Market Spotlight: Video games withstand slowdown

Economic woes aside, Americans spent nearly $18 billion on video games last year _ a record high _ and if this year so far is any indication, they will shell out even more.

Even with the prices of milk, bread and gas soaring, more people are spending on games, from violent blockbusters like "Grand Theft Auto IV" to retro remakes like Nintedo's "Mario Kart Wii."

In March (the latest data available) U.S. retail sales of game consoles, software and accessories grew 57 percent to $1.1 billion, according to the NPD Group. The market researcher's video game analyst, Anita Frazier said of the figures "You'd never know the U.S. economy was under distress" by looking at the industry's sales numbers.

Demand is so high for Nintendo's Wii console a year and a half after its launch that stores still regularly sell out. Microsoft Corp.'s Xbox 360, launched in 2005, was in short supply following the 2007 holiday season.

Shoppers are also lining up for games. The latest installment of "Grand Theft Auto" from Take-Two Interactive Software Inc. raked in $500 million in its first week on sale, with more than 6 million copies sold worldwide.

A few days after its April 29 launch, "GTA IV" was difficult to find at retailers like Best Buy and GameStop in New York City. Amazon.com, meanwhile, has sold out of pre-orders of Nintendo's upcoming "Wii Fit," an exercise game aimed at women, the elderly and other groups not traditionally associated with video games.

Without question, the industry is doing well. But why?

For one, people may be spending more on home entertainment because they can't afford to travel with high gas prices, said Billy Pidgeon, an analyst with IDC. He also notes that game prices have been "relatively the same and not really adjusted for inflation for 20 years."

In 1993, Nintendo charged $60 for a game cartridge for its Super Nintendo Entertainment System, after raising its prices from $50 to reflect the rise of the Japanese yen against the dollar. Today, most games for the Wii cost $50. Compare that with the price of milk, which has surged from $2.40 in 1993 to about $4 a gallon today.

The video game industry also operates outside economic cycles, performing well even when broader consumer sentiment turns sour. With new gaming consoles launched every few years, gamers _ until recently mostly teenage and 20-something men _ predictably bought the hardware and, over time, the software.

"The video game business is recession resistant," said John Taylor, video game industry analyst at Arcadia Investment Corp. But, he added, the fact that sales are up so time this year is "more a function of where we are in the platform cycle than any macro reason."

But the single most important driver over the last year or so, Taylor said, has been the popularity of the Wii and the handheld DS. With the Wii, Nintendo has expanded the gaming audience to attract people that have never been gamers in their lives. The console's motion-sensitive controller is more intuitive than traditional systems, making it easier for new players.

By targeting moms with "Wii Fit," Nintendo seeks to change the perception that these heads of households have against games.

In March, the Wii sold 721,000 units, more than Sony's PlayStation 3 and the Xbox 360 combined. Taylor said the industry is in for a "great year" in what's otherwise a bad time for the consumer sector.

This is not to say that an economic downturn could never hurt video game sales.

"If we were in year five or six of the cycle, and most higher-earning households have already bought (a console), this would be a bigger concern," he said. "But it is not right now."