Clicking on banner ads enables JWR to constantly improve
Jewish World Review August 8, 2001 / 19 Menachem-Av, 5761

James K. Glassman

Jim Glassman
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
MUGGER
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

Game makers poised to profit

http://www.jewishworldreview.com --
THE economic landscape may look pretty dreary with GDP growth churning below 1 percent. And in technology markets, it's hard to see the silver lining amid all the clouds, or as they call them in the securities business, "lack of earnings visibility." But there's at least one tech market where the sun is shining. Sales of video games are booming, and we're not even into the Christmas season yet, when Microsoft will release its heralded Xbox video game console and Nintendo will offer its latest, greatest device for misspending youth.

This is a wonderful time to be a game developer -- someone who writes game software -- because there's a rapidly expanding number of platforms on which to run this software. Microsoft is entering the fray, this time as a company offering hardware as well as software with their new game player, and the company is bringing along about $500 million to promote the Xbox. This of course will only encourage Sony, Nintendo, and Sega to step up and spend millions more to market their machines and defend their turf. The bottom line is that the box makers will be fighting like crazy to get more machines into the hands of youngsters. And each one of those youngsters is then a motivated customer for software -- games to run on their new machines.

This is not news to people who follow this industry, so many of the game software stocks are not exactly cheap. But they definitely seem poised to grow, even if the economy continues to muddle along. Entertainment companies tend to hold up pretty well in tough economic times. Furthermore, these are software companies, and software is a great business that only gets better as more and more customers download their purchases instead of buying packaged CDs or diskettes. In other words, the marginal cost of manufacturing and distribution in this business will approach zero. And that means an opportunity for very high profit margins, especially since this is an intellectual property business with unique franchises. A kid doesn't want just any football game - he wants John Madden's NFL 2001. Young gamers don't want just any adventure babe - they want Lara Croft.

Gaming also may be well suited to the subscription sales model that many software companies want to develop. With the possibility of ongoing competitions against players around the Internet, game makers might eventually be able to charge monthly fees the way cable TV operators do, creating ongoing revenue without additional marketing costs.

The giant of the industry, with most of the best-selling titles, is Electronic Arts (symbol: ERTS). As Dean Takahashi notes in the technology magazine Red Herring, "EA's gaming revenues of $1.3 billion are more than double its nearest competitor, and it has the development clout to make or break a console." That's why it was such a big win for Microsoft when Electronic Arts agreed to develop games for the Xbox. ERTS is the market leader and a great company for the long term, but you might also consider one of the smaller players. Number two in this game is Activision (ATVI), which specializes in games related to extreme sports. ATVI markets games based on skateboarding legend Tony Hawk, among others. THQ (THQI) makes games based on the World Wrestling Federation and Eidos (EIDSY) owns the Lara Croft Tomb Raider franchise.


JWR contributor James K. Glassman is the host of Tech Central Station. Comment by clicking here.

Up

07/19/01: Trade Promotion Authority: High-Techís Key Component for Competitiveness
07/12/01: Nothingís arbitrary about the contrarians
06/27/01: Look to Politics to Find Broadband's Market Cap Shortfall
06/22/01: Tech Commodity Buys Available for Mining
06/18/01: The Blackout Portfolio
06/14/01: The conservation myth stars as latest (sub)urban legend
06/07/01: Will America go high tech on the high seas?
06/05/01: 'Price gouging' doesn't cut it as reason for rising energy prices
06/01/01: Authentication tools opening up opportunities in online security
05/25/01: 'Price gouging' doesnít cut it as reason for rising energy prices
05/21/01: Banking on High-Tech Education
05/17/01: It's No Time to Go Wobbly on Kyoto
05/02/01: Diversify with techís leaders
04/26/01: To Revive The New Economy, Release A Chokehold   —   Break Up The Bells
04/24/01: Whoís To Blame For Broadband Crisis? Wired Article Points To Bells
04/19/01: The Bush Budget
04/12/01: To revive The New Economy, release a chokehold --- break up the Bells
04/04/01: Even as stocks have fallen, the Net keeps booming
03/28/01: Whereís The Profit In Biotech Future?
03/22/01: The Joy of Debt: The last thing we should want is a U.S. Treasury flush with cash
03/19/01: 'Defensive' Stocks in the NASDAQ
03/15/01: Bush administration must say no to Jane and Kyoto
03/08/01: Time to buy small caps? Consider these five great techs
03/01/01: Billís and Larryís continued political adventures
02/26/01: Chips on the Dips?
02/23/01: How Tauzin Can Keep His Word And Stop Telecom "Remonopolization"
02/13/01: Consumers, WAKE UP! Middlemen are ripping you off
02/02/01: Publicity-Seeking Politicians and Contingency-Fee Lawyers Corrupt the Law
01/26/01: DoubleClick, eBay And Their Promising Ilk
01/24/01: Will Cyberspace Look Like France or America?
12/27/00: Cut interest, taxes and regulation to save high-tech economy
12/20/00: Close, But No Big Czar
12/15/00: A Down Year? Maybe. But Letís Put It in Perspective
12/13/00: Clintonís sorry midnight race into history
12/07/00: Is Telecomís Future The Bells, The Bells, and Only The Bells?
12/01/00: Money talks and walks in election aftermath
11/29/00: Climate Treaty Deadlock Shows Lack of Consensus and Common Sense
11/23/00: Climate change participants donít listen to reasons for uncertainty
11/21/00: Will Regulators Create a Recession?
11/14/00: The Election and the Market
10/26/00: Hang on for the long term
10/25/00: On privacy, one size doesnít fit all
10/24/00: Perish the bearish thought
10/19/00: Beating hunger --- the biggest prize
10/13/00: Way to play biotech
10/12/00: Bush vs. Gore on Technology
10/11/00: Global Climate Scare: Fools Rush In
10/05/00: Avoid the Apple Trap
10/03/00: Goodbye, anti-Microsoft crusader --- and good riddance
09/29/00: Should You Invest in Tech IPOs?
09/27/00: Could technology end airline delays?
09/22/00: Donít Forget Small Caps
09/20/00: Is the New York Times Rooting for Disaster?
09/13/00: The Best Argument Against Net Regulation
08/30/00: Political Risk in Big Drug Stocks
07/27/00: Tech Dividends
07/25/00: Government Privacy Violators
07/20/00: If I Had to Pick One Tech Stock
07/18/00: Our Favorite Lawsuit
07/13/00: Silicon Valley East
07/11/00: Election 2000: Year of the Investor Class?
07/07/00: Adventures on the Amazon.com
07/06/00:The Difference Between Bill Gates and Larry Ellison
06/29/00: In the Chips
06/27/00: Free market wins in Federal Court!
06/22/00: Wireless Bargains?
06/20/00: Is Your SUV Warming the Planet?
06/15/00: Shopping for Government
06/13/00: Top 10 Tech Stocks
06/08/00: Riding the eBook Wave
06/06/00: "The Last Mile"
06/02/00: Keep Buying!
05/31/00: Who Asked the FTC to Regulate Online Privacy?
05/25/00: "When Itís Time to Sell"
05/23/00: End the "Telephone Tax"
05/16/00: Time Warner Gets a Bad Rap

© 2000, Tech Central Station