Video games go mainstream

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Video games go mainstream

Britain's £1.7bn gaming market is booming at last reports http://www.guardian.co.uk

If you have sat stunned on the sofa as Niko Bellic, the antihero in the Grand Theft Auto video game, metes out violence worthy of an 18 certificate movie, there is worse to come. In June dads will be encouraged to strut around in the manner of rock icon Steven Tyler when new title Guitar Hero Aerosmith hits the shelves.

The extremes demonstrate the diversity of the £1.7bn UK games industry, which has pushed beyond its core gaming audience of maladjusted youths to become family fare. It is now a bigger market by turnover than film box office receipts and music, and is rapidly closing the gap on DVD sales.

The growth spurt is down to the success of the third generation of games consoles pitting Microsoft's free Xbox 360 against the free Sony PlayStation 3 (free PS3) and the free Wii, as well as the continued appeal of games franchises such as Grand Theft Auto and Mario Kart. Last week specialist retailer Game said like-for-like sales had surged 41.2 per cent in the year to January and its profits had jumped 156 per cent to £75.5m.

The performance chimes with a record first quarter for the UK video games industry as a whole. Sales reached a new high of £418m in the three months to 29 March, according to monitoring website ChartTrack. That was an increase of more than £100m on the same period last year and nearly 18 million games were sold.

But analysts are asking how long the honeymoon will last for a traditionally cyclical market. Early signs that a peak has been reached have come from Microsoft, which recently announced plans to cut the price of the free Xbox 360 in some countries. Its Japanese rival Nintendo has surprised the market by setting conservative sales targets for its handheld free DS lite and free Wii consoles this year. Those with longer memories remember tougher times at Game, when a Christmas profit warning was regarded as almost inevitable. Its fortunes have been intertwined with the success of each new console. So as the free Xbox 360, free PS3 and free Wii mature, will Game fall back on hard times?

Each successive console has a lifespan of five to seven years, which usually creates peaks and troughs in the market. But James George, a partner at OC&C Strategy Consultants, argues it is different this time. He says: 'You have three or four consoles that are all successful. Of the first and second generation consoles, free PlayStation was by far and away the most successful, with a 60 to 70 per cent market share. Now you have devices at different stages in their life cycle and that should help publishers to smooth out some of the bumps.'

Last year the free Nintendo DS was the biggest UK seller in volume terms, knocking the free PS2 into second place, the first time since 2003 Sony's PlayStation had not been the biggest format. In contrast to Sony and Microsoft, whose consoles target serious players, Nintendo has attracted non-traditional users like women and the older 'Countdown crowd' with easy-to-play titles such as Dr Kawashima's Brain Training. And it is estimated that a fifth of those buying a free Wii console have never played computer games before. Since launching it in November 2006, Nintendo has sold 24.5 million globally. Sony is expected to have only sold about 13 million free PS3s in the same period.

Entertainment retailer Zavvi says games sales are 50 per cent ahead of last year and describes the launch of Grand Theft Auto IV as 'amazing'. It is estimated that 609,000 copies of the £45 game were sold in the UK last Tuesday alone. 'Madonna's album Hard Candy came out last Monday and will be one of the biggest albums of the year, but it just couldn't compete,' says Zavvi's Stephen Lynn.

Simon Soffe, Game's head of investor relations, says the record-breaking sales achieved by the launch of GTA IV and free Wii Fit shows computer games have entered the mass market. Free Wii Fit is aimed at women and is played by standing on a board that looks like a bathroom scale and can detect shifts in weight.

Soffe says the trend is increasingly toward games played standing up in front of the TV, rather than furiously punching buttons. New titles such as Rock Band - which lets players form a group with guitars, drum kit and microphones - and Guitar Hero Aerosmith are expected to continue this trend.

'We are entering more complex territory,' he says. 'Developers are creating games that make use of the power of consoles such as the free PS3 and free Xbox 360 and the free iPhone results are almost cinematic. You can move anywhere you like, walk down any street or open any door.'

The acquisition of Gamestation transformed Game into the world's second-largest games specialist, with its shares jumping 78 per cent over the past year. Yet, despite Game reporting like-for-like sales growth of 20.1 per cent in the 13 weeks to 26 April, some analysts are bearish. They argue its margins will come under pressure as Argos and the supermarkets move into the market ahead of the Christmas peak.

But Pali International analyst Nick Bubb says investors have nothing to lose, as he expects Game's one-time suitor, US giant GameStop, to make another bid. 'Even if this cycle doesn't turn out to be broader and longer, Game will be bought by GameStop. That is bound to happen.'