Game industry in flux, investors watch and wait

Fri Dec 3, 2010 11:34am EST
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By Gabriel Madway

SAN FRANCISCO (Reuters) - Video game publishers say they have positioned themselves to capitalize on the future of digital entertainment. Investors will need more convincing.

The heads of the major U.S. game makers, speaking this week at the Reuters Global Media Summit, explained why the battering from investors was unwarranted.

Some argued that investors are not grasping the opportunity at hand as the industry shifts toward digital, which boosts margins. New technologies such as gesture, or the ability to play games with a wave of the hand, and 3D could help broaden the traditional market of consumers.

Still, investors have remained skeptical so far over the industry's ability to profit from emerging gaming trends. Shares of U.S. video game publishers have vastly underperformed broader market indexes since the start of the financial crisis in September 2008.

The $60 billion global video game industry has historically been buffeted by volatile trading, driven by blockbuster franchises like Activision Blizzard's "Call of Duty" and Take-Two Interactive's "Grand Theft Auto." But new opportunities have helped publishers manage the unpredictable nature of the hits-driven business.

Activision CEO Bobby Kotick argued that investors don't quite understand the model that drives his company, with recurring revenue and the bulk of profits coming from online games rather than packaged titles.

"I think that will take a little bit of time before investors really appreciate the differences between a company like ours and some of the other companies that historically they have compared us with," Kotick said.

But he was cool to the young but fast-growing markets in mobile and social games, which are free to play.   Continued...