increased need for marketing. The flood of titles makes it hard for a game to stand out on crowded retail shelves.
     "You've got to scream to be heard," says Brian Fargo, president of Interplay (IPLY). "People are killing themselves to buy market share on the theory that tomorrow is going to be great. But tomorrow never comes. Tomorrow is here. You need to make money today."
     Consolidation has hit the electronic entertainment industry hard in 1997 and 1998, and few expect that trend to slow down. Already this year, Electronic Arts has bought Westwood Studios, Hasbro (HAS) has acquired MicroProse, and The Learning Company has purchased Broderbund. Cendant, meanwhile, is mulling either the sale or public spin-off of its software division, which includes Sierra.
     1997 saw the fusion of Electronic Arts and Maxis, The Learning Co. and Mindscape, and Cendant and Berkeley Systems.
     The trend can't last forever, though. In the past year, no new major publishers have entered the entertainment software arena, according to the report. Back to top

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