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Games on Fire: How Hot is the Gaming Industry?

hot gamesForget Web 2.0.  Think twice about Internet video? Is gaming the next big frontier for investors and entertainment media companies alike?  It’s sure starting to look that way; even for those late to the party.  From Venture Investors to Big Media, gaming seems hot all over.

The sector has been hot for a while but in the past few months the temperature continues to rise.  Retail sales of consoles and games are returning consistently impressive results well ahead of the holiday season.  More than 68m people played a console game in June worldwide.  According to a report released Tuesday from market research firm DFC Intelligence, the cumulative worldwide “interactive entertainment industry” is on track to grow about 9% per year to reach $47b by 2009 (from $33billion in 2006).  Other market data firms are similarly bullish: Gartner has predicted mobile gaming revenue will hit $9.6b by 2011.  IDC predicts Internet connected consoles will generate revenue upwards of $10b by 2011, up from $981 in 2007.

Big companies aren’t standing by to wait and see if these numbers pan out. Traditional participants like Electronic Arts and Take Two Interactive have both increased their focus on games with mass appeal (so called “Casual Games”).  They’ve also increased their spending, and experimentation, on future enhancements like in-game advertising and what I’ve previously called “dynamic gaming” – games that can change relative to real world events like the weather or the performance of a player in sports tournament (See here for more on dynamic gaming). At the console level too, manufacturers are increasing their focus on the future with alternative controls (Nintendo’s balance board etc) and other ways to attract broader audience interest. Nintendo is even experimenting with using the DS platform for interactive entertainment at live sports events.

In media, similar is happening. Large companies are looking at ways to be involved and opening their checkbooks as needed.   Fox has its eyes trained on the market through their IGN subsidiary.  Disney, no stranger to kids gaming, spent upwards of $350m to buy Club Penguin. Viacom’s MTV Networks is aggressively moving forward.  They’re spending at Nickelodeon and they own Harmonix. They also pledged in August to spend more than $500m on gaming related investments.  Their network president Mika Salmi said matter of factly: “games are critical.”  Warner Brothers too, sensing similar, has gaming planned as a significant part of their upcoming animation site T-Works.

Add to that mix now Barry Diller and his company Interactive Corp (which owns, Ticketmaster, Lending Tree etc).  Diller, who in a past life was also an entertainment exec at Fox and Paramount, admitted today he’d “been looking at the video game sector for years.”  And as part of a multi-faceted plan, he’s now made moves to get involved.  First, via IAC, he acquired Oregon-based Garage Games today.  Garage Games are the developers of  a multi platform game development engine that speeds up game creation and allows for networked action games via the PC (or Mac) without requiring a downloadable client.  Second, with Garage Games, IAC will launch a new site called InstantAction which will be an online gaming network accessible through web browsers.  For the third act, Diller is also opening the purse strings to form some form of fund to fuel other gaming companies and initiatives.

Even hardware companies are getting into the mix.  In other gaming related news Intel has agreed to buy Irish game software development company Havok Inc. for about $110m.  Havok will continue to operate independently but will become a wholly owned subsidiary.  Their technology has been used to develop a number of well known game franchises since its inception in 1998. Among the titles associated are Harry Potter and the Order of the Phoenix, the Halo series and Take Two’s hot new hit, Bioshock.

Is gaming the new new thing? Maybe, maybe not. It’s not really accurate to call it new but eyes are sure starting to open.  There’s been plenty of venture deal flow and a lot of big corporate spending.  Seems the market sizing numbers are just too big to overlook. And there’s no sign of a slowdown in sight.

(more gaming industry related statistics from Metue can be found here)

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