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First published in MicroScope 1 December 2008
Speaking at an entertainment conference in New York last year, Mindy Mount, Microsoft's CFO of the entertainment and devices division, said she thought the games market would hold up a lot better than other industries in the face of the economic crisis.
After all, everyone wants to escape from the realities of life, more so when life is hard, and video games offer the opportunity to do exactly that. The games industry itself is not recession-proof, but it is well placed to weather the financial storm in hardware and software sales.
There has been some negative coverage of the Consumer Electronics Show shin-dig in the US this week, pointing out that recession is having an impact, but the glitz and glamour of the industry continues to overcome that.
It is all too easy to get stuck in the reseller rut of thinking that the game is everything and software sales provide the easiest route to profit. Certainly, software sales cannot be overlooked for a reseller with a good in-road to potential consumers already, but it is a difficult area to crack otherwise.
The market is saturated with well-known high street and internet brands and competition is intense when it comes to pricing. Competing on software price is not exactly a common sense strategy for the average reseller.
Hardware remains the most profitable, and easiest to enter gaming sector for most resellers.
One recent poll showed the average user spent only £180 per year on games software but £650 a year on games-related hardware. The industry is no longer dominated by teenagers. When Forrester looked at UK gaming market demographics it discovered that 48% were aged between 18 and 44 while a further 26% were older than 45. It also found 39% of games players were female.
While a slowdown might be expected in sales of next-generation consoles during the recession, the same cannot be said of peripherals, which extend the functionality of currently-owned consoles at a fraction of the cost of upgrading to a new machine.
There are approximately 135 million PC gamers worldwide, with the Nintendo Wii base expected to break 30 million this year. Just behind is the Microsoft Xbox 360 with 25 million users (following 25 million of the original Xbox consoles sold) and the Sony PlayStation 3 with around 20 million. The PlayStation 2, however, has sold an astonishing 140 million units globally and continues to sell well. Recent figures for the US market saw it selling 136,000 units in October 2008 while PlayStation 3 sold 190,000 units in the same period into the same market.
Logitech's regional director for the UK and Ireland, Yehia Oweiss, agrees. "There is margin to be had in peripherals, gaming peripherals included."
Logitech started out pretty much as a PC peripherals company but as it brought increasing innovation and specialist products to its various consumer communities, "It was a natural step for us to bring specific PC gaming peripherals," Oweiss says.
It was also a natural evolution for the business to support the various consoles.
"Historically we have always offered gaming peripherals which add value to the platform they support," Oweiss says. "For example, we were the first to bring cordlessness to the game controllers for PS2, Xbox and the PC."
Logitech continues to work closely with games developers. "When games launch, it is our products which offer the most realistic experience using technologies like Force Feedback - take the Driving Force GT wheel for GT Prologue for example."
Oweiss says that when it comes to advice for making the best margin, a mixed portfolio of products supporting a variety of platforms is the best option.
But, there is more to selling games peripherals than just joysticks, keyboards and steering wheels. Memory sales, for example, address the needs of the PC gamer playing the latest immersive 3D, multiplayer online role-playing games.
As Neil Castle, ValueRAM sales manager at Kingston Technology, explains: "The big hardware battle has always been between the console gaming vendors and the PC gaming vendors and, although the console market has a larger share, there are significant games, like World of Warcraft, that are successful because they work well on a PC platform. Therefore the PC gaming market is a lucrative one for both resellers and vendors. In fact, the PC Gaming Alliance estimates that the PC gaming market is worth $10.7bn worldwide.
"If we drill down into the hardware and accessories market for gaming, this too offers some impressive statistics. Recent research by GFK (released on 20 October 2008) stated that the first six months of 2008 witnessed strong sales for the accessory and input device sector of the gaming market in the UK. Sales reached over 3.5 million units which was worth in excess of £85m."
Kingston Technology saw volume sales of RAM grow by some 34% in the first six months of 2008. "In fact," continues Castle, "we have experienced 130% volume growth in sales of our HyperX gaming memory modules year-on-year which highlights the popularity of this sector."
With the new World of Warcraft game, Wrath of the Lich King, set to break sales records for a multiplayer online role-playing game, there is an obvious opportunity for resellers.
Castle insists: "Gamers will need to upgrade their memory modules to play these content-rich and memory-hungry PC games." The recommended minimum capacity for gaming on PCs is 2GB but most of the graphics-rich games on the market need 4GB for the full gaming experience.
So far as the average system integrator is concerned, the gaming market could be a life-saver.
With netbooks soaking up the budget end of the notebook market and driving integrators and white box VARs out, and standard laptops doing the same thing for the traditional desktop, it is pretty much all that is left, apart from the more competitive SME server business.
Companies such as Zotac are hitting the market with high-end graphics cards and motherboards made for over clocking and gamers without breaking the bank.
Certainly there is no shortage of supply, with component vendors such as Cooler Master encouraging resellers to sign up and attack the hardcore gaming market.
When it comes to the bottom line, the overclocker online gaming community is where the big profits can be found.
These consumers want the best machine money can buy, that cannot be found off the shelf and they have the money to spend. Everything from the PC chassis to the cooling system and power supply can be tweaked to gaming perfection.
It is easy to see how the profits can start mounting up when an average high-end gamer is happy to invest over £100 just in a gaming keyboard and mouse combination.