Wedbush Morgan Securities analysts Michael Pachter and Edward Woo believe the gaming industry will endure steady growth in the coming years, according to GameSpot.com. This growth of 10 to 12 percent is said to come from current generation consoles, specifically the PlayStation 2 and Nintendo GameCube.
"Unlike most industry observers, we do not believe that the industry has reached the end of a 'console cycle' that is winding down with slow or even negative growth. Rather, we believe that the current consoles (at least the PS2 and the GameCube) will continue to be the systems of choice for several more years, and expect a transition to the next generation consoles to occur gradually. As a result, we expect sales of interactive entertainment software to continue to grow at approximately 10 percent per year through 2010."
The report predicts the next-generation of gaming consoles will get a slow start due to the increasing cost and difficulty in developing next-generation titles. Publishers will also want to play it safe and release games on a platform that has a guaranteed audience. The report said, "There is an installed base of over 84 million current generation consoles in the U.S. and Europe. To forsake the installed base and chase sales to an estimated installed base of 2.5 million Xbox 360s at year end would be insane."
When speaking about online gaming, the analysts said they believe it will remain a niche market until late 2008. The analysts said, "We believe that most people play video games for a form of mindless escape. The most popular video games are almost all single-player games, player vs. console, and allow the player to remove himself from a social environment. In these games, the player can act out fantasies of power (in shooter games), often playing the 'bad' guy and playing to win. MMORPGs are just the opposite, a highly social interactive experience. ... The level of social interaction involved in MMORPGs is inconsistent with the goal of mindless escape sought by most of the U.S. audience."
The report says that "edgy" games may prove to be the most popular over the next several years and that male teenagers will continue to drive the video game market. "Our bias is obvious: we expect today's late-teen boys (tomorrow's twenty-somethings) to drive interactive software sales growth for the next several years," the report reads. "As these boys grow into young men, they will become bored with kiddie and family-oriented content and will look for more edgy content."